When is the right time to form an LLC? Should you do it before landing your first client, or can it wait until your business starts to grow?

The short answer is as soon as you can. Ideally, before you even start advertising your business in public. Waiting until the last minute exposes you to severe business risks, hefty financial losses, and dragging legal battles.

The Risks of Not Getting an LLC

Many small business owners delay forming an LLC, believing they can wait until their business is more established. However, this approach can expose you to significant risks that could jeopardize your personal assets, complicate your business operations, and deter potential investors.

Lack of Legal Protection

One of the primary reasons for forming an LLC is to protect your personal assets. Without an LLC, your business operates as a sole proprietorship or partnership, meaning that you and your business are legally the same entity.

An LLC provides a legal barrier, known as limited liability protection, between your business and personal assets. Your personal assets are generally protected if your business faces legal action or financial difficulties.

No Structure

Another risk of not forming an LLC is the lack of formal structure in your business. An LLC establishes a clear organizational framework and ownership.

This structure ensures your business runs smoothly and all parties understand their responsibilities. Without an LLC, your business may operate with less clarity, leading to confusion and potential disputes among partners or employees.

What If You Don’t Have an LLC Before Getting Your First Client?

If you don’t have an LLC before securing your first client, that’s fine, but you must act swiftly. While it’s technically possible to operate without an LLC, it’s not advisable. Even your first client could bring unexpected challenges, such as a payment dispute or a contractual issue. Without an LLC, your personal assets could be at risk if a legal issue arises.

The Easiest Way To Get an LLC

Forming an LLC can seem daunting, but it doesn’t have to be. The easiest way to get an LLC is to use an online legal service specializing in business formation, such as Drafted Legal. These services guide you through the process, helping you file the necessary paperwork with your state and ensuring your LLC is set up correctly.

Most online legal services offer a basic LLC formation package that includes filing your articles of organization, creating an operating agreement, and obtaining an Employer Identification Number (EIN) from the IRS. Some services offer additional features, such as registered agent services, to simplify the process.

Other Contracts You Need To Serve Your First Client

Forming an LLC is just the first step in protecting your small business. You must also have the right contracts before serving your first client. These contracts help clarify expectations, outline payment terms, and protect your business from potential disputes.

Some key contracts to consider include:

• Client Service Agreement: This contract outlines both parties’ scope of work, payment terms, and responsibilities. It’s essential for setting clear expectations and protecting your business if a client disputes the work or payment terms.
• Independent Contractor Agreement: If you hire freelancers or subcontractors, this contract outlines the terms of their work and helps protect your business from liability related to their actions.

These contracts ensure your business is prepared to handle client relationships professionally and protect you from legal challenges.

Get Your Legal Bundle From Drafted Legal

Still wondering when to get an LLC? Now’s the time! Form your LLC and get all the contracts you need without poking a hole in your pocket. At Drafted Legal, we offer an affordable and convenient way to get your business legally recognized and protected using legally vetted contract templates.

Explore our Start a Business LLC to discover the easiest way to form an LLC. You can also browse our extensive collection of legal templates to find what you need to protect your business.