As people seek work-life balance and pursue their passions, the number of independent contractors has skyrocketed (in the hospitality industry and everywhere else). While independent contractors aren’t required to form LLCs, there are many advantages to doing so. LLCs are easy and affordable and can save you money in the long run. Here’s what you need to know:
What is an LLC?
A limited liability company (LLC) is a type of business structure that essentially keeps your business separate from your personal life. As the name implies, it limits your liability by protecting you from personal responsibility when it comes to business debt and consequences.
LLCs aren’t quite corporations, partnerships, or sole proprietorships; rather, they’re a mix of all three.
How do you form an LLC?
To start an LLC, you need to first choose a name (which must include some version of the “LLC” term) and name a registered agent (your LLC’s point of contact). You must then register your LLC with the secretary of state and get an employee identification number (EIN), which is required to open a bank account, file taxes, and hire workers. You should file an operating agreement, as well, although this may or may not be required depending on where you live.
If you don’t want to form an LLC on your own, there are several online services that can do the work for you.
Reasons to form an LLC
As mentioned above, the biggest reason to form an LLC comes down to personal protection. If you run a sole proprietorship or are part of a partnership, you and your business are legally viewed as one and the same. In other words, your personal debts merge with your business debts. If you’re sued by a customer or employee, your personal assets will be at risk, as well.
An LLC takes care of this problem by separating you (and your personal assets and personal finances) from the company you run. With an LLC, your home or personal checking account can’t be used to collect debts or pay lawsuits.
Corporations offer this sort of protection, as well, but with more requirements. For example, they must follow rigid rules, pay annual fees, host shareholder meetings, file yearly reports, and abide by strict record-keeping requirements. The rules for LLCs tend to be much more lenient.
LLCs are also privy to several tax advantages, including “pass-through” taxation, which can lower a company’s tax burden and keep money in their pockets rather than Uncle Sam’s.
LLCs offer ownership flexibility, too, without restrictions on the number or types of owners allowed, and no formal structure dictating management. Furthermore, LLCs enjoy flexibility when it comes to profit distributions. For example, if three people have equal ownership in an LLC, the profits can be distributed in whichever way the owners agree.
Overall, there are numerous reasons to form an LLC as an independent contractor. At Hospitality Taskforce, we typically recommend that our independent consultants set up some sort of entity to better protect themselves. We advise you to consult with your CPA first, as we are not tax consultants or experts.
Hospitality Taskforce provides hotels and hotel management companies with a network of the highest quality, most experienced professionals in the areas of sales, catering, general and culinary management, and operations on a temporary basis. Contact us to learn how we can help your business grow.