At this point, you’ve decided to start a cleaning service, but don’t know what your business structure should be: sole proprietorship, partnership, LLC, or corporation. The information is confusing, there is paperwork to file, and it costs a lot of money to get advice. Well not really, I’m here for you.
Most cleaning services start out as a sole proprietorship. For some this works, but I strongly advise against it. Before explaining why, you need to know the differences between the different structures.
A sole proprietorship is the simplest form of business that directly ties the owner to the owner without providing any protection to their assets as a separate entity. Basically, the owner is solely responsible for all debts, benefits from all income, and the business is his or hers for any legal purpose.
A corporation is an entity by itself and the owner becomes a shareholder in it. In essence, this means that the corporation itself is liable without the owner being subject to any liability through his or her personal property. The actions and debts of the business are all on the business and therefore do not affect the private assets of the owners. Special tax rules apply and both entities, including the owner and corporations, must pay taxes separately.
A Limited Liability Company (LLC) is a mix between the two. This legal structure is maintained by the states and not the federal government, so all revenue flows to the owners; however, any liability is limited to the business only and the personal assets of the owners and the owners as an entity are protected.
For a cleaning service, I highly recommend Structure LLC. You’ll work in expensive homes, offices with sensitive information, and companies with proprietary technologies and processes. If something happens because of your mistake or the mistake of your employees, you’ll want to make sure your personal assets are protected and off limits in the event of a lawsuit.
Forming an LLC can seem like a daunting task, but services like LegalZoom and others offer to complete the entire process for as little as $150. I highly recommend using such a service as they do a great job at an affordable price and make sure everything is okay. Please note that before you can form an LLC, you must obtain an FEIN number from the IRS. Many websites will try to charge you upwards of $50 for this, but you can easily get this number online from the IRS online system in less than five minutes. As an alternative, many states offer a free online training service or free forms for you to fill out yourself.
Once this step is complete, you will have the documentation needed to complete many other tasks, such as opening a business checking account.
