Why I Decided Not to Form an LLC

(Last Updated On: March 6, 2017)

The original title for this post was “Why I Decided to Switch from Sole Proprietorship to an LLC.”

As you can see, I’ve changed my mind.

Before doing any research, I assumed I should switch from sole proprietorship to forming an LLC for my business. From the little I knew, the switch matched up with all my values. It would be a symbol of treating my business like a business. It would minimize risk, which is my style both personally and in business. And it could help me save money with taxes. Of course I wanted to save money!

Then I started researching. It turns out, a lot of my assumptions about LLCs were wrong. Here’s what I learned:

Taxes

I am the sole owner of my business, so I would be forming a single member LLC. Once I started investigating the supposed tax benefits of LLCs, I learned that in my case, my taxes would be filed in the exact same way as I currently file them as a sole proprietor. Unless I turned my LLC into a corporation, my single member LLC would be a pass-through entity. I would still pay my taxes through my personal return.

Bottom line: In my case, forming an LLC would not help me save money on my taxes.

Wondering if you should form an LLC for your business? Here's why I decided not to make the switch. Save this pin, read it later!

Liability Protection

I had always heard that forming an LLC would protect my personal assets in case anything went wrong with my business.

But I discovered that in my specific case, as a freelance writer, the liability protection of an LLC doesn’t cover most of my highest lawsuit risks. I think my two biggest risks as a writer are copyright infringement and libel. In both of those cases, the person who is responsible for the copyright infringement or libel can be sued. So, even if I had an LLC, I would likely be personally sued. In that case, my personal assets would not be protected, even if I had formed an LLC.

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Bottom Line: In my case, forming an LLC would not provide liability coverage for my biggest risk factors. Instead, I plan on researching personal umbrella insurance policies, which can offer more liability protection.

Legitimacy

It’s important to me to treat my business like a business. It is not a hobby, it’s my career. I send my daughter to daycare so I can work. I have a home office. I have a set working schedule. Because I take my business seriously, my family, friends and clients do too.

But I don’t need to form an LLC to feel official. For others, this may be great motivation. If so, awesome! Form your LLC! While researching I realized that I don’t need that official designation to feel like a legitimate business owner.

Bottom Line: Forming an LLC for my business does not make sense right now. If and when things change in my business, I will re-research and call my tax accountant and lawyer again to discuss. But for now, I’m staying a sole proprietor.

 

Have you formed an LLC? What factors helped you make the decision?

*Note: I am not a tax accountant or a lawyer. The best plan for my business is not necessarily the best plan for your business. My goal is to simply help you recognize that there is no single “one-size-fits-all” solution. Do your research and get advice from a tax preparer and a lawyer.

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  • Interesting article! This goes to show how LLCs are different for each individual business. My husband and I are partners in our company and we decided to become a Limited Liability Partnership because we couldn’t be sued for the majority of things that we’re at risk for 🙂 So that was definitely the biggest thing!

    We’re also buying into another company, so we decided to make that purchase as our business entity rather than our individual selves. So an LLC added an extra layer of protection there.

    Thanks for posting!

    • Yeah, I was really surprised to see that an LLC wouldn’t offer me much protection as a writer. Since I had heard such glowing things from other business owners, I just assumed it was right for everyone. Good for you to get both of your businesses set up with LLCs because it provides that extra protection for what you do. Especially with you and your husband both involved in the business it makes sense to protect your family.

  • I just had a copywriter ask me about becoming an LLC. I had no idea it didn’t cover libel and copyright infringement. I will be sure to direct her to this information. Thanks!

    • I was surprised too. I think it’s always smart to a) talk to a lawyer who specializes in copyright law or small-business incorporation and b) keep things classy.;-) In general, if you do good, honest work I’d like to think you won’t be sued. It’s obviously no guarantee, but it certainly helps!

  • Emily, this is so insightful!

    And I agree 100%.

    I chose to forego LLC and even S-corp filing because of these findings, too. Goes to show how much RESEARCH can really benefit you in the end.

    I’m so glad someone put this out there. Thanks, Emily.

    (Sharing!)

    • I’ve seen SO many posts about forming an LLC or S-Corp, and I totally bought in to the hype. Luckily I’m slightly addicted to research, so with a little digging I was able to find alternative views/options. Glad to hear I’m not alone in my sole proprietorship! 🙂