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I do not have employees, but I may hire independent contractors in the future. I am currently working as a freelancer. but I am contemplating becoming a sole proprietor. It's really cheap, so I figure why not? I want to get my business license one day, but financially, now is not the time.

From what I have researched, the biggest benefit to becoming a sole proprietor is legally doing work under a business name. I know that once you become a licensed business you also get some protection as far as personal property goes - if you're sued as a sole proprietor, individuals can come after your personal belongings, where as a business they can only come after the business' belongings.

I see the benefits of becoming a business, so I'm looking for legal differences between being freelance, a sole proprietor and even a business. I am currently located in Washington State, USA.

Canadian Luke
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Alicia Uhacz
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  • Well, where are you located? If in Canada or USA, include the province/state. What information are you looking for specifically? Currently this question looks as though it's asking for opinion, instead of solving a problem. Can you reword it? If you need, feel free to ask on [chat] or [meta] for more information. Thanks, and welcome to Freelancing.SE! – Canadian Luke Aug 18 '14 at 23:44
  • I guess I am looking for more of an opinion. But I am also concerned about the legalities of working as a freelancer vs. a sole proprietor. I am in Washington State, USA. I will move the opinion portion of my question to the freelancing chat or meta, but what about the legal-side of my question? Should that be elsewhere also? – Alicia Uhacz Aug 19 '14 at 14:10
  • Nope, you can leave the legal part here, but please edit the question to add in the extra info as well. Include anything you've researched yourself as well. That will help make it a great question. – Canadian Luke Aug 19 '14 at 14:37
  • Thanks, @CanadianLuke! I edited the question per your suggestions. – Alicia Uhacz Aug 19 '14 at 14:45

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First, let's clean up the language:

Every individual conducts BUSINESS. As with you. Whether you "own" a business or not, if you work for somebody else, you're in the BUSINESS of transacting between your employer and yourself, Alicia Uhacz (let's pretend that you're Alicia Uhacz, Inc -- it'd be the same!)

There are several business forms:

  • Sole proprietorship (every sole proprietorship is "freelance". It means the same thing.)
  • Partnership

  • Association

  • Corporation

  • LLC

  • Trust

  • There are others.

With the first three, liability is assigned to the business owner(s). With the last three, liability is shifted to a legal business entity (the corporation, LLC, or trust). Such a legal entity can buy and sell property, make contracts, etc. in its own name -- whereas this with the sole proprietorship, everything is done in your name. A corporation, trust, or LLC can outlive its creators. A partnership is dissolved when any of the partners die.

ALL of these require a whirlwind of paperwork to administer. The corporation allows for the most options and least liability, but it's more paperwork than all the others. The business forms that leave you most liable also require the least amount of paperwork.

For ME, an LLC is a happy medium. I want to limit liability but as a small (for now) business I don't want to drown myself in paperwork to maintain it. You may feel different -- but do your homework!!!!

Xavier J
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  • Thanks for all that clarification, @codenoire! I know about the liability differences and agree that an LLC is probably the best way to go. However, I can't financially do that right now. Hence why I think I'll go with an SP. Are there any other reasons I shouldn't do any paperwork? If freelance is interchangeable with "Sole Proprietor" why should I go through the process? Can I DBA Anchors Away Designs that way? – Alicia Uhacz Aug 20 '14 at 17:45
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    You can go down to the county clerk's office where you live and register a DBA, so it'd be Alicia Uhacz d/b/a Anchors Away Designs. As for your LLC, the cost to set it up is not actually much more than what you'll spend on doing the d/b/a and then having the DBA published, which you HAVE to do. You can register an LLC in Wyoming for $50!!! Again, do your homework to see if this is right for you. – Xavier J Aug 20 '14 at 20:53
  • Ha. Wish I was in Wyoming then! It was about $400 for an LLC here! – Alicia Uhacz Aug 20 '14 at 23:00
  • You don't have to live in Wyoming :) – Xavier J Aug 21 '14 at 03:47
  • Hmm good to know! Haha. Thanks for all the info, codenoire! – Alicia Uhacz Aug 22 '14 at 15:06