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How To Start An LLC For Carpenter Business
Carpentry is always in demand—the National Association of Home Builders says as much. After all, new homes are built every year and 90% of them are made of wood. Buildings and commercial spaces will also always have a use for furniture, so there will be a continuous flow of customers for the trade.
For new business owners seeking a method to support themselves, a carpentry business can offer a stream of prospects.
Are you planning to form a carpentry business? Setting up a limited liability carpentry entity is the first step. Here, we have outlined what an LLC is, its advantages, and why your woodworking business needs to be one.
Definition
What Is An LLC?
A Limited Liability Corporation (LLC) is a legal business structure that protects an owner’s personal assets from corporate liabilities, litigation, and debts. In other words, your assets, such as your home, car, and personal bank account, won’t be affected if your company is sued or goes into bankruptcy.
An LLC also lacks the formalities of a corporation and offers a flexible management structure. There are no owners, only members. This makes it easier to operate small to medium enterprises.
Advantages
What Are The Advantages Of A Carpenter LLC?
Every business structure, such as sole proprietorships and corporations, has its own unique advantages. But only an LLC has the flexibility to combine their best ones.
Asset protection
As previously stated, the primary benefit of creating an LLC is personal asset protection. LLC members are never personally held accountable for company losses or debts.
Suppose that a customer sustains an injury when one of your chair legs breaks. If your woodworking business is formed as a sole proprietorship or partnership, bank accounts and other personal assets could be affected should the customer decide to sue your company. By establishing a carpentry LLC, the scope of your client’s lawsuit will be limited to your company’s assets alone.
Personal information security
To prevent your personal information from leaking, you can create an anonymous LLC. Anonymous LLC owners have the advantage of hiding their name and address from public records. This prevents media, salespeople, and criminals from getting their hands on your information.
Tax benefits
An LLC can provide you with greater tax flexibility. For example, you can choose to be taxed as a pass-through entity, which lets you bypass state and local taxes. You can also be taxed as a corporation, which enables you to spread tax losses.
Additionally, several states offer numerous tax benefits and other incentives to LLCs, which can help you save a lot annually.
Flexible structure
Compared to corporations, LLCs are exempt from a ton of business formalities. There is no need to convene shareholder meetings, record meeting minutes, or strictly adhere to the operating agreement. There are also little to no annual IRS requirements, so there’s less paperwork. This should let you focus more on carpentry operations.
Business credibility
Due to the legal nature of the LLC business structure, your company will have a great deal of credibility. An LLC gives your business a professional impression to clients and makes you more credible in the eyes of investors.
Sole proprietors must also register a Trade Name or Doing Business As (DBA) to open a business bank account. If your carpentry business is registered as an LLC, you can create a company bank account and apply for loans without going through these extra processes. It’s useful if you need the capital for materials.
Disadvantages
What Are The Disadvantages Of A Carpenter LLC?
LLCs are not suitable for everyone, especially if you intend to earn a lot of money or scale in the future. The following are some drawbacks of filing your woodworking business as an LLC:
Wary investors
Investors are wary of LLCs, since they’re often viewed as a market that poses “risks,” mostly because the structure is associated with new business owners. If you’re forming an LLC, you have to be prepared to pull capital out of your pocket.
Limited liability
It is called a “Limited Liability” Company because the Liability is only limited. Make extra sure that you’re separating your personal and business finances on paper, so you don’t violate any laws.
All members should be in agreement
If there is more than one LLC owner, all members should be in agreement before any decision is made. For example, a majority vote is necessary to add new members, alter the percentages of existing members, or change ownership of the company.
As you can see, the advantages of forming a carpentry LLC far outweigh the disadvantages of doing so. Setting up an LLC is the smartest option, especially for solo carpenters or new business owners.
LLC Formation
How To Form A Carpenter LLC
You now understand the significance and advantages of forming an LLC for your woodworking business. Now, you’re ready to create one. Where do you start?
