Do I need an LLC or can I operate as a sole proprietor?
I am starting a job as an independent contractor with an company for online dental billing for dental offices. I will not be selling anything , I am also in the middle of a move to TN where they charge 300 a year for an LLC, but I am wondering if all I’m doing is providing my services for dental offices for their A/R do I need the liability coverage that an LLC provides or is it ok to operate as an sole proprietorship to save that extra 300 a year? Also if I do need to do the LLC I am moving there in four weeks can I create the LLC before I get there?
Are you investing in resources such as inventory, long term software contracts or other financial obligations? As an independent contractor or LLC, have an umbrella liability insurance policy with coverage of at least twice the value of personal or business assets: home, office space, personal investments, gross savings, etc. If you are truly a 1099-subcontractor, sole proprietorship may be fine. In all cases, unless you have an accounting degree, if you are doing any business transactions: quotes, sales, invoicing, payments to suppliers, business taxes, personal taxes, sales taxes to the state, hire a professional to keep the numbers clear.
Always choose LLC over Sole Proprietorship...
A sole proprietorship is the most common form of business type and the easiest to understand and set up. Nevertheless, the owner is personally responsible for all financial obligations of the business and may not be treated as a separate entity. There is no legal division between the owner and the business, and so, the sole proprietorship may dissolve upon the death of its owner, and substantial debts can be passed on to family members.
A limited liability company or LLC has the benefits of both the corporations and partnerships. The earnings and losses are passed through to individuals instead of the business itself, and at the same time, the owners are not personally liable for the obligations of the business. LLCs can also survive beyond the death of its owners by inserting a provision in your operating agreement that indicates transfer of ownership to a family member or another person (or organization).
The LLC liabilities apply usually when you are opening a partnership firm where all partners are liable for their own set of contributions to a company. This is a better way of setting up a partnership firm unlike the traditional partnership firms where in the case of a fraud by one of the partners, all the other honest partners of the firm were subject to legal action.
An LLC structure makes an individual partner accountable for his set of actions and responsibilities, giving every partner an equal opportunity to represent fairness in case of company frauds.
A sole proprietor however, is in context when you intend to be the only owner of a firm / company. In case you believe you have little to trust in people in a partnership based model, you should consider sole proprietorship firm. But in case you are bound to go in for a partnership firm only, based on the nature of the business complexity, you can adopt the LLC model.
The only thing in LLC is that there is a lot of paperwork obligation in LLC structure but it sure keeps you and the rest of the partners immune against each other's actions.