LLC for Solopreneurs: Everything You Need To Know

LLC for Solopreneurs: Everything You Need To Know

Starting a business can be complicated, lengthy, and time-consuming. It can be difficult for startups to penetrate the market and gain profitable sales. 

In 2021, on average, 360 of 100,000 individuals started their businesses in the U.S. Many of these startup owners can be solopreneurs.

For solopreneurs, a Limited Liability Company (LLC) is also ideal. It’s not limited to large corporations only. If you’re a solopreneur and don’t have an LLC yet, read on. Learn what it is and how to form your own.

What Is a Solopreneur?

Solopreneur combines the words “solo” and “entrepreneur.” It refers to an individual that operates an enterprise on their own. If you run a business without employees or partners, you’re a solopreneur.

Solopreneurs often invest in niches that they’re skilled and passionate about because they work independently. These businesses can be service-based, such as consulting, freelancing, or web development.

As a solo entrepreneur, you’re the only one who manages your enterprise assets and finances. You can control your working hours and environment. However, running these on your own can be stressful and time-consuming. When faced with legal troubles, it can be daunting for your assets.

Characteristics of a Solopreneur

Some people may confuse solopreneurs with entrepreneurs. To help clear this out, here are the distinct characteristics of a solopreneur.

A founder and employee

By nature, solopreneurs are founders and employees of their businesses. They manage every aspect of their operations, unlike entrepreneurs. Entrepreneurs hire and manage a team to carry out their business functions.

As a solo employee, you’re the only one responsible for producing, marketing, and delivering your products and services. Sometimes, you can hire contractors or freelancers to help you with tasks. Nonetheless, this isn’t necessarily part of your daily solopreneur obligations.

Financial responsibilities also rely on your solo management. You can control your decisions on expenditures since you don’t manage a team.

Single business focus

Solopreneurs offer business based on their ability and expertise. They focus on their specific niches to build a loyal, profitable customer base. They don’t necessarily think of expanding their reach since they intend to continue doing them solo.

Minimal workplace needs

Solopreneurs tend to work remotely, which requires minimal workplace needs. They often only need a working personal computer and an internet connection to cover their operations. Some solopreneurs can even work from home.

What Is an LLC?

A Limited Liability Company (LLC) is a legal entity American solopreneurs can form to protect their assets from enterprise liabilities. These liabilities can include debts and bankruptcy.

In forming your LLC, you should check on your state’s requirements. They’re the ones who will give the necessary permits and registrations. Additionally, LLC regulations vary for each state. You should know and understand your state’s LLC statute policies.

Some states can allow everyone to create an LLC. However, enterprises like banks and insurance firms cannot establish one.

Different types of LLCs are available for businesses. The ideal one for solopreneurs is a single-member LLC (SMLLC). It’s an LLC for single business owners, meaning the state can allow asset safeguarding for solopreneurs. An SMLLC can enjoy the same benefits as LLCs for corporations.

Benefits of Single-Member LLC for Solopreneurs

As a solopreneur, SMLLC can provide many benefits to your business. Filing for it can also be quick and cost-efficient, making it ideal. Below are the other advantages of having an SMLLC.

Safeguards your assets

The primary purpose of an SMLLC is asset protection. If your business faces liabilities, your assets can be protected from debts, bankruptcy, and lawsuits.

Enables legal entity establishment

SMLLC enables you to separate your legal and business ownership entities. By forming an LLC, you can gain exclusive rights to your business name, meaning no one can use it. Including the LLC tag can also provide state credibility to your business.

Allows for pass-through taxation

As an SMLLC member, you can be taxed as a sole proprietorship. A sole proprietorship is a pass-through entity that can let you report your business income or losses on your income tax returns.

Forming Your SMLLC

Now that you’ve learned what a single-member LLC is, it’s time to set up your own. Here are the steps to take when forming your SMLLC.

1. Check the availability of your chosen name.
   Creating your business name also requires checking its availability in your state. Your state may not let you have a title owned by other businesses already. You may also be required to affix “LLC” at the end of the name.
2. Hire a registered agent. States require registered agents for your LLC. Hiring one for your business is essential for receiving and processing official and legal documents. You can be one or hire a registered agent service. Registered agents should be available within your state and during business hours.
3. Prepare and submit your articles or organization.
   Once you receive the filing documents from your registered agent, start preparing your articles of organization form. In some states, this is called a certificate of formation.

   This form contains your state’s LLC requirements, including business name, address, registered agent contact, and LLC duration. After double-checking, submit and pay the filing fee to your state. Once approved, the state issues a formal registration certificate.

4. Compose an operating agreement.
   The operating agreement is a separate LLC document. For your SMLLC, you should write here about how your LLC will operate, member acquisition, and procedures to follow when opening or closing. It isn’t filed with the state but is necessary for your business.
5. Get a federal tax ID number
   Although optional, you can get a federal tax ID number afterward. It’s done if you don’t want to use your social security number for business matters. Some banks or lenders may also require it for their transactions.

Become a Successful Solopreneur Through LLC

Solopreneurs like you have lots of things to manage for your business. From brainstorming to the launch of products or services, it’s your call. This process can get exhausting, especially when you encounter liabilities. Having a single-member LLC can ensure your assets and protect them from potential lawsuits.

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