Should I register my business? or freelance approach

[ilyapushkar]

Hi Everyone,

 

My name is Ilya and I am new to this forum. I ve been reading a lot of posts and I see you guys have formed a very friendly and supportive community! I would be very glad to be part of your community if you do not mind.

 

Here is my question: my friend and I used to work for a company but now we decided to create our own small company. According to New York state laws we have to register our company, and after consulting with the accountant we decided to form a corporation. We just wanted to hear some opinions on this idea because we have no experience working on our own. Have anyone registered their business as corporation or you guys mostly work as freelances? Aren't architectural companies more likely to work with registered businesses such as corporations? What is better approach in terms of getting credibility and finding new clients? Do clients care about registration of your business? Any feedback would be much appreciated

[Jason Matthews]

I will try to be short on this topic. You absolutely should register your company for many reasons. First, some larger companies require you to become an approved vendor. That means background checks, business registration, credit checks,...you name it. Second, if you do business as yourself and get sued then your personal assets are fair game. I am not saying that will happen, but in a litigious country like the US one can never be too careful. Fourth, As registered business means that you are there for the long haul, not just a fly by night company. This instills trust with potential clients.

 

The last few things I will say is this. There are tax benefits to having a company. Thing like business expenses are written off and if you have a bad year and you take a loss then your tax liability is greatly reduced. I am sure there are positives for doing things freelance, but for the most part it is better to go the route of a registered business, regardless if it is an LLC, DBA, incorporated, etc.

 

Just my 2 cents.

[ilyapushkar]

Thank you Jason for providing a very informative response! I will go ahead and register as corporation. I wonder if I can transfer ownership if in case I decide to pursue a different route.

[Scott Schroeder]

I would probably look into an LLC before going the full corporation route. I know corporations have much more operating requirements than an LLC. http://www.legalzoom.com/incorporation-guide/corporation-llc-comparison.html

 

But even before that, I would probably work as an independent contractor (aka freelancer) which I think is perfectly fine to do and not have to register anything since you don't really form any sort of company.

 

Where I currently work, we deal with freelancers from time to time and we really don't care if you are registered or not. We'll make you fill out the standard w2 and then 1099 you at the end of the tax year. What matters the most to us is the quality of you work and how you will be able to help us out. Tax ID's and all of that jazz, that's just extra icing but usually not overly important.

[ilyapushkar]

Thank you for your response, your advice is highly valued.

[Jonathan Fantucchio]

I'm a New Yorker. Why do you have to register your business? I'm pretty familiar and never heard of that. I just get sent invoices and and file my own taxes. I definitely think you should get a Tax ID#, and register with the city as a DBA, which is not much money if your in NYC. If your clients are mostly architects who tend to be very... let's just say frugal, then having a registered business may scare them and make them think your expensive. Just W2 to 1099 it until your in the majors.

[Ernest Burden III]

In New York City there is this thing called the Unincorporated Business Tax. It's fun. And you register businesses with the State of NY, not the city. Also, you are required to collect sales tax on some/most rendering sales. It's a lot easier to get that set up when you are a company, especially since the first line on the form asks "how long have you been in business?" and you want to be able to truthfully say "10 minutes". Otherwise, the state will wonder where their sales tax is on all the work you've done to date. You don't want that.

 

For all those reasons I work as a corporation, but it does not get in the way of clients just thinking of me by my name (vs. Acme Digital) so I get the best of both worlds. Now, in forming a company, if you split ownership it can be a pain in the butt to deal with your bank. It can also be difficult if you need a work divorce. Consider one person starting the business and the other working for it, or some form of stock ownership below 50% Maybe the new types of LLCs handle those things better than what used to be available. Hum, an LLP is a Limited Liability Partnership, so maybe that's a good thing to look into.

 

I think it's great that you are being proactive and thinking ahead regarding your plans to start a visualization practice. Good luck!

[ilyapushkar]

Thanks Ernest, very informative response!