Business Law

Sole Proprietor? Forming an LLC Is Easy and Inexpensive

ribbon cutting post

ribbon cutting post

You’re a sole proprietor. It’s simple, uncomplicated and inexpensive, and best of all you don’t need an attorney. But it’s a little scary that everything you own is at risk for your business decisions.

Out of curiosity you corner an attorney at a Rotary or Chamber meeting for some free advice on limiting your personal liability. He/she suggests that you form a corporation; and after you hear about the fees and the formalities, the status quo sounds just fine. Your budget is tight right now, really tight; and lawyers are sooo expensive.

But, there is an alternative. In Missouri you can form a limited liability company on-line (for $50.00) by filing Articles of Organization at the Missouri Secretary of State’s website; and an LLC (unlike a corporation) won’t effect your income taxation as a sole proprietor.

Two critical mistakes people make

Mistake #1: Failure to understand the on-line form and the choices. The on-line filing looks and feels easy, but it’s deceptively so. I don’t mean that the Secretary of State is trying to deceive you. What’s dangerous is your lack of legal knowledge, and therefore, the correct choices to make in completing the on-line process. If you blow this filing, you may jeopardize the limitation of your personal liability (which is the whole point). Courