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How To Start An LLC for Welding Businesses
A welding business specializes in working with metal to repair, restore, and construct various items like frames, structures, and equipment. Whether you choose to run a mobile welding business or establish a metal fabrication shop, a welding business has the potential to generate significant profits based on the contracts or services clients require.
If you’re planning on starting your own welding business, we recommend that you form an LLC for it. Let’s discuss what LLCs are and why you should choose an LLC instead of another type of business.
Definition
What Is An LLC?
An LLC (which stands for Limited Liability Company) is a hybrid business structure that combines the formation simplicity of a sole proprietorship and the personal asset protection that corporations have. It lets owners called members choose how they should be taxed and gives a lot of freedom in management. It’s the most popular business structure right now, with big names like Koch Industries, BMW Mfg. Co. and FCA US are all registered as LLCs.
Advantages
What Are The Advantages of A Welding LLC?
As an LLC, your welding business will enjoy certain benefits that you won’t have as a freelance welder or a regular employee in a welding company. Here’s a quick look at some of them.
Separate legal entity
Your welding business, when formed as an LLC, is recognized as a separate entity by the government. This means that your LLC can have its own equipment, open separate bank accounts, and take legal action against those who engage in unlawful activities against the business, such as clients failing to pay for services. Forming an LLC helps you maintain a clear separation between your business assets and your personal assets.
Personal asset protection
In line with what’s mentioned above, if your LLC gets sued for some reason, such as faulty work, and loses in court, it has to settle dues using its own assets. Since the LLC is treated as a separate entity from its owners and members, the court cannot compel you to use your personal assets to pay off the company’s debts and penalties. This separation ensures that your personal assets remain protected in such legal matters.
Increased credibility
Some clients, including government organizations, are reluctant to acquire the services of welders who work solo. With your welding LLC, you will affirm your legitimacy as a registered business and secure bigger contracts with clients you could never have if you operated by yourself.
Moreover, as your welding LLC grows in reputation, you have better chances of getting better deals with suppliers. You might be able to get discounts on equipment, supplies, and so on. Of course, this depends on the suppliers.
Disadvantages
What Are The Disadvantages of A Welding LLC?
All that said, there are some disadvantages to owning an LLC as well. While they’re not serious enough to be considered deal-breakers, it’s still good to be aware of what they are.
Tax confusion
LLCs offer flexibility when it comes to taxation, but this flexibility can also be confusing if you don’t understand how it works. If you find yourself unsure about how it works, however, you can seek assistance from accountants. They can provide guidance and help ensure that you navigate the tax requirements of your LLC correctly.
Filing difficulties
When forming your LLC, there is some paperwork that needs to be completed and filed with your local Secretary of State’s office. While you can obtain the necessary forms from the office, it is crucial to ensure the accuracy of the information you provide. Timely submission of the paperwork is important to expedite the approval process by your state, so hire someone to work on this to help.
LLC Formation
How To Create A Welding LLC
By now, you might be wondering how you can start your own welding LLC. Here’s what you need to do:
- Decide on the kind of welding business you will have
- Choose a name for your welding business
- Hire a registered agent
- Submit an Article of Organization
- Secure an Employer Identification Number (EIN)
- Create an Operating Agreement
Decide on the kind of welding business you will have
Not all welding services are the same. Some need extra certification and a different set of equipment. Simply offering all types of service is not a good idea when you’re just starting out. Carefully choose the services you will offer your clients.
For example, you have the option to choose between a mobile welding business, a metal fabrication shop, or simply offer both. The former will require you to get at least a 4G welding certificate, while the latter requires you to have a 3G MIG cert.
Choose a name for your welding business
Your welding LLC should have a unique name that’s not being used by any other business in your state. For example, names like “Steve’s Metal Fabricating Shop” are straightforward, but names like “The Metal Experts” sound nice but are sort of vague. Choose something like the former—the name has to communicate what kind of services you offer to your clients so they know what to expect.
