It’s Virtually Done (IVD) Blog

My company’s business structure was a sole proprietorship for nearly three years. Then I asked an attorney, who was doing a discussion on the legal forms of businesses, why would I form a Limited Liability Corporation? He replied, “Why would you not?” That put the wheels in motion, and my company is now a LLC.

I’m not an attorney, nor was the attorney who mentioned some things in passing acting as an attorney on my behalf, but I thought I would share what I learned. First, what are the benefits of a LLC to me?

1. Liability protection.
2. Taxes are filed the same as a sole proprietorship.

Since I had assets that I wanted to protect (our home), and there was just a little bit of paperwork, and a little bit of expense, I had to agree: why not!

First, let’s clear up a misunderstanding that I had, and I think many other people have too. A LLC is not a corporation, and although it is sometimes called a “limited liability corporation,” the “c” stands for company.

Second, if you are not going to have an attorney or CPA help you with this process, then read the law like I did. Call your state’s corporation business creation division for help with the paperwork. (I was converting from a sole proprietorship with an assumed business name to an LLC, complicating matters slightly.) I called them twice for advice.

What did I have to do to get the LLC?

1. Filed two forms with my state.
2. Paid a small fee.
3. Completed an operating agreement.

That was not too bad, but there was some trouble and expense AFTER getting the LLC. Here’s what I did:

1. I called the IRS and got a new EIN (employee identification number).
2. I opened a new business bank account and incurred the cost of new checks and an endorsement stamp.
3. I drafted a new contract, and asked my clients to sign it so that their relationship is with the LLC and not me.
4. I updated my logo, and as a consequence my website and stationery.
5. I ordered a new business credit card.

Now for a word of warning. I don’t think banks and credit card companies like distinguishing between LLCs and sole proprietorships. I was shocked that I had to give my social security number at the bank and at American Express even though I gave them my EIN. Furthermore, when I was given a multiple choice question about what form the business is, LLC was not one of the choices. I asked for a supervisor at that point. I suspect that the employee marked the box “sole proprietorship” without my knowledge.

Clearly, those entities want the ability to have recourse on the individual. This underscores my belief that keeping all funds and business transactions separate between the individual and the company is paramount. 

It is my belief that if I filed the paperwork with the State to become a LLC, but continued to act as a sole proprietorship (didn’t change by contracts with my clients, accepted checks made payable in my name, didn’t change my bank account, etc.), that I could still be held liable as an individual.

All this trouble may be moot if there is never a claim against me, which I fully expect will be the case. But if there ever is, the better job that I have done now to make it clear when my LLC was established, the better off that I will be. For me this means that all future business transactions are with the LLC and not me.