If you are a regular Sarah Fit reader, then you already know that I recently made it official by forming Sarah Fit, LLC. While it’s perfectly fine to operate your business as a sole proprietor, I chose to make it official. This is an exciting time for me and I would not be here if it were not for all of you my readers. However as I sit here to write this post today, I’m wondering to myself, “Why exactly did I form a company?”
I’m sharing my story since I know many of you also have your own blogs and may have thought about forming a company, so I hope this post helps you decide what your next (if any) step should be.
I wanted to form a company because I thought it would help reduce the amount of taxes I was paying. I also thought it would help my business appear more official on paper. Most importantly, I knew that forming a company would provide myself protection. But later my CPA (tax adviser) asked, “What are you protecting?” I’ll talk about that shortly.
I decided to form my company through BizFilings.com. I was finally contacted by a personal incorporation specialist about 2 weeks after first reaching out given it was the end of summer, employees on vacation and a busy schedule on my end. When April, the specialist called, she first asked me first what type of company I wanted to form. To be honest, I thought we were going to talk about which ones were best. She directed me to BizFilings.com for more information on the difference between entities. My options were between Liability Company (LLC) or and Incorporation. I decided to call April back so that I could do some research on my own. If I were to have gone to a lawyer, they would have walked me through my options. It would have been more expensive but if you are DIY-type person, a lawyer may not be necessary. Next she asked what I wanted my name to be. I chose Sarah Fit, LLC.
I called April back and she asked me where I wanted to incorporate my company. Since I went to the University of Delaware, I’m aware many people incorporate there since it is inexpensive. I argued that since most of my business is operated throughout the US, I didn’t think it was mandatory I file in Massachusetts. April said that most people do file in their own state, because even if I incorporate in Delaware, I will still have to file taxes in MA and pay their $500 filing fee. Yes, Massachusetts has one of the highest fees! I immediately was overwhelmed, and again, had to call April back. If you live in Nevada or Delaware, you are lucky! You have small business friendly states.
This is when I wish I had actually spoken to a lawyer or CPA. April again, directed me back to the website of BizFilings.com for more details but didn’t offer much advice except for the fact that most people she had worked with usually filed in the state where they lived.
I called April back after researching online for a few days and chose to form my company in Massachusetts. The rest was pretty easy. April was quick to get back to me but I wish I had done more research before my talks with her began. Everything was done swiftly, took little time on my end, besides the research, and Sarah Fit, LLC was born!
About a week later, I met with a CPA to get my taxes organized as a freelancer. She told me that she has clients who make millions and never incorporate. She was surprised that I had done so. I told her that basically, I formed my own company to cover my butt and hope to increase revenue. People who form companies have protection over their personal assets, they are not personally liable. If you were to breach a contract, you could be sued for your assets. If you had a company, the company would be sued but your personal assets would go untouched. Since I am not a home owner nor do I own any expensive cars or large investments currently, I don’t really have any assets and therefore having protection over something I do have is not exactly necessary.
So I have a company. I have a government issued tax id to use as well, instead of just my social security number. I have not formally started my company yet but have the paperwork to prove it. In March, I’ll have to pay MA $500 to file my earnings report even though I will not have started it yet. That sucks to think about.
To conclude this post, as a blogger you can operate as a sole proprietor forever. Just get a good accountant to help with taxes.
Why incorporate? If you have a business partner, you want to hire employees, you own a home and other pricey assets, maybe you have kids to provide for… there are many good reasons! I enjoyed my experience with BizFilings.com and if you know what you want, they are a great company to use. If you are not sure what you want or need, you may want to seek the advice of a lawyer and accountant. I am giving professional advice but wanted to share my experience so you do not have to waste your money creating a company that you do not necessarily need to form.
Question For My Readers: Did you formally incorporate your business as a blogger? Are you happy you did and did you file in the state you live in?
Service provided by BizFilings.com were complimentary in return for an honest review, which I think I gave above.
I so appreciate you writing this. I like that you not only talk about food and working out but about BEING and LIVING as a blogger. Congrats on the LLC. Sorry that you have to pay $500 in April 🙁
awww thanks Cassey 🙂
Jen - Personal Trainer Miami Beach says
Thanks for sharing your experiences.
When I started my business about a year ago in Miami I thought about making it a LLC right from the beginning on (by that time I only did personal training, I just recently started blogging but want to expand that). After long sleepless nights I decided against it.
I feel at this point I don’t really need it. Like you said, I don’t own a house, don’t have children, I have a good liability insurance (at least I hope so. lol), so it should be fine. I had a business back in Germany for almost 5 years and never incorporated as well.
