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How To Start An LLC for Electricians
Electricians’ skills and expertise make them sought-out workers in many places. They cater to residential and commercial areas and can find clients wherever new developments require lighting and electrical components.
That said, electricians working for a company have supervisors or bosses watching over their work and relationship with clients. On the other hand, those who freelance face the risk of losing personal assets when they get sued for whatever reason (such as faulty equipment that led to an accident).
If you’re an electrician who wants to be your own boss, have the freedom to choose your own client, and enjoy the asset protection that bigger companies get, we recommend you start your own electrician LLC.
Definition
What Is An LLC?
LLCs are currently the most popular form of business structure among startups. The abbreviation stands for limited liability company, and as the name implies, its owners only have limited liabilities if the company gets sued for any valid reason. Under an LLC, your personal assets remain protected and cannot be pursued to be used for the company’s debts.
LLCs are as easy to form as a sole proprietorship and partnership, are simpler than corporations in terms of management, offer flexible taxation options, and can be owned by single or many owners (called members).
Advantages
What Are The Advantages of An Electrician LLC?
Forming your own electrician LLC provides you with more advantages compared to when you do business solo as a freelancer. It also has perks that are more suited to your trade as an electrician. Here’s a quick look at some of them.
Personal asset protection
As electricians, failure in your work can cause major problems, which could lead to accidents, faulty service, and eventually lawsuits. If you offer your services solo, you might eventually be forced to pay penalties using your personal assets, such as your home or car. Your LLC protects you from this scenario because it’s a unique entity with a separate legal name. LLCsl has its own assets, and it will only be allowed to pay penalties using these.
A boost in credibility
While you can gain customers using your reputation, it helps to get bigger clients using a legitimate company name. LLCs need their local Secretary of State’s approval before they can be registered and allowed to do any business. Being a legally registered business gives your electrician company an immediate boost to its credibility compared to when you try to do business using your own name only.
Separate bank accounts
Your LLC can open its own business bank account, allowing you to separate your personal finances from the company’s earnings. This helps prevent mishandling of funds that could happen if your business is a sole proprietorship.
Ability to take out business loans
Once your LLC gets more clients, you might look to expand it or acquire things that will help improve your services (like new tools, a company vehicle, and so on). You’ll need funds to do these. Thankfully, your LLC can apply (and be approved) for bank loans with little to no hassle. Banks put a lot of credibility into state-registered business, so you’ll get your loans approved fairly quickly.
Hire your own workers
While your LLC can be as small as you want (just you in a single-member LLC, for example) and capable of taking on small projects, your LLC can get more people to work on bigger projects as well. With an EIN that only registered businesses can apply for, you will have the opportunity to hire workers and contractors for certain projects.
Potential savings in tax
LLCs offer flexible taxation options, and knowing how it works will help you save a lot of money come tax time. We’ll discuss some of this below, but consult with an accountant to see what is the best tax option for your growing electric business. Plus, you can change tax structures anytime!
Disadvantages
What Are The Disadvantages of An Electrician LLC?
While LLCs have many benefits, registering your electrician business as one also has its “drawbacks.” While these aren’t serious enough to discourage you from setting up your own LLC, it’s good to know them anyway.
Filing challenges
You need to file a good number of documents with your Secretary of State in order to register your LLC. You can do this task on your own, but if you’re not careful, you might make mistakes in the information you submit or miss crucial deadlines. Make sure to ask your local Secretary of State’s office for details or hire some experts who can do all the legal work on your behalf.
Paperwork
While LLCs do not require a lot of paperwork compared to corporations, you will still be required to fulfill some documentation and report to the IRS. In fact, the paperwork you do in your LLC will be a bit more than what is required from a sole proprietorship.
LLC Formation
How To Create An Electrician LLC
Let’s move on to discussing how to actually start your own electrician LLC. There are a few things you’re going to need.
- A name for your LLC
- A registered agent
- An Article of Organization
- An Employer Identification Number
- An Operating Agreement
A name for your LLC
Your new LLC should have a name that’s easy to understand, remember and clearly communicates what kind of services you offer your clients. Doing so will make it easy for the market to search for you the moment they look for an electrician. Case in point: names like “Bob’s Electrical Services” are straightforward, while names like “Power Up” can be confused for an energy drink or a gym.
