Should I create a business for the side work / consultancy work I am getting?

Question

I'm getting some rather serious consulting work on the side of my main job. Serious in that I'm filling out NDAs and service agreements for the small-ish company I'm being contracted by. The guy I'm getting the work from wanted to know if I had a business to associate the work/payments/contract with, and when I said no he somewhat recommended it - but with no real reason.

So, should I start a business for my consultancy work? What are the advantages/disadvantages of that? Corporation, LLC, what? How much paperwork, time, and money is it to start a business? (I'm in the USA)

Answer 1

It's not a bad idea. IANAL, but one thing to consider when you talk to one is the corporate veil that doing work as a company provides you. If you ever get into a legal dispute with a client, it protects you personally.

Answer 2

caveat: i am not a lawyer (nor would i want to be one)

the purpose of a corporation (including an LLC) is to limit your personal liability

LLCs and S-Corporations are good for solo operations, but check the laws of your state, as they vary; virginia and deleware and nevada are good states to incorporate in as an alternative

if you do incorporate, follow the procedures to the letter; this will protect you in case of trouble down the road

liabiliry and errors and omissions insurance is also advisable; join a consultants organization to get it at a discount

Answer 3

I would highly recommend it. All you need to do is browse to Corporate.com, they have a great FAQ and it's real easy to get your business started. If you go with the deluxe package they send you some great books on startups that cover basic accounting and other requirements that come from running a company.

I would also highly recommend getting an accountant to manage your books, or at least fill out any tax related documents and the like, you do NOT want to mess that up.

Setup a separate checking account in the company's name, and make sure all payments go there. If you mix your personal and business money too much, you'll hurt the protection you gain from having the company name.

I am not a legal advisor!

Answer 4

I would highly recommend it. Limiting your personal liability is key to being able to sleep at night. There are a bunch of companies on the interweb, e.g. corporate.com or legalzoom.com, that will file all the paperwork for you. It seems like a hassle until something goes wrong with a job, and eventually something will.

Just as important, make sure you get good contracts for the jobs you do that clearly indicate that the job is with your business. If there's ever a dispute, you don't want to be personally liable. The cost of having a lawyer draw up contracts for you is a lot less than having a lawyer negotiate a settlement for a contract dispute.

Errors and omissions insurance is also recommended.

Answer 5

I'll throw out there that I agree you should incorporate, but mostly for tax reasons. S-Corps have some tax advantages over LLCs that an accountant would be much better at explaining.

I'm no lawyer either, but the corporate veil provided by an LLC or S-Corp is easily peirced if you are a one man operation. Don't get carried away thinking the corporate veil protects you much at all... get the insurance, and have an attorney review any contract or NDA you sign so you fully understand what you are agreeing to.

Answer 6

I am with everyone here, the limitation of liability of an LLC or S-Corp is the best justification in the world. I personally started out as a LLC and had to move to an S-Corp for tax reasons to avoid loosing my shirt to uncle sam each year.

However, consult an accountant or a lawyer in your area to meet with them and discuss your expected revenues, business plan, services etc. They are going to be the kinds of people best equipped to give you the right answers. I can tell you that I regret not doing my business the right way the first time.

Also, once you do form the business, at MINIMUM get business liability insurance, especially if you are working on-site for someone. In addition depending on what you are doing errors and omissions is good to get as well.

The paperwork isn't that bad to get it started, and I spend about 1-3 hours each quarter preparing and filing all of my tax forms for the business, so not bad at all.