Hire a registered agent
A registered agent is an individual or company you hire to act as the official point of contact between your LLC and the government. They serve as a point person representing your LLC and receive documents on your company’s behalf. It’s important to choose a reliable and trustworthy registered agent who is familiar with the responsibilities and requirements of the role. The only requirement is that they should reside in the state where your business is registered.
Submit an Article of Organization
The Article of Organization is a charter document containing all important information about your LLC, from its members to its purposes for existence. Filing this document with your Secretary of State’s office is necessary before your LLC can officially do business. You can work on this yourself or hire an expert to ensure the accuracy of the information you provide.
Secure an Employer Identification Number (EIN)
You need to get an Employer Identification Number (EIN) before your LLC starts. While not required when you plan to operate solo, you’re going to need this number if you plan to hire welders and other employees.EIn can also be used to open a separate business bank account and apply for loans.
Create an Operating Agreement
An LLC Operating Agreement is a crucial document that functions as an owner’s manual for your LLC. It outlines important details about the relationship between the LLC’s members, their roles, and responsibilities. It also provides guidelines on how the financial aspects of the business will be handled and distributed—a crucial point for businesses with more than one owner.
Operation Agreements aren’t required in all states, but we say you draft one anyway to put into (legal) paper everything you want to want to officialize about how your welding business is run.
LLC Taxes
How Are Welding LLCs Taxed?
LLCs are flexible when it comes to taxation. However, there are a few common points to understand about how LLCs are typically taxed:
Pass-through income tax
The income you receive from your welding LLC is considered pass-through and is taxed only at the individual level. This means you will pay taxes for whatever you earn from your LLC’s revenues on your personal income tax return. The company itself does not pay tax.
Self-employment taxes
Self-employment taxes refer to your Medicare and Social Services contributions. This tax is normally deducted automatically from the salaries of employees, but since you’re your own employer, you will have to shoulder the full cost.
Franchise taxes
In addition to other taxes, some states require LLCs to pay an annual renewal fee known as franchise tax. The specific amount of the franchise tax varies by state and can range from $100 to $800 or more. Check with your state if they require it and how much it costs.
Costs
What Are The Costs Of Starting A Welding LLC?
Here are some of the things you will need to spend on before your new welding LLC can operate:
Filing fee
You will need to pay about $50 to $800 for your LLC to be registered in your state. This amount varies by jurisdiction and has to be paid along with the necessary paperwork mentioned above. Ask your local Secretary of State office for more details.
Operating Agreement
While it is technically possible to create an Operating Agreement for your LLC without spending money, it is essential to ensure its accuracy and effectiveness. So, be prepared to spend up to $200 for legal services.
Registered Agent
The registered agent you hire will charge you around $100 to $300 for their services. The amount you pay depends on the organization they belong to. We find the cost is well worth it, however, considering the amount of work they do for your company.
Publishing
In certain states, it may be a requirement to publish notices about your new LLC in local newspapers. The publishing cost varies with the newspaper company, and the duration depends on your state’s regulations. Make sure to inquire before publishing your notices.
Insurance
Lastly, get insured. Given the potential risks and hazards involved in these industries, insurance will help your company pay for the things it owes that could arise due to unforeseen circumstances. There are a lot of insurance types to choose from, such as:
- General Liability Insurance and/or Professional Liability Insurance: These insurances cover legal costs if someone sues your business for accidents or injuries related to your work.
- Commercial Auto Insurance: If your business involves automobiles for transportation or offers mobile welding services, this protects your vehicles and coverage in the event of accidents.
- Workers’ Compensation Insurance: If you have employees, workers’ compensation insurance is required by law. This insurance covers medical expenses and lost wages for employees who sustain on-the-job injuries.
Do your research to see which ones are applicable and more beneficial for the services you offer. It’s always better to be safe than sorry!
Forming your own welding LLC lets you earn from your skills as a welder and metal worker. It also provides you with the personal asset protection you need while taking on more projects. Start your own welding LLC today.
Comparisons
Is LLC The Best Entity For Me?
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LLC vs Corporation (C-Corp)
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LLC vs S-Corp
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