Setting Up an LLC

This guide is for US-based developers only.

What is an LLC?

An LLC is a distinct entity, separate from you. At its essence, it’s a company. A company may be made up of people—shareholders, the president, employees—but it’s not an actual person. Even if you are the sole shareholder of the LLC, the LLC is an entity unto itself and the shares or ownership in that company may be transferred.

So, when you work for a client, the client hires and pays the LLC; and the LLC hires and pays you.

Setting up an LLC is a straightforward process recommended for 1099 workers. Here are some advantages to setting up an LLC:

• Personal assets are shielded from business liability.
• Separating business from personal bank accounts makes it easier to budget and can help you save for taxes.
• Depending on how you set yourself up and whether you can pay yourself a reasonable salary and still have leftover profits, you may see lower self-employment tax.

Sound daunting? Not to worry, we’re here to help. In this guide, you’ll find information on how to set up your company and what to expect during the process.

DIY or Get Help?

If you want to do it yourself, you will need to register your company with the state and get federal and state tax ID numbers. The average LLC fee is about $100/year, and in most states, you must file an annual report. An annual report likely includes things like the date of the annual meeting, names and addresses of owners/members, who acts as your registered agent, if there were any loans to/from the business, etc. There are LLC formation services that make the setup process simple, and most are registered agents that can help you with the necessary annual filings. You may want to consider how much your time is worth, as the cost of setting up and filing paperwork will most likely be lower than the cost of lost work hours. Remember that, when you are calculating your hourly rate, expenses like annual fees and a registered agent can be included and rolled into your pay, then deducted at tax time.

LLC Formation Services

There are several services you can find online that can assist in setting up your LLC. It can be difficult to know what to look for when shopping for a service, so here is a side-by-side comparison of features and costs for some of the top providers; and here are more detailed reviews of LLC Services (note that both these sites collect commission).

Here are three things to consider:

1. What is a Registered Agent? A Registered Agent handles all the paperwork for you and ensures you’re complying with your annual reporting requirements. Importantly, they serve as your agent in the event someone wants to serve your business legal papers.  Each year, before the deadline, they will contact you and have you fill out some forms so that they have what they need to file paperwork with the state. This service is extra but may be well worth the cost, especially when you consider how much each hour of your time is worth.

2. How much customer service do you need? If you know what state you’re filing in and have a name picked out, you may not need much assistance. If you want to talk with someone about your options, then look for support up-front. Beware: Some companies charge ongoing fees which you may not need once you’re set up, so paying for a one-time consultation is definitely a better option depending on your situation.

3. How quickly do you need the LLC to be created? We recommend starting the formation process well in advance of getting your first gig with Facet. That way, you won’t be crunched when filing paperwork. Each service is a little bit different, but oftentimes, if you use a service’s Registered Agent option, the turnaround time may be quicker.

The following steps outline the process for setting up an LLC. Note that if you are working with an LLC Formation Service, they will ask questions and then take that information and do the work for you.

Step 1: Choose a Name