How do you know if you need to form an LLC for your blog? What are the benefits of an LLC vs being a sole proprieter? These are both questions you should ask yourself when your blog starts bringing in money (more on this later).
Discovering if you need (or want) to form an LLC for your blog is the best way to know how you are covered legally in your blogging journey.
Recommendations From A Lawyer
I’m excited to have a licensed USA lawyer here to answer questions for all us bloggers. Amira Law of ASelfGuru.com.
What follows are questions I asked her and her recommendations for bloggers:
Legal Disclaimer: Although I am a lawyer by profession, I am not YOUR lawyer. This article is for informational and educational purposes only, does not constitute legal advice and does not establish an attorney-client relationship with me. I am not liable or responsible for any damages resulting from or related to your use of this information.
What is the difference between a sole proprietor and forming an LLC?
The main difference between a sole proprietor and forming an LLC has to do with limiting your personal legal liability.
As a sole proprietor, you are personally liable for everything you do in your business including the business debts, losses, and lawsuits.
For example, any time you sign a contract on behalf of your business or have contractors or employees working for you then you would be personally held liable for any legal issues that may arise, thus putting your personal assets like your car, home, or personal bank account at risk.
You are automatically a sole proprietor if you don’t form an LLC. You don’t have to do anything or file any paperwork. It’s the easiest way to operate a business and for tax purposes, you and your business are considered one and the same and you don’t file tax returns separately either.
However, as discussed, the biggest drawback of a sole proprietorship is that your personal assets are not separated from your business. That means you are personally legally liable for your business debts and if your business gets sued tomorrow, your personal assets like home or car are not protected.
On the other hand, if you form an LLC then you are not personally held liable for your business debts and lawsuits. In the eyes of the law, your LLC is treated like a separate person and your personal assets like car, house, and personal bank accounts are protected. That’s why they are such a popular legal entity choice for entrepreneurs.
How do I know if I need to establish an LLC for a blog?
If your blog is more than a hobby and you are serious about treating it as a business then you should form an LLC as soon as you start making consistent income every month (the amount doesn’t matter). But there’s no rule that you have to wait until then. You can form an LLC as soon as you start your blog if you like.
It’s a personal preference and how much business risk you are willing to take. If you are someone who wants to have peace of mind knowing your personal assets are safe and protected then forming an LLC would give you that. But if you don’t mind experimenting for a few months to see how your business progresses and whether you are actually making money from your blog then you may prefer to wait for a little longer.
For someone who is blogging for fun and as a hobby, it won’t make much sense to form an LLC.
But let’s say, you are selling your products and services then there’s always a chance that you could face legal disputes and someone could take legal action against you. You could also be sued for copyright infringement among other things. So for you, it would be a wise investment to form an LLC for your business, especially when it’s not very expensive to do that. It’s a small investment to limit your personal legal liability.
Also, forming an LLC has another advantage where it makes you look like a professional, legitimizes your business and your readers, clients, and customers are more likely to take your business seriously.
In the end, I’d recommend that you speak to a lawyer to find out what is the best legal entity for your specific business needs, goals, and financial situation.
Are there tax benefits to forming an LLC?
It depends. A single-member LLC offers no tax benefits over a sole proprietorship because the IRS treats them the same. But an LLC still offers more tax benefits than a C Corporation that’s subject to double taxation. With a C Corporation, the corporation pays taxes on the profits and then you also pay taxes on the distributions you take from the corporation.
Unlike C corporations, an LLC allows you to save more money because your LLC can exist as a separate, “pass-through” entity for tax purposes.
The “pass-through” tax treatment means your business profits and losses are reported on your personal tax return. So in many states, your LLC doesn’t pay taxes directly; instead, you are taxed as an individual on the business net income.
Also, if you have formed an LLC, the IRS allows you some flexibility where you can choose how your business will be taxed and you can select to be taxed as a sole proprietor or S Corporation for example.
With that said, keep in mind that I’m not an accountant and this is general information. Every business’s tax and financial situation will look different and you should discuss the specifics of your business taxes with an accountant.
Is it expensive to form an LLC?
In my opinion, a one-time fee of forming an LLC is a small investment for the legal protections and peace of mind it offers for your business. Depending on your state requirements, you can expect to pay anywhere from $50 to $500 for filing the LLC paperwork yourself and obviously, the price would be higher if you were to hire a lawyer to handle this for you.
Then after that, you will have to pay a fee every year to maintain the LLC. That annual fee would vary based on the state where you form your LLC. Typically, that’s in the state where you reside.
If I establish an LLC, do I also need a business license?
This would depend on your state/county requirements. The state where you form your LLC determines whether you need a business license or not. You don’t need a federal business license for your blog but some states require you to have a general business license.
Also, some states require you to have a sales tax license if you sell products or services through your blog. So you would have to check your specific state and local rules to find out your requirements.
Can I have a business license without forming an LLC?
Yes, you could but again, you would have to check and abide by your specific state and local rules because each state is different in terms of business license requirements. You could have a business license without forming an LLC but then you would be operating as a sole proprietor and subjected to the personal legal liability risks we discussed above.
A business license is different than forming an LLC. It gives you the approval to operate your specific business in the state where you get the license. But it makes sense to form your LLC first because when you apply for a business license, you will need to provide a name for your business, and if your LLC is already approved then you could put that name on the business license application instead of changing it later.
Also, if you are already going through the process of completing all your business license paperwork then you might as well take care of the LLC paperwork at the same time. One less thing to worry about later!
If I Need an LLC, how do I start the process?
To form an LLC, visit your Secretary of State’s website and fill up the paperwork. Most states allow you to register the LLC online. You must complete the required state forms and pay filing fees to register your LLC.
You would also need to select a registered agent for your LLC, someone who will receive legal service for your company in that state. You could act as the registered agent for your LLC.
As part of filing your LLC paperwork, you’d need to file the Articles of Organization and make sure to have an LLC Operating Agreement that governs how your LLC will be run and managed, even if you are a single-member LLC. This is a legal requirement you must fulfill.
Some states require you to file an LLC Operating Agreement with your LLC paperwork while others don’t. Even if your state doesn’t require you to officially file it, you still need to have this Operating Agreement to serve as evidence that your LLC is indeed separate from your personal assets.
Without this LLC Operating Agreement, if you get sued tomorrow, you cannot show that your business is separate from you, so you could be personally held liable for the business losses, debts, and lawsuits defeating the purpose of forming an LLC in the first place.
If you need an LLC Operating Agreement, then I’ve put together this 11-page super easy template for you! It includes everything you need and you just plug in your business information as instructed. Then you can begin using it instantly.
Get your lawyer approved LLC Operating Agreement here.
Lastly, you could always hire a lawyer to form an LLC for your business – it’s the easiest option because this way, you will make sure all your paperwork is filed correctly. If you are in Florida, feel free to reach out and see if I’m available to help you with this service.
Is there anything else I should know about LLCs or staying legal with my blog?
Sure, this blog post provides some more tips on LLCs and self-employment taxes in general, which would be helpful for anyone with a blog.
Now you know the advantages of forming an LLC and should you decide to form it, make sure to keep your business finances separate from your personal accounts at all times.
This also means you would need to have a separate business account for your LLC and start signing any contracts on behalf of your business in the name of the LLC rather than your personal name. You will sign all legal contracts as a representative of your LLC.
You should also apply for an Employer Identification Number (EIN) with the IRS for tax purposes. EIN acts like a social security number for your LLC. This is the number you’d use to fill your tax forms for affiliate marketing and other business transactions instead of your personal social security number.
Lastly, this goes without saying, your business is a product of thousands of hours you spend to create it! So make sure to protect it legally with the RIGHT legal pages and legal contracts you must have.
Here are 16 high demand legal templates bloggers need at various stages of their business and at the very least, make sure you have all 3 legal pages on your website to ensure your business is legally compliant and protected to avoid any legal issues.
Always protect yourself and your business legally, especially when it’s so easy to do that with these affordable legal templates written by a lawyer who is also a blogger like you!
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