The question I get asked the most by dog trainers who are starting their own business is whether they need to have an LLC. While there are a lot of factors that go into the decision of whether and when to incorporate an LLC, often my answer to them is “No.”
Most often, this is a trainer who is just starting out, just one person or maybe one partner. Maybe they have been working for someone else and are going out on their own, or they have been doing some training but you want to make it official. They are trying to decide exactly where to start, and the internet has them spinning in circles. Once we talk it through, I am able to narrow down some of the choices and help them figure out the steps they need to take and in what order.
If this sounds like you, let’s get you started on the right path by answering the question of whether you really need to form an LLC.
What is an LLC?
First, what even is a Limited Liability Company? I tell my clients to think of an LLC as sort of in between being a sole proprietor and being a corporation. Forming an LLC is simpler and more flexible than a corporation, and the income earned by the LLC is passed through to the owners, so the income taxes are simpler than with a corporation. You form an LLC by filing online with your state’s Secretary of State (or equivalent). Once an LLC is formed, it is a separate entity, which can enter into contracts and have a bank account, get it’s own tax ID (EIN) number, etc.
What are the benefits of an LLC?
If you have an LLC, you can get a tax ID number (EIN) from the IRS, and use that to open a business bank account. Having an LLC may look more professional to your clients.
Some of the benefits of an LLC arise out of this legal status as a separate entity. For example, when you enter into a contract, you may sign as the LLC. That way, if the other party of the contract has a dispute, the dispute is with the company, not with you, the individual owner. This is why people say that an LLC will protect your assets – because if someone sues over a contract, they are suing the company, not you personally.
BUT, for most small dog trainers, the biggest risk of a lawsuit is from a personal injury to a person or an injury to a dog, and you are doing the training yourself. When you are the one doing the training, and someone sues you claiming you were negligent, being an LLC will NOT protect you. Also, some businesses (for example commercial landlords) will not sign an agreement with a small LLC, they will require you to sign as an individual. Here is a post I wrote a while ago about the lack of asset protection of LLC’s for solo trainers: https://dogtrainersumbrella.com/blog/one-common-thing…wrong-about-llcs/ So for dog trainers with no contractors or employees, the “asset protection” benefit of an LLC will be small. (Once you grow enough to hire an employee, you should form an LLC.)
What are the drawbacks of an LLC?
For an LLC to provide any benefit at all, there is paperwork that needs to be maintained. You are required to file annual reports with the state, and you need to remember to sign contracts as a representative of the LLC, not just sign your name as an individual. In addition, this year there are new rules by the federal government that will impose additional filing requirements for LLCs in particular.
There are also filing fees, which in some states are low but in others can be hundreds of dollars a year – enough to be a budget consideration when you are just starting out.
If not an LLC, then what?
Is it starting to sound like benefits of having an LLC are outweighed by the money/time/complexity? If so, then it’s ok to stay a “sole proprietor,” or (if there is more than one owner) a partnership. You can get an EIN number from the IRS for your sole proprietorship/partnership and use it to open a business bank account. You can still use a business name (like “A Spot for Fido Dog Training”). If you do that, you are “doing business as” that business name (e.g., “d/b/a A Spot For Fido”). You may need to register your dba with your local town or county, but the paperwork is much easier and cheaper than for an LLC.
Did this help you decide whether to form an LLC? Are you ready to get started, or still confused about next steps? Let us know here, or on Facebook in DTU: Marketing and Running an R+ Dog Business.