Nearly 1.5 million new business applications were processed from January through October 2023, compared to 1 million in the same timeframe in 2019. There are lots of reasons why this is the case, between industry-wide layoffs, needing more flexible schedules for domestic and childcare, and pros’ desire to design their own work-life balance. Many more women than before have entered self-employment in the last few years, citing these reasons in addition to inequitable pay and workplaces.
Though entrepreneurship can offer these flexibilities and lifestyle compatibilities, it can be hard to protect yourself legally, especially as a business of one.
It’s why many solo entrepreneurs create a limited liability company, commonly known as an LLC. An LLC business structure combines certain characteristics of a corporation and a sole proprietorship, and protects its owners from personal responsibility for debts or legal liabilities. Another option is an S corporation structure, aka S corp, which can pass its taxable income, losses, deductions and credits through to their “shareholders” or owners.
Pursuing the LLC
After a few contract jobs as an event planner and consultant in 2019, Catherine Sontag decided to pursue an LLC for her business in early 2020. The decision to move into self-employed life kind of “happened” to her, Sontag said: She was interviewing at other jobs after leaving her event director position at Technical.ly’s parent company in 2019, and was approached a few times to help other organizations execute an event.
Setting up her LLC a few months into freelance event management work relieved some operational stress. If you have only a handful of main clients you could be sending W-9 tax forms to, it may not be needed, she said. But she might be working with 10 to 20 clients a year, and she wanted to make sure her main asset — her home — was protected from any potential legal issues.
“I was kind of like, all right, we’ll try this for a year. We don’t have to say this is a commitment that you will do,” she said. “But financially I felt good that I could have that risk involved and give it a solid shot.”
Sontag has never faced a situation where she’d actively need that protection of her personal assets, but said she was glad nonetheless to have set up her LLC. She found the process easy enough, getting an employer identification number, or EIN, through her city’s local government and using its online forms for the whole process. (More on that below.)
Sontag learned about this process mostly through other self-employed people in her network, and said there was no real central resource to help guide her through it. Though she has her LLC, she ends up filing her taxes still as an individual, similarly to an independent contractor, because she has no employees.
S corps as alternatives to LLCs
Stephen Schenck, a tech writer who moved to Philadelphia a few years ago, now navigates his work primarily as an independent contractor after working traditional full-time jobs with benefits. Because he was used to employers handling the tax deductions, his first few years as a contractor were difficult to navigate, and he was hit with some penalties, he said. A colleague writing for the same website connected him with an accountant who taught him about sole proprietorship, or filing as an S corp.
“I had only heard about LLCs up to this point. I thought all people who self incorporated [used LLCs], and [the accountant] said yeah, that’s an option, but probably for my situation, because I’m just a sole proprietorship, an S corp would be more favorable from a tax position,” he said.
Like LLCs, S corps create separation and protection from an individual and their business, but S corps are a tax classification that protects small business owners’ from double taxation. With the help of his accountant, Schenck’s S Corp, which is named after a few characters in his favorite show “MacGyver,” runs payroll, files quarterly taxes, handles his insurance and runs yearly tax preparation. He pays his accountant a fee around $40 a month, and has saved a lot in taxes compared to what he was filing as a contractor.
To register, or not to register
Misha Cariola, an illustrator and graphic designer who goes by Blanco Rabbit, has officially just launched her business under her new LLC. When Technical.ly first spoke to Cariola this fall, she was considering the move, and had begun filling out her application to incorporate through IncFile.
In September, Cariola said she wasn’t sure it was the right move for her, or what she’d gain from the process. But she wasn’t looking forward to another year trying to work through her taxes as an individual — “it was just a nightmare to do everything for yourself,” she said. But she’s made more money in the last year than ever before, and the professional look to an LLC was appealing.
“Especially when you’re working with larger clients, a lot of them will take you more seriously if you have an LLC, Cariola said. “So I’m trying to kind of, you know, expand my business and go after bigger clients, bigger paychecks.”
But in December, Cariola said she’d finished the process, which cost her around $500. She officially launched her company, Blanco Designs, and said she — and clients — are taking her business “more seriously” since.
Resources for registering for a new business in Philadelphia
Once you decide to incorporate, how do you do it? If you’re in Philadelphia, by filling out a whole bunch of forms.
When asked by Technical.ly for these online resources, a spokesperson for the City of Philadelphia’s Department of Commerce pointed to Pennsylvania’s Bureau of Corporations and Charitable Organizations, and the IRS’ EIN application. They said Philadelphians can get a business income and receipt tax (BIRT) identification number or city tax account number, and learn more about business taxes through the Philadelphia Tax Center Guide and business taxes website. BIRT account number holders can then apply for their Commercial Activity License through eCLIPSE.
The spokesperson did not answer Technical.ly’s questions about whether the City’s portal allows single people to register as an LLC.
Beyond these resources, anyone seeking to establish their small business should consult with their accountant or a government-backed Small Business Development Center, such as the one based at Temple University.
The value of self-employment
Cariola said she often feels like self-employed people have a lot working against them to succeed, having to navigate complex systems to get healthcare or pay their taxes all while getting the courage to charge what they’re worth. The LLC and official launch of her company has made her feel more steadfast in her decision to not work for a corporation.
“It made me take myself more seriously and really put in the time to get my design business to the next level,” she said. “Because now I can treat myself like an employee and pay myself a salary. I think the LLC is holding me more accountable since it is now a legitimate business.”
Sontag feels similarly. Outside of navigating healthcare and taxes, self-employed life is serving her well: She gets to make her own schedule, pick her own clients, and set boundaries between herself and those clients’ company cultures.
“For now, for me, the pros still overweigh the cons,” Sontag said.
Before you go...
Please consider supporting Technical.ly to keep our independent journalism strong. Unlike most business-focused media outlets, we don’t have a paywall. Instead, we count on your personal and organizational support.
Join our growing Slack community
Join 5,000 tech professionals and entrepreneurs in our community Slack today!