Introduction
One of the most important decisions that entrepreneurs have to make when starting or expanding a business is to choose the right business structure. You can select the most popular option for a cleaning business:
- Sole proprietorships;
- General partnerships;
- An LLC.
If you prefer one of these forms, you will get a unique set of advantages and disadvantages, which will determine the development of your business.
Nowadays many entrepreneurs prefer forming a limited liability company to all other alternatives. The main argument for this, as a rule, is the opportunity to obtain asset protection and freedom to choose a tax treatment. But forming an LLC also has other significant advantages.
Of course, an LLC is not for everyone. When forming a business entity, there are a number of factors and peculiarities that you should consider. Therefore, in this article we will take a look at the circumstances under which choosing an LLC structure will be really beneficial, and discuss the process of opening an LLC.
If you need help with registering an LLC, here are some companies that provide business formation service. Using online business formation will not only save your time and effort, but it will also save your money. It really is a good option for those who want to minimize paperwork and focus on business development.
What Is an LLC?
An LLC is a formal legal entity formed by one or more participants to conduct business activities. As a hybrid business structure, it combines the best features of corporations, sole proprietorships and general partnerships.
When it comes to liability, there are LLC similarities to corporations, because the owners are not personally accountable for its responsibilities. In the event of debt or a lawsuit, the financial status of the business will not affect the owners’ personal assets. Even if the company’s finances are not enough to satisfy all creditors’ claims, your real estate, money and other assets will be protected.
The tax treatment of an LLC is the same as for sole proprietorships and general partnerships, i.e., all profits or losses of the company are reflected in the individual tax returns of its members. It is not necessary to file your own tax return and pay income taxes LLC.
The owners may choose to be taxed like a corporation, but this option is mainly used by large companies, which can benefit from it.
Why Starting an LLC for a Cleaning Business Is Important
Despite the variety of business structure, most entrepreneurs prefer to form an LLC for a cleaning business, and this is quite understandable. The unique combination of low requirements, limited liability protections and stability makes an LLC one of the most attractive options.
Of course, you may want to run a cleaning business as a sole proprietorship or general partnership, because these forms also have certain advantages. First of all, they are easy and affordable. There is no formal registration process for operating a sole proprietorship or general partnership cleaning business. In fact, the only thing you need to do when choosing any of these options is just start working.
However, there is a downside – the risks.
For example, if the business is sued, in addition to the company’s assets, creditors can claim your personal assets. They can claim your home, money, car, and other property.
Fortunately, if you form an LLC for your cleaning company, you can avoid this. With personal asset protection, the assets of the owners will be protected regardless of the financial situation of the company and the amount of the claims. However, you must maintain your LLC in a compliant fashion, ensuring the division of business assets from personal assets. “Corporate veil” is a fundamental principle of an LLC, the violation of which often leads to the loss of the very meaning of its formation.
Fortunately, if you form an LLC for your cleaning company, you can avoid this. With personal asset protection, the assets of the owners will be protected regardless of the financial situation of the company and the amount of the claims. However, you must maintain your LLC in a compliant fashion, ensuring the separation of business assets from personal assets. “Corporate veil” is a fundamental principle of an LLC, the violation of which often leads to the loss of the very meaning of its formation.
The next important aspect is taxation, which is an integral part of running any business.
The list of advantages of the LLC for a cleaning business includes a tax structure that owners can choose based on the needs of their business. Compared to an informal business entity, this is a significant plus. Choosing the right way to be taxed can reduce your expenses and provide an opportunity to reinvest them to increase the company’s income.
Generally, when forming a cleaning business LLC, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC is taxed as a general partnership unless the owners specify otherwise. There is no need to file a corporation tax return in both of these cases, because the individuals pay their own personal taxes and indicate all income and expenses of the business on their tax returns.
If for some reason the default option does not fit you, then you can specify that the company is taxed as a C corporation, although this option is not for everyone. Its disadvantage is double taxation, in which income is taxed first at the level of the company as a whole, and then again when it is distributed among the owners.
In addition to the C corporation treatment, there is the S corporation taxation, which applies restrictions to the business like:
- Your business cannot have more than 100 owners;
- They must be either residents or citizens of the United States, etc.
In most cases, the cleaning companies have no difficulties in complying with these conditions. Furthermore, electing S corp taxation can be profitable.
If you use it, you will reduce your self-employment tax burden by avoiding paying self-employment taxes of 15.3%. With a reasonable salary for yourself and other owners, simply pay a self-employment tax based on that amount.
Thus, choosing the S corp taxation model allows you to save a lot of money. It can be a good solution for your business venture.
Besides the protection of personal assets and favorable taxation, creating a limited liability company will enhance the reputation of your business. In the eyes of potential clients, investors and partners, it will gain credibility and reliability.
According to state law, sole proprietorships and partnerships operate under the personal names of their owners, which is not always in accordance with the interests and purposes of the business. Of course, you can resolve this issue by registering a DBA (doing business as), and choose a more appropriate name. But even the most successful and memorable exclusive assumed business names, obtained through a DBA, will not be unique. Anyone who likes your name can legally use it for themselves. What’s more, someone may even register a formal business entity under that name, after which you will need to change the name of your company.
To summarize, only the opening of an LLC will allow you to obtain the right of exclusive use of a business name, protecting it from third parties. Additionally, a company whose name contains the words: “limited liability company” or the abbreviation “LLC” inspires more trust and respect than one that is simply called “John Smith”. It will be more convenient for clients to write checks to a business entity rather than to you personally as an individual.
How to Start a Cleaning Business LLC
To understand how to start an LLC in Virginia, you should first become familiar with the rules required by the laws of your state of choice, and then start the formation process. For your LLC to be legally registered and have a good reputation with the state, we recommend that you follow these steps:
- Choose an LLC name;
- Designate a registered agent;
- File your Articles of Organization with the state to form an LLC officially;
- Acquire an EIN;
- Create an LLC Operating Agreement;
- Create a financial infrastructure, taking into account the division of company assets and the personal funds of the owners;
- Handle taxes, licenses, and permits;
- Meet current requirements: filing annual reports, paying franchise taxes, etc.
If you still have questions about the LLC formation process, use the complete guide on the topic or consult with an expert to learn more about it.
The 3 Best LLC Websites
If you need to form an LLC, you can choose one of three ways:
- Use the DIY method
Today there are many guides on the Internet for entrepreneurs who want to register their LLC on their own. Of course, this method saves some money, but also has some disadvantages. Keep in mind that starting a business is a multi-step process that requires quite a bit of effort to get through. If you are too busy, it can cause undue stress.
- Hire an attorney
Asking for the help of an attorney to form your business entity is a convenient and effective method. A specialist can advise you on the peculiarities of the legal structure, help you fill out documents, and answer any questions you may have. However, hiring a lawyer is quite expensive. Often, startups have limited financial resources and cannot afford to spend thousands of dollars on lawyers.
- Hire an online business formation service
This is a great option if you want to save money and, at the same time, get a professional, high quality service. The online market offers many reputable companies that will take care of most of the work associated with setting up an LLC. Moreover, compared to an attorney, their prices are quite affordable.
Due to the variety of services available, choosing the best options for business formation service can take you some time. To make it easier, check out the guide to the seven best LLC services available, which presents the most popular online companies.
Let’s take a look at the top three options for professional business formation services.
- ZenBusiness: the basic package of this company is only $39. You will get not only a quickly formed LLC, but also 1 year of free registered agent services;
- IncFile: $0 – that’s how much it will cost you to start a business with IncFile, if you pay the mandatory fee by yourself. In addition, they also give you a year of free registered agent services;
- Northwest Registered Agent: their service is a little higher – $225. But their premium quality is worth the cost. The customer support service of Northwest is the best in the industry, and they also provide 1 year of free registered agent services.
Additional Resources for Starting a Cleaning Business
The Janitorial Store:
Are you planning to set up your own cleaning business or expand your existing one? Or maybe you’re looking for a way to increase efficiency? Then check out this website to find answers to most of your questions. The effectiveness of Janitorial Store training materials has been proven by more than 10,000 cleaning companies of all sizes and structures.
Cleaning and Maintenance Management:
The information presented on sites such as CMM will attract both aspiring and experienced entrepreneurs. Here you will find:
- Useful articles;
- The latest business events;
- News;
- Industry research;
- Surveys, etc.
Smart Cleaning Solutions:
The quality of the tools directly affects the result, so you need good equipment to do a good job. This website contains a wide range of products such as:
- Cleaning products;
- Cleaning equipment;
- Accessories and spare parts.
You can also check out the Resources section for informative video tutorials on a variety of topics.
Cleaning Marketer:
The secrets of how to improve your business, attract new customers and increase your profits – you can find everything you need on the Cleaning Marketer website.
Swept:
If you need help with organizing your business, specialized Swept software provides the following useful features:
- Robust scheduling;
- Supply management;
- Problem reporting;
- HR management;
- Time tracking, etc.
This service is great for setting up a multi-employee company. Furthermore, their Guides section offers a lot of relevant information for business development and its promotion.
