Should a Cleaning Business Be an LLC? Everything to Know
Should a cleaning business be an LLC? Registering a cleaning business as an LLC puts protection on your personal property. 3 min read
Updated July 10, 2020:
Should a Cleaning Business Be an LLC? Registering a cleaning business as an LLC, or Limited Liability Corporation, puts a layer of protection between anything that happens with your business and your personal property. When you form an LLC, your cleaning business becomes its own financial and tax entity. At this time, it also becomes regulated under the body of corporate law.
How You Are Required to Manage an LLC
There are certain things you have to do in specific ways when you run an LLC. Some things that are handled differently include:
- Tax treatment
- Legal regulations regarding how the business is managed
- Corporation registration requirements
An LLC is similar to a cross between a corporation and a traditional partnership. As a business structure, you gain the liability protections corporations enjoy and the simplified tax preparation that partnerships get use.
Business Formats with Less Protection
Different business types are treated differently under the law. The simplest types of business to set up and run are partnerships and sole proprietorships, but these also carry the most risk for owners. With these business formats, you are not required to register with the state, but you're also personally liable for any debts and problems related to your business. So, if anything goes wrong with your business, your personal assets can be seized to cover debts, including your home and any funds you've saved over the course of your life for retirement.
Why Details Need to Be Written
One key reason to put the terms of your business dealings in writing is that a well-written contract reduces the risk of a misunderstandings with clients and it outlines the procedure clients and employees can expect if anything goes wrong. You should ideally have written contracts with any entity you deal with, including suppliers, landlords, and customers. This reduces the risk of confusion over pricing or other terms of a transaction. Taking advantage of written contracts can simplify the process of running a business.
If You're Hiring Employees
Another way to protect your business is by planning ahead for hiring employees. Labor laws are complicated, and the penalties for making mistakes in regard to employee relations are steep. Preparing an employee handbook that shares how any disputes or issues that arise with workers will be handled can help reduce risks for your business.
Any risk you're able to reduce by putting details in written form increases your company's chance of achieving success. Some other things you need to do if you choose to hire employees are:
- Apply for a Federal tax ID number. This is also called an employer identification number or EIN.
- Withhold state tax
- Withhold Federal tax
- Verify each employee's ability to legally work in the U.S.
Whether you choose to run your business as an LLC, sole proprietorship, or partnership, you can never completely remove risks from your cleaning business. Things like accidents and simple mistakes can wreck your company's financial status. Insurance provides a way to protect your investment in your company. Small business insurance and bonding are useful to have in effect if anything goes wrong.
Business Registration Types
There are five types of business registration to consider, including:
- Sole proprietorship
- Limited liability company
A sole proprietorship is considered the easiest ownership structure for a business. It's also the business type that's used the most often. You're an unincorporated business owner as a sole proprietor, so you get all the profits, but you also take on all the debts, expenses, and any losses the business incurs. It's easy and inexpensive to start a sole proprietorship.
One or more members can be listed as LLC owners, though the allowed number varies by state. The LLC provides a measure of personal liability protection for business-related decisions members make. That doesn't mean they have total protection, though, which is why the name is limited liability corporation. If even one member makes the decision to leave the LLC, it may have to be terminated. Finally, as an LLC member, it's important to note that you have to pay self-employment taxes, including social security and Medicare.
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