- Choose a unique name
- Appoint a Registered Agent
- Create an Article Of Organization
- Form An Operating Agreement
- Obtain your EIN and permits
- Get all the necessary permits
Choose a unique name
The first step is to choose your business name. In some states, adopting a name that is identical or similar to another company’s name is prohibited. Verify that no other businesses use your name by checking your local state database.
Reserve your name after confirming its availability, especially if you don’t want to launch your LLC immediately. States typically hold onto firm names for two months.
Appoint a Registered Agent
Next, get a registered agent to handle all the legalities for you. They can be you, a co-owner, or a professional agency. Registered agents accept all tax and legal paperwork on your company’s behalf, so they need to be somehow who can do the paperwork.
Create an Article Of Organization
The Article Of Organization is a legal document that defines your company’s LLC status. It contains all the necessary information about your carpentry business, such as its name, address, and the addresses of its owners or members. It is filed and submitted to your local Secretary of State.
The fee for this step varies from state to state. Sometimes it’s the most expensive document to procure.
Form an Operating Agreement
After you have your Article Of Organization, it’s time to draft your Operating Agreement. Several states in the US do not need LLCs to draft this document but write one anyway to prevent any financial disputes. If your company has multiple owners, your LLC will definitely need an operating agreement.
This legal document will define the roles and responsibilities of each LLC member, including their ownership rights and voting authority. It should outline how the company’s profits will be divided among its owners and establish clear guidelines.
Obtain an EIN
An Employer Identification Number (EIN) is a nine-digit number provided by the Internal Revenue Service (IRS) to your carpentry LLC for tax purposes. It functions like a social security number. You can apply for one by approaching your local IRS office.
EIN is also what you will be using to open a bank account and file corporate taxes, among other things.
LLC Taxes
How Are Carpenter LLCs Taxed?
Like any business, carpentry LLCs need to file taxes based on their income. Your state may require you to pay franchise, sales, or other local taxes. Moreover, some areas impose sales taxes on select goods, such as crude oil and batteries
LLCs enjoy a lot of tax flexibility during their formation. Depending on your preference and the number of business owners, your LLC can be taxed in several ways:
Single owner
You can choose to be taxed like a sole proprietor. This means declaring your LLC’s earnings and filing it as your individual income. Sole proprietor LLCs will only need to submit a 1040 tax return form.
Multiple members
The business is taxed like a partnership, so all owners of the company split taxes equally. The filing process is then the same for Single Members.
You have the option to tax your LLC like a corporation by filing Form 8832 with the IRS. This allows you to enjoy the benefits and tax structures of a corporation. Corporation LLCs can sell company stocks and attract more investors. However, they are subject to double taxation and must meet additional document requirements.
Costs
What Are The Costs Of Starting A Beauty LLC?
Forming a carpentry LLC can cost anywhere between $1,500 to $25,000 or more. Operational costs will depend on many factors, such as the available equipment and tools needed to purchase a lease, but the costs of forming one is more straightforward.
To form your carpentry LLC, you’ll need to acquire the necessary licenses and permits from your local government authorities. They can cost anywhere from $100 to $1,000, depending on your state. For accurate numbers, it is best to visit your government website for more details.
LLC Costs
State filing fee
$50+
Registered agent service
$100+
LLC formation service
$50+
Operating agreement
$200+
Business license and permits
$50+
Employer Identification Number (EIN)
Varies
Initial legal and accounting fees
$200+
Insurance (annual)
$500+
Equipment and supplies
$500+
Marketing and advertising
$500+
The benefits of an LLC for a carpentry business include liability protection, tax flexibility, and simplified management. You gain the advantage of using a genuine company name that nobody else can use as well, legitimizing your business in the eyes of your clients.
With the right partner, you can file for lower taxes and file them quickly. At StartGlobal, we provide services to help startups and aspiring business owners with the formation of their LLCs.
Comparisons
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.