This article is not intended as legal advice. It is the opinions of the author only and does not necessarily represent the views of The Knowledge Roundtable. Please consult legal consul before making any decisions regarding your business’ incorporation.
Why Every Tutor Should Set Up an LLC
Tutoring is a great avenue for starting your own business. There is limited overhead, a consistent pool of potential clientele, and the work is both rewarding and beneficial.
While some opt to join tutoring companies as instructional staff, many opt to be their own bosses and work as independent tutors. In the case of the former, tutors are typically independent contractors working under the umbrella of an employer. This brings with it some underappreciated benefits.
For one thing, the accounting required for a contracted tutor is usually much more straightforward than the bookkeeping required for a tutor running his or her own business. Furthermore, should there be a legal issue involving a disgruntled client, the tutoring company is often going to be the target, not the tutor.
Independent tutors don’t automatically have the luxury of these financial and legal protections. As such, it is essential that tutors take the appropriate steps to protect themselves, their assets, and their businesses. Thankfully, setting up a Limited Liability Company (LLC) provides that much needed legal and financial cover for an independent tutor. What’s more, it is fast, easy, and well worth the effort.
Establish your professional identity
For tutors who have yet to take any steps to legally identify and protect their businesses, it is typical that they will identify as what is known as a sole proprietorship come tax time. In short, what that means is there is no separation between the person and their personal business. The debts, responsibilities, and assets of one are inexorably linked to the other.
What an LLC does is separate the person from the business; they become two different entities in the eyes of the law (and the IRS).
By setting up an LLC, a business owner receives an Employee Identification Number (EIN) – think of it like a social security number for a business. This number can be used for tax purposes, setting up business banking accounts, applying for business credit, and even hiring employees. In each of these cases, the LLC becomes the umbrella for all business activities instead of the individual at the helm.
From an organizational standpoint, an LLC gives your business a legitimacy and access to options that a sole proprietorship cannot.
Protect your personal assets
While an LLC offers many benefits over a sole proprietorship, perhaps the most important is the legal firewall it creates between a business’s assets and the business owner.
As a sole proprietor, an individual’s personal assets are vulnerable if the business is sued or in financial distress. Thankfully, an LLC can shield a person’s home, vehicle, savings, and investments by keeping the business and personal identities separate. Should an LLC be found at fault in a lawsuit, the only assets that can be targeted are those associated with the business.
While there are some costs to establishing an LLC, they pale in comparison to the costs of being found liable in a lawsuit as a sole proprietor!
In most cases setting up an LLC can be done in as little as an hour. While there is no shortage of law firms and online legal outfits offering services to set up LLCs, most states make the process simple enough that the average person can handle the task by following a few easy steps.
Some important things to take note of when going through the LLC process include:
- Read EVERYTHING! – This isn’t something to breeze through like the “Terms of Service” on iTunes; be sure you know what you are filling out and that you are completing your paperwork correctly. If you aren’t confident in your ability to do so, a local business lawyer or accountant should be able to give you some guidance for a minimal fee.
- Be sure to budget for any fees associated with establishing and maintaining an LLC – there is a nominal investment up front as well as recurring renewal fees each year.
- Make sure your “Doing Business As” (DBA) name is registered.
- Keep your documents organized and up to date.
- Make a note of key renewal dates – Letting any local business licenses or registrations expire could mean fines or lack of legal protection.
- Ensure you never mix your personal and business accounts – blurring the lines between personal and business finances could render personal assets vulnerable in a lawsuit.
When assessing your personal tutoring business, make an honest evaluation of your legal vulnerability. Can you afford the risks associated with being a sole proprietor? If not, know that in most cases you could be covered by the safety of an LLC in less than 48 hours. What are you waiting for?
Have other suggestions for private tutors seeking to protect their personal and business interests? Share them with our readers in the comments below and on social media!