Formalize Your Freelance Business

by Attorney Stephen Fishman

Follow these steps to take your business to the next level.

1. Consider a formal business structure.
One of your first tasks is to decide on the ownership structure for your business: sole proprietorship, partnership, limited liability company, or corporation. Most likely, you're already a sole proprietorship, by default, but that may not be the best choice when it comes to paying taxes or personal liability. For more information on selecting the right structure, see Choosing the Best Ownership Structure for Your Business.

2. Name your business.
Do you already have a business name or have you been using your own name? If you've been operating under your own name, you may decide to select a trade name that customers will remember. If you do, you should register it as a fictitious business name; see Registering Your Business Name. You'll also have to make sure that the name you choose (or a similar one) isn't already being used by another competing business. If it is, you could find yourself in legal trouble. And, if you plan to create a website, you'll want to make sure that your business name -- or some obvious abbreviation or acronym -- is available as a domain name. For more information on naming your business, see Choosing a Business Name FAQ.

3. Consider office space.
Have you been working out of your home? Working at home has its benefits -- you won't have to pay office rent, spend time commuting to work, or even change out of your pajamas. On the other hand, an outside office provides a more professional setting for your business, helps you separate your home and work lives, and may allow you to work more efficiently. For information on leasing commercial space, see Finding and Renting Space for Your Business.

4. Get licenses and permits.
Depending on the type of business you start, you may need to get permits and licenses from federal, state, and local governments. Many cities and counties require every business -- even single-owner, home-based operations -- to get a license or permit. You may also have to get a sales tax permit (often called a seller's permit) from your state. For more information, see Obtaining Licenses and Permits.

5. Shop for insurance.
Insurance is the single greatest expense for many independent contractors. Unlike employees, who are often covered by their employers' plans, you will need to find -- and fund -- your own coverage. Among the policies you may need are health insurance, disability insurance, coverage for your business property, liability insurance, auto insurance, and workers' compensation coverage. If you plan to work out of your home, see Home Business Insurance for more information on insurance issues.