Do I need to set up an LLC to take on consulting projects between jobs?

The short answer is no. You don’t need to set up an LLC for consulting projects. Most small business owners start off in what is known as “sole proprietorship.” It’s a concept known as “DBA” or “doing business as.” And, yes, as a sole proprietor or DBA you can set up a business checking account. Your account may say something like Pat Smith, DBA Smith Consulting.

You mention that you’re between jobs. So, starting as a sole proprietor is the least expensive option since you don’t have to complete any paperwork for the state to incorporate. As a general rule, though, you certainly should keep your business income and expenses separate from your personal income and expenses. In the future, if you choose to incorporate, you’ll already be ready to go…and if you’re ever audited, you’ll have an easier time separating out the two for the IRS.

Now, the downside of remaining a sole proprietor is in the concept of legal liability. As a sole proprietor, if someone sues your business, they can (if they were to get a judgment) potentially take your personal assets. So, forming an LLC for your consulting business certainly does have some perks.

Something else that you might want to consider is your future plans. Do you plan to find a traditional job and return to the workforce or do you plan to remain an entrepreneur? I know that the answer is likely, “It depends on how business goes for me” and that is an acceptable answer.

You could give it a certain amount of time and if business takes off, you could then plan to convert to an LLC. At that point, you might consider talking with an attorney to make sure that an LLC is the best way to form your business. All business entities have certain strengths and weaknesses. When the time comes, you can connect with an attorney through LawTrades for an affordable price and get the guidance you need. We offer free initial consults, quick & easy price quotes, as well as a satisfaction guarantee!