Yeah, I don’t think you need it unless you want to hire employees really! Thanks for sharing your experience Jen! Best of luck in Miami. Love that city 🙂
Joe Snuffy says
You may not be protected from personal liability because you are a member of an LLC. Other entities can “pierce the corporate veil” in cases of bad behavior on your part. If you do something you know is wrong, such as defaming someone in your blog, you can still be held personally liable. This might even be true if you didn’t realize you were doing was wrong but that you *should have* realized what you were doing was wrong. Furthermore, it might even be true if someone can make a reasonable argument that way, even if it turns out you were right and you are completely vindicated. If a company doesn’t like your review of a product, they might claim you acting improperly or negligently, for instance. Depending on your actual business activity, there might not be any way for you to avoid personal liability.
This is why, for instance, Wyoming has very strict privacy protections for some of its corporate structures so that no one can ever find out who you are. It’s their way to one-up Delaware and Nevada. However, some states still require you to register as a “foreign corporation” if you do business in that state, and those carry fees too. It’s how your actual state combats your trick to pay their state taxes.
If you wanted to save money, you’re likely to not want to form a company. I don’t know the rules in Massachusetts, but some states have minimum taxes along with various other fees. Not only that, but business bank accounts and other services tend to have higher participation requirements. If you don’t keep enough money in your bank accounts, you pay extra, as well as having per-transaction fees. And, as you have already found out, when you use attorneys and CPAs, two of the worst people to ask for advice (because they tend to not want to give real, actionable advice), you’re out even more money. Don’t forget that you’ll also need to buy basic business insurance in case, for instance, someone gets hurt and blames your business, or you have a car accident on the way to work and someone decides to sue your business (which might be a different situation that an incident between two people). Remember, the other side doesn’t have to be right to sue you, and even if you win, you’re still out a lot of money.
If you think you made a mistake, simply don’t use your company for any business next year.
But, also realize that everyone makes a lot of mistakes forming their first company, and you don’t start learning until you try. So, good luck 🙂
Thank Joe for leaving your comment. I found it very helpful and I’m sure my readers will too!! Thanks again. I’m not sure if I’m going to use the llc but I may hire an employee so it will worth it if I do. Your info was really helpful though, and wanted to say thank you!!
Nellie Akalp says
Just read your post.
By way of Intro, my name is nellie Akalp, CEO of CorpNet.com. I’ve formed over 100,000 corporations and LLCs across the U.S, building a strong passion to assist small business owners and entrepreneurs in starting and protecting their business the right way. You can visit my free resource center at http://bit.ly/pChZbV or follow me on Twitter @CorpNetNellie.
Here at CorpNet.com, I totoally agree with you that it can be hard for bloggers to know how to/whether to incorporate. That’s why we offer a Free Business Consultation to anyone who wants to talk, etc.
I wish you the best of luck with your venture and wanted to reach out to you and let you know that if you need any help, i would love to assit you!
Just read your post, I would agree with you that most bloggers may not benefit from Incorporating at first,but any Career Blogger that is in the Industry for the Long Term should definitely consider the Benefits of Incorporating.
My company http://www.legaltrex.com will provide any bloggers on your site with a free consultation they can reach me directly at firstname.lastname@example.org
A couple of questions:
1. What risk does your accountants or lawyer think you have as a blogger or having a website?
2. When you changed your entity to an LLC, what happen to your google adsense account? Do you use google adsense? I understands that one cannot switch google adsense account’s entity. One have to create a new account and just relink every google adsense links/ads on the website.
Thanks for sharing your experiences with busniess and mangement. Limited liability companies (LLC)) are different a little bit from one state to another and this post helps someone decide pn what the right descion is when chosing Incorporate or LLC.
Dana Lucas says
I am just now beginning to research the blogging industry as a way of helping me develop my business as a writer and life coach. I’ve been pondering the LLC/INC idea and googled this issue as it pertains to professional bloggers. I came upon this post of yours from 2011 and find myself wondering if you might be willing to update “us” about your decision to become an LLC. Have you experienced any downsides to having done it? How about upsides? Any other thoughts or feelings you might want to share since it has now been a few years?
Thanks So Much!
Thanks for sharing, this was an excellent post! I’ve been considering whether or not I wanted to pursue an LLC or operate as a sole proprietor — I own a lifestyle/beauty blog and would like to sell cosmetics under my blog’s brand. From your experience, do you think this is cause for an LLC, or would I be okay as a sole proprietor?
Great article -- thank you for sharing your experiences here as it has been extremely helpful in our incorporation process as well.
I made the mistake and not incorporating when I sold computer parts online and use my blog “department” for marketing and customer support. My company went insolvent and since it was a sole proprietorship, I was on the hook for all of the company’s debts. It took me a long, painful 15 years to pay it all off and I’d highly recommend forming an LLC and separate personal from business assets for this reason.
My new blog is 2 months old and I’m incorporating it today.