With graduation quickly approaching, my peers and I have started the job search, and with that has come one of the greatest debates: to freelance or not to freelance. I blogged about the Pros and Cons of Freelancing earlier, but there are a few more components to consider. For example, how do I do it legally?
First things first, you will need a Business License. It should be noted that the type of licenses you will need depends on your location, as differences in states’ and cities’ laws mean certain places require certain licenses. For example, some places will require a Home Occupancy permit if you work out of your home. But, most places only require a general business license. Check out your state’s website to find more info on this.
Next, you will need to Register your Business. There are four different categories of business entities that you can register as. The first is Sole Proprietorship, which means you are running a business as an individual; you will usually register a “DBA” or “doing business as” name with this entity. Under a sole proprietorship, you are personally responsible for any business liability – meaning your house or your car is at risk, should you face any legal consequences. The second entity is a Partnership, which as the name suggests, means you are doing business with a partner. Under this category, you have a little more legal protection and a lot more requirements for tex reporting. The next entity is a Limited Liability Corporation, aka LLC. An LLC can be formed by a single person or multiple parties. At this level, the owner(s) will now have full legal protection of their personal property in the event of legal action. The final business entity is a Corporation, which requires extensive filing and taxation documentation, and is often doubly-taxed.
You should know that a corporation is the least often used by freelancers, sole proprietorships and LLCs are more commonly used. Most often, freelancers will be advised to register their business as an LLC because any personal liability is eliminated. With that being said, a Small Business Attorney is the best personal to advise you on the type of business entity you should register as.