Q. Hey there,
I saw on Instagram that you made Ramshackle Glam an LLC. Yay! My question: Why?
I ask because I run a site, and one of my concerns has been whether I should register it as an LLC. Maybe there are other women who run small sites and businesses who want to know more about the pros and cons of being an LLC versus just a gal with a website.
A. That’s an excellent question, and the honest answer is while I’m happy to tell you what I know, this isn’t a topic I’m extraordinarily well-versed in: I turned RG into an LLC strictly on the advice on my accountant (Lederer & Levine, if you’re looking for a financial advisor yourself). The process isn’t as intimidating as it sounds: you file documents (I used Legalzoom) and pay a fee. Once the Department of State accepts your filing, New York State laws dictate that you have a finite period of time during which you must publish several consecutive announcements in a local publication (this is a hotly contested requirement because the guidelines are so strict, the process can be expensive and a pain, and lots of people feel that it deters the formation of small businesses in New York State). I ended up hiring an outside firm called Blumberg Excelsior to handle the publishing part of the process for me so that I wouldn’t screw it up.
Now, my understanding is that what an LLC does is protect you against personal liability for debts and claims taken on by your business – should any issue arise (for example, an inability to pay a debt), the creditor can only come after the LLC’s assets…not, say, your home. Of course, this protection isn’t absolute: LLC owners can be held personally liable in various circumstances (if, for example, they directly injure someone or intentionally engage in illegal activities). Because courts will look closely at the business’s operations in the event of a claim, it’s vital to treat your business like a business – I maintain separate bank accounts for RG and for our family, pay quarterly estimated taxes out of a third dedicated account**, and keep detailed records on expenses and accounts payable.
Another major benefit for us: when we found out that Kendrick was going to school and that we’d have to find a new insurance plan if we didn’t want to drive to New Haven every time we had a runny nose (the insurance provided by the school requires you to use on-campus practitioners), we looked into private insurance…and even though I knew that it would be pricey, I was still stunned by just how expensive it was. As an LLC, though, I’m eligible for small business insurance that’s far more affordable.
The short answer: if your business is turning a decent profit, if you’re looking to protect yourself against liability, or if you’re interested in the medical benefits associated with small business ownership, I’d recommend at least looking into becoming an LLC. That said, each business’s reasons for becoming an LLC (or not) are so different that it’s really important to consult with a professional before moving forward.
And again, this is all just my (very limited) understanding of the whole deal, so if anyone has additional advice (or if I got anything wrong) please feel free to chime in.
**Speaking of taxes: if you’re self-employed, make sure that you’re paying estimated quarterly taxes so that you don’t end up surprised by an enormous bill come April. To make this easier on myself, I set up a bank account dedicated specifically to estimated taxes, transfer 1/3 of every payment I receive into that account immediately upon arrival, and then forget it exists until it’s time to make a payment.