Whatever the name you choose, check with your local Secretary of State’s office or website to verify if it is available. It has to be unique and not be used by other businesses in your state.
A registered agent
A registered agent is someone who will manage communications with your state as a representative of your company. They handle all correspondence with your local government offices and will receive all legal documents pertaining to your company on your behalf. Your registered agent must reside in the state where your business is registered and should come from a reputable organization offering legal services.
It’ll also be great if they have experience forming an electrical company before, so they can assist you with other documents as well.
An Article of Organization
Next, you will need to inform your local government about your existence. The document you’ll be needing for this, called an Article of Organization, contains details about your company, its members, and the purpose for its existence—which is, in your case, a business providing electrical services. You can get some blank forms from your local Secretary of State, fill them up, then submit them to the office along with your payment for the registration of your LLC.
An Employer Identification Number
An Employer Identification Number is primarily used when you hire workers and establish a payroll system for your company. You also use this when filing taxes at the IRS, as well as when you open a bank account for your business. You will also need this when you apply for business loans.
An Operating Agreement
This document serves to inform you, any potential member of your LLC, as well as the people you hire, about the way your company operates. It includes details about roles and responsibilities and provides instructions regarding how your company handles profits and losses. While you don’t need this if your electrician LLC is small—especially if it’s a single-member LLC—having one on hand will be handy if you have plans to expand in the future.
LLC Taxes
How Are Electrician LLCs Taxed?
LLCs are known for being flexible when it comes to taxation options. That said, here’s how your new LLC can be taxed:
In general
Unless your LLC elects to be taxed as a corporation, you will be taxed the same way sole proprietorships and partnerships do: on your pass-through income.
The income you earn from your LLC is considered a pass-through income. Meaning the company earns some revenue, which is then passed on to its members (you). The members then declare this income as part of their personal profit, then pay taxes on them when filing their 1040 tax return. In these setups, taxes are paid at the individual level only, preventing double taxation most corporations need to comply with.
Self-employment taxes
You will also need to pay self-employment taxes—a contribution to Medicare and Social Services—personally. This is because you are self-employed. These costs are not deducted from the income you receive from your company.
Franchise taxes
Depending on the state where your LLC is located, you might also need to pay an annual fee known as franchise tax. This tax serves as a sort of renewal fee your government charges to keep your LLC registered in your state. The amount varies, but it could be between $100 to $800.
Costs
What Are The Costs Of Starting An Electrician LLC?
We now move to the final part of this guide, where we talk about what you will spend when you form your new LLC. Here’s a quick look at them:
Filing Fees
You will need to spend about $50 to $800 when filing the necessary paperwork to register your electrician LLC in your state. The actual amount depends on the state, so make sure to check with your local Secretary of State to verify. Also, to avoid potential errors in details, as well as to avoid missing deadlines, we suggest hiring experts to process them for you.
Registered Agent Fees
You will also need to pay the registered agent you choose for the services they render to your company. While the amount ranges from $100 to $300, it’s very beneficial to have someone to represent your company when dealing with your local government—especially if it’s your first time running a business.
Operating Agreement
While you can save money by creating your own operating agreement, paying lawyers or other experts to help you create this document can help you avoid concerns brought out by potential loopholes and similar troubles in the future. Be prepared to spend up to $200 for this.
Publication
Some states mandate that you publish notices about your newly-formed LLC in the local newspapers. The length of time varies with the state, so ask your local Secretary of State for details. You should also inquire with your local newspapers for their publishing rates.
Operational expenses
This refers to the things you need to spend on to keep your electrician LLC running. This includes the costs of supplies (such as wires, electrical tapes, and so on), tools, rental fees, and utilities. This will also include fuel costs if you have a company vehicle.
Starting your own electrician LLC might not be that easy, but the benefits are worth the effort. You’ll finally have a state-approved business that provides legal protections while allowing you to take on bigger projects. Start your electrician LLC with us at StartGlobal today.
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