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How To Start An LLC for Painters
Whether it’s for a new construction project, a remodeling job, or simply refreshing the look of a property, painting services are always in demand. As a result, starting a painting business is always a profitable venture—especially in neighborhoods where there isn’t a lot of competition.
Starting a painting business takes a bit of effort. Once you’re done with all the paperwork and acquire all the equipment you need to start, however, you’re on your way to earning from it. The next step is to legalize your venture. After doing your initial bout of research, you might have discovered this structure called an “LLC.” But what is it; and why should your painting business start one?
Definition
What Is An LLC?
LLC, which stands for Limited Liability Company, is a business structure that provides its owners (called members) with personal asset protection in the event of a lawsuit. This business type is easier to form compared to corporations, making it a popular choice among startups.
LLCs are primarily taxed like a sole proprietorship or a partnership. Members only need to file taxes on their personal income once a year and are protected from double taxation. These perks, along with others we will discuss below, are yours to enjoy if your business is an LLC.
Advantages
What Are The Advantages of A Painters LLC?
Forming an LLC has many advantages, in general, but a painting business can benefit from an LLC in the following ways:
Separate legal entities
LLCs are entities that are separate from their members. With a painters LLC, you can hire workers, buy equipment, enter into contracts, and so on, using its own name. Your LLC can also file lawsuits against others, if necessary, without putting your personal assets at risk.
Increased credibility
By registering as an LLC, your painting business immediately gains increased credibility because it is a state-approved legal entity. This boost can help you attract more clients. As an established business, your painters LLC will also be able to offer services to organizations that do not deal with freelancers. An LLC can also open a bank account and apply for loans.
Management flexibility
LLCs can be run anyway you want. You can manage it personally, making important company decisions alone, or you can give the other members of your LLC a voice when making company decisions. It doesn’t have to follow all the paperwork and formalities present in a corporation. It’s all up to you.
Fewer paperwork to run
From its formation to its daily operations, LLCs require less paperwork compared to corporations. Most of the paperwork is filed during the legal creation of your business. You won’t have to deal with a lot of documentation and the usual annual reports corporations have.
Flexible taxation options
You can choose how your LLC will be taxed, allowing you to save come tax time. We’ll discuss more about this later. That said, you need to know how it works so you can maximize your savings. You can ask accountants for help in understanding how taxation works for LLCs.
Disadvantages
What Are The Disadvantages of A Painters LLC?
LLCs also have their disadvantages—thought, they’re mostly avoidable with some careful planning. For example, if your painters LLC is a single-owner entity, you will end up doing more paperwork compared to when forming a sole proprietorship. However, this administrative burden can be alleviated by hiring someone to assist you with these tasks, albeit at an additional cost.
On the positive side, forming an LLC provides enhanced protection for your personal assets, which is a significant benefit to consider.
Changes in your LLC’s membership also has to be approved by all of the members. This won’t be a concern if your LLC only has you as its owner, but it could be challenging if you have many. Lastly, unlike corporations, LLCs are, by default, forced to shut down when one of its owners passes away. Fortunately, the business can continue with the use of an Operating Agreement.
LLC Formation
How To Create A Painters LLC
There are a few things you need to do to form your painters LLC. Here are some things you need:
- A business name
- An Article of Organization
- An Operating Agreement
- A Registered Agent
- An Employer Identification Number (EIN)
A business name
Your painters LLC needs to have a name that’s easy to understand and easier to remember. Here are some tips for choosing your LLC’s name:
- Be straightforward but creative. Your business name should communicate what you offer your clients. Names like “Jim’s House Painting Services” plainly state what customers should expect. On the other hand, names like “The Paint Guys” can be interpreted as the name of a paint seller, not a painter’s business. Choose names similar to the former.
- Make sure that it’s available for use. Your preferred business name should be unique and not be used by other businesses in your state. Check with your Secretary of State’s office to verify availability.
An Article of Organization
The Article(s) of Organization is the most important document in the process. It is used to establish your painters LLC’s existence in your state. It details your business’ structure, who is involved, and what it intends to do. Your Secretary has forms you can use for this purpose. Simply fill those out, then submit them to your Secretary of State’s office, along with paying a fee.
An Operating Agreement
You can think of an Operating Agreement as a contract + user manual on how your LLC works. It provides details about the relationships between members and defines their roles and responsibilities. It also outlines information on how the LLC members divide profits and losses. This is a necessary document that clearly outlines how you and other members will earn from your paint business. This will also help protect your members from getting into any conflict because of any potential misunderstandings.
A Registered Agent
A registered agent serves as the point person for your company. They receive legal documents about your business and act as the point of contact between your government and your LLC. It is essential to choose a reputable organization or individual to fulfill this role, as their reliability and professionalism are key factors in maintaining the smooth operation of your LLC.
An Employer Identification Number (EIN)
An EIN is used for a variety of purposes. You use it when you hire workers and file taxes. It is also used when you open a bank account for your business, and when you apply for loans in case you want to purchase new company vehicles or equipment or plan to open up another branch elsewhere.
An Employer Identification Number (EIN) serves as a unique identifier for your business and is required for a variety of purposes. Its primary function, however, is for when you need to hire employees and need to report their wages to the IRS.
Additionally, an EIN is necessary when opening a business bank account. If you plan to expand your business or make significant investments, such as buying vehicles or equipment, or establishing new branches in different locations, an EIN is also needed when applying for loans or financing.
LLC Taxes
How Are Painters LLCs Taxed?
By default, an LLC is treated as a pass-through entity for tax purposes. This means that your painters LLC itself does not pay taxes on its company income. Instead, the profits and losses are”passed through” to you and its other owners, who report and pay taxes on their share of the income on their personal tax returns. This lets you avoid something called “double taxation,” which corporations are required to file.
Also, depending on what state your LLC is located in, you might be required to pay an annual renewal fee known as Franchise Tax. This amount varies with state but can range from $100 to $800. Check with your Secretary of State to verify the cost or if you even need to pay for it.
Costs
What Are The Costs Of Starting A Painters LLC?
It’s quite costly to start your painter LLC, but this cost is worth the benefits once the company is formed. Here’s a quick look at what you need to spend.
Filing Fees
Your LLC needs to be registered with your Secretary of State’s office to be considered a legitimate entity. You will also need to prepare annual reports. The cost of filing these documents differ depending on the state you are in, but annual reports alone will cost you about $50 to $800.
Registered Agent Fees
You will also need to continually compensate your registered agent for the services they render to your company. Expect to pay around $100 to $300.
Operating Agreement
You can create your company’s Operating Agreement at no cost. Still, if you worry about missing out on some important clauses, you can hire a lawyer to help you draft it. Expect to spend up to $200 for this, if needed.
Operational Expenses
Your painters LLC will require a lot of tools and equipment, depending on the type of painting services you offer. You will, at least, need the following:
- Paint brushes and rollers
- Paint sprayers
- Trays/drop paper
- Scrapers and sealing tools
- Caulking tools
- Ladders
These tools can easily cost up to more than $1,000. You will also need to buy paints and other tools not included in the list, pay rent and utilities, and spend money on fuel and transportation costs. You will also need to replenish disposables like used brushes, rollers, and drop paper. Prepare to spend on all of these, along with the reports you need to make per year.
Forming your own painters LLC allows you to do business with less paperwork, but with secure protection against potential lawsuits. You also have the freedom to choose how to be taxed by your government. These benefits make LLCs a good choice for painters looking to start their own company.
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.