As a result, single-member LLCs are often the best option for individual consultants. The work you will do for other companies is directly related to you, and a mistake on your part can easily be attributed to you. Not having your personal assets involved will make getting the job done less stressful. But either way, consider buying professional liability insurance to protect yourself in the event of legal liabilities.
You may be the sole owner or you may have partners. As with a sole proprietorship, taxes are listed on Schedule C of your personal tax return. Your personal assets are protected from creditors or in the event of a lawsuit. To take the first step in establishing the company, you must choose its structure.
The two most commonly used structures in the United Kingdom are a sole proprietorship and a limited partnership structure. The main reason for creating an LLC for an independent consulting firm is to have access to the personal asset protection provided by this business structure. Whether you work alone or with a team of consultants, you need the limited liability protections that an LLC can offer. In the eyes of the law, you and your company are separate entities, so if business debt existed, your personal assets (such as your home or savings) would be protected.
When deciding between these four business entities, first ask yourself if you want or need to become a consultant. To avoid this scenario, you must give the impression that you and the company are separate entities, for example, maintaining separate bank accounts for your company and personal assets. A sole proprietorship is the easiest way to own a small business, since it's just you and your personal (legal) name, without a company's own identity. If you choose a limited liability company, it's a legal requirement to have a separate account for your company's funds, but we recommend that you open a business checking account, even if you're an individual entrepreneur, to make your accounting simple.
In the case of a sole proprietorship, all of the company's liabilities are liabilities of the owner; there is no separation of business, legal, or tax obligations between the owner and the company. There are no complex legal requirements to establish a sole proprietorship, but this type of company also doesn't offer the same protections that an LLC or other formal business structure can offer. Informal business entities do not have unique false business names and usually operate under the name or personal names of their owners.
