If you are a freelance worker, it is highly likely that you have heard of the advantages that an LLC can give you over other business structures: protection of your personal assets, credibility, tax advantages, internationalization, etc...
If you are curious about the benefits that establishing an LLC for your freelance business can give you, how to open it and what other alternatives exist, keep reading!
What is an LLC?
A limited liability company or LLC is a formal business structure registered at the state level in which the company is legally distinct from the owner or owners.
LLCs can have a single owner (Unipersonal LLC), which is convenient for freelancers, as it can also have multiple members.
An LLC is easy to open for both American residents and foreigners, it is cheap, the process is quick, it is easy to maintain compliance, and in addition to protecting the liability of members, it offers several tax advantages for those who sell their services remotely.
The advantages of opening an LLC for freelancers
If LLCs in the United States are growing enormously in popularity among freelance workers around the world, it is because of the great advantages that LLCs provide.
Limited Liability
Thanks to the limited liability offered by LLCs, your personal assets are separated from those of the business through a corporate veil.
If you encountered legal or financial problems due to your freelance work, your personal liability would not be exposed, thus protecting your personal assets, such as your money in your personal bank accounts, your car, your house...
Access to a bank account in the United States
With an LLC, you can open a business account in dollars at any bank in the United States. This will allow you to collect, send or save dollars without any problem.
Easy to establish and maintain
Opening an LLC in the United States is easy to do. It can be done 100% online or hire services that are responsible for managing everything for you.
In addition, LLCs are very easy to maintain. Bureaucratic processes and annual obligations are few and far between. Keeping your LLC compliant should take you no more than a few hours per year, allowing you to focus on your freelance work without problems. The obligations will vary depending on the state you choose to register your LLC.
High tax advantages
US LLCs are pass-through entities, meaning the company does not pay income taxes. This responsibility passes to the personal tax return of each owner of the LLC.
If your LLC is considered Foreign Owned (there is no American member that composes it), and is not considered ETBUS, it is highly likely that you will pay 0% taxes on the sale of your remote freelance services or digital products.
Anonymity
There are some states in the USA where LLCs are anonymous. This means that the names of the members are not shared publicly, which allows their privacy to be protected.
Credibility
Opening an LLC in the USA as a Freelance will give credibility and confidence to your business. Having an LLC to bill your clients conveys a professional image of you, makes it easy for them to hire and pay you, and gives you an international presence.
How to open an LLC as a Freelance?
- Choosing the State in which to register your LLC: There are 50 states in which you can register an LLC, and each has advantages and disadvantages. Here we help you choose it.
- Choosing your LLC name: The name of your LLC for your freelance work must follow certain requirements.
- Hire a Registered Agent: The registered agent will be responsible for providing members with official documentation. A registered agent is required. Numerous companies offer the services of a registered agent, and they cost between $100 to $300.
- File the Articles of Organization:The «Articles of Organization» are the document that constitutes your LLC with the secretary of the chosen state. It can be done online, and has a filing fee that varies by state. Next we will talk about the costs of opening an LLC.
- Create the LLC operating agreement, which describes how the entity will be managed. It is not mandatory in single-member LLCs.
- Request an EIN: The EIN will be necessary to open a corporate bank account, thus separating personal assets from those of the company.
- Comply with annual obligations: There are a few annual obligations to comply with that will depend on the chosen state (annual reports, taxes, statements to the IRS). Failure to comply with responsibilities may result in fines or closure of the LLC.
How much does it cost to open an LLC for Freelance?
The costs to open an LLC will vary depending on the state you choose to register it. The costs are usually the following:
- A registration fee that varies between $40 and $800 usd, with an average of $123.
- An annual report, which varies between $0 and $800, with an average of $89.
Then, there is a cost to renew a registered agent, which usually varies between $100 and $300 if you choose to contract a service.
In what state should I open an LLC as a Freelance?
It is possible to open an LLC in any of the 50 states of the USA, and each state has its advantages and disadvantages.
- If you are an American resident, or if your business will have a physical presence in the United States (although this should not be the case for most freelancers), it is advisable to register the LLC in the state in question.
- If you are not a foreign resident, these are the most popular options for opening an LLC for your freelance work (with New Mexico being the most popular among freelancers due to its low opening costs, anonymity and does not have an annual report):
| Florida | Delaware | Texas | New Mexico | Wyoming | |
|---|---|---|---|---|---|
| Opening cost | $125 | $90 | $300 | $50 | $100 |
| Annual report cost | $138.75 | $300 | 0 | 0 | $60 |
| Delay | 5 business days | 9 to 12 weeks | 7 business days | 3 business days | On the day |
| Anonymity | No | Yes | No | Yes | Yes |
Sole Proprietorship: The alternative to an LLC being Freelance
Many Freelancers, both in the USA and abroad, usually opt for a legal structure called "Sole Proprietorship". The great advantage of this legal structure is that its opening and maintenance is much simpler and less expensive than that of an LLC. However, sole proprietorships do not offer limited liability, so you do not benefit from the protection of personal assets as with an LLC.
| Sole proprietorship | Unipersonal LLC | |
|---|---|---|
| Formalities | You need a minimum of initial paperwork. | The formalities are a little more important. |
| Cost | There are no opening or maintenance costs. | The cost varies by state. There are usually annual obligations and costs. |
| Limited liability | There is no limited liability. You are personally responsible for all debts and obligations of the company. | Business and personal assets are separate. There is limited liability |
| Number of partners | They cannot add members in the future. | LLCs can add members in the future. |
| Taxes | Pass-through entity. All sole proprietors are self-employed. | You are taxed as Sole proprietorship by default, but you can also choose to be taxed as a C-Corp or S-Corp. |
Conclusion
LLCs in the United States are a great option for foreign Freelance workers. Personally, I have chosen to open my non-resident LLC in New Mexico for my freelancing income, since I only pay a $50 filing fee, there is no annual report, my only obligation is to file an annual return with the IRS and I pay 0% taxes as a business.
Although Sole Proprietorship is a simpler and cheaper option, the fact that it does not protect personal assets means that many freelancers prefer LLCs, since the costs are still perfectly acceptable.
Finally, if you have decided to open an LLC for your freelance work, I really recommend hiring one of these LLC formation services: they will be in charge of managing everything for you, notifying you about your annual obligations and answering any questions you may have.
Written by
Ignacio Navarro
Ignacio Navarro is a Certified Public Accountant, graduated in 2020 from the National University of Tucumán. Founder of Start Companies since 2023, he advises clients worldwide on forming LLCs in the United States and on proper tax filing. His expertise combines legal, tax, and practical knowledge, offering a comprehensive service that spans from company formation to bank account setup and sales platform integration.
