If I’m starting a small, home-based freelancing business where I will deal with copywriting and design for clients, what my best option – sole proprietorship or LLC?

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If I’m starting a small, home-based freelancing business where I will deal with copywriting and design for clients, what my best option – sole proprietorship or LLC?

For now it will be only me but long-term I would like to add more freelancers to the business.

Asked on February 5, 2013 under Business Law, Delaware

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

As a general rule, operating a business like you describe as an LLC or corporation (such as sub-chapter S corp.) is better than being a sole proprietorship:

1) First and foremost, an LLC or corporation will protect you from most business-related obligations or debts, such as if the business borrows money and doesn't repay it, violates a contract, infringes on copyright or trademark, discriminates in employment, or has an unhappy customer looking for a refund.

2) Second, an LLC and a sub-chapter S corp. are both "pass through entities" (or rather: the LLC can be set up as a pass through entity), so the tax liability is the same as if it were a sole proprietorship; but at the same time, by maintaining separate business accounts and/or credit cards, you will make it easier to document and deduct business expenses than if you co-mingle your money and the businesses.

Between an LLC and a sub-S corp., the LLC is generally better and more flexible for a small business like you describe. I have my own editorial  businesses as well as being a practice attorney, and my own editorial business is set up as an LLC.


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