Sole-Proprietorship, LLC, or S-Corp? What's the Best Legal Entity for Your Freelancer Business?

While there are many freelancers who have achieved running a bootstrapped company without thinking over how best to organize it legally, there are some significant benefits that freelancers could reap when they incorporate their business.

Tax and legal protection are the top two! However, there's not a "one-size-fits-all" way to work as a freelancer.

It is essential to be strategic, smart, and knowledgeable about how you set up your company from the ground, starting from scratch, especially when you go through the process of drafting articles of incorporation.

Below, we go over several of the aspects you should think about prior to settling on the topic you want to focus on that will hopefully shine a brighter illumination on the subject to make sure you feel confident about moving forward.

Like all things, getting advice from a stranger online is not going to be as good as meeting with an expert in legal matters who is skilled in helping freelancers integrate their businesses. Asking for their advice is always beneficial!

Legal Liability Protection is a Key Consideration

From the beginning, the legal liability insurance freelancers get when they choose to incorporate is a great match and is a major factor in the reason that so many freelancers opt to incorporate in the first place.

It's not a secret that we're in a very litigious business climate at the moment. Just one unhappy client to sabotage your business, burden you with massive legal liabilities, and fill you completely in legal issues which you might be unable to even be accountable for.

Limited Liability and S Corporations provide significantly more protection than sole proprietorships do. If you're seeking security from liability and protection, having an LLC as well as an S Corp may be the choice for you.

Proper Tax Planning Will Surely Point You in the Right Direction

Of course, having legal liability insurance is only one aspect when you're trying to ensure the security of your freelance firm (and the financial security of your business).

Another reason why you should make the choice for incorporation is that you can enhance your tax situation legally and ethically, safeguarding your income by establishing the correct legal entity structure. You need not to worry about the IRS.

The revenue you earn and the income you generate, as well as the place the business is incorporated, each has an impact on whether you should go with the LLC or the S Corporation route.

As a rule, the tax benefits of a well-designed S Corp are going to exceed those that an LLC offers (though it might not be as dramatic as you think).

LLCs Should Be An Entrepreneur's Jumping Off Point

The vast majority of freelance businesses contemplating incorporation would benefit by creating an LLC instead of proceeding by forming a sole-proprietorship or doing all the work time, energy, and effort (and money) into forming the foundation of an S Corporation.

Of course, LLCs aren't a "one-size-fits-all" type of strategy, and your particular situation may be more suitable for one of the two alternatives that we've highlighted in this guide. However, LLCs are relatively simple to establish and cost-effective to run and provide excellent tax and legal benefits in addition.

In addition, changing an LLC into a sole proprietorship or even an S Corp is relatively simple and easy to accomplish, and also, if you're looking to alter your corporate structure later on down the road.