If you feel like everyone you know has an online business, you might not be too far off. Because of how well the population now understands the internet, and how easy it’s become to build websites and apps, there are innumerable online businesses emerging on a continual basis. From personal blogs, to eCommerce sites, to various new media ventures, there is virtually no end to the possibilities.
Another interesting aspect of all of this though is that so many of these businesses are essentially unofficial companies and private ventures. In other words, someone might start a blog, call himself a business owner, and turn a decent profit, but never really be a business owner in anything but name.
In some cases there’s no problem with this, and the unofficial route can be both simple and effective. At the same time though, there are some benefits to the alternative approach of making a business official — say, by registering it as an LLC. It’s not a requirement, but there’s something to be said for considering what you might get out of it.
1. You’ll Hire More Easily
In an Inc. write-up on small business hiring challenges, the first issue mentioned was that it can be difficult to compete with bigger companies. Big-name brands, the piece argues, offer advantages that small businesses can simply have a hard time competing with. But we’d add that bigger, established brands also have an edge in appearance. To give a stark example, a full-fledged company with a formal name, a full staff, and a history will tend to look more secure to a potential hire than a new website.
You can’t bridge this gap entirely by making your business official. But even the symbolism of a legally registered company, such as an LLC, can go a long way toward convincing potential hires of your legitimacy. It’s a subtle difference, but a real one that will likely result in more applicants and better hires.
2. You’ll Attract More Customers
Attracting new customers was the first item mentioned in our ‘Ways to Grow an Online Business’, and with good reason. A new, small, or entirely online business needs an audience to survive, which means that there should always be an effort underway to attract more interest. And in this respect, the allure of an official business will work similarly to how we outlined it with regard to prospective hires. Potential customers who see your venture as just another website, or an unfinished project, may be less likely to offer serious consideration than if you have the look (and brand) of a legally registered business. As the latter, you’ll simply appear as a more legitimate brand to do business with.
3. Your Legal & Tax Status Will Be Sound
Maybe the most important reason to go ahead and register your business as an official, state-recognized entity is that it has bearing on your legal and tax status. The details to forming an LLC on ZenBusiness make clear that there’s not actually all that much to the process in the U.S. — but that most of what you’re doing is for legal and tax purposes.
You will have to choose a registered agent on behalf of your company for instance, which is simply someone designated to accept any legal documents if necessary. You will also register officially with your state through “Articles of Organization,” as well as apply for your official Employer ID for tax purposes. And in addition to these formal steps, setting up an LLC in the first place is essentially a means of separating yourself from your business for legal purposes. Your personal assets will not be liable in business-related issues once the company is formed.
4. You Won’t Face Self-Employment Tax
This is more of a personal perk, but as you likely know if you’ve ever tried to work regularly as a freelancer, it’s a big one. The Balance’s overview of self-employment tax explains the issue quite clearly: All U.S. workers pay into Social Security and Medicare, to the tune of 15.3% of total earned income. An employer will pay half of that amount for employees, taking it down to 7.65% owed. But a self-employed worker is liable for the whole 15.3% tax. This can be a difference of several thousand dollars, and it’s something you simply won’t be on the hook for if you’re running a formally established company, as opposed to freelancing with a personal project that you simply call a business.
This is ultimately still a personal decision, and as stated, there’s not necessarily a problem with running a more casual online business. But these benefits are worth considering if you’re on the fence about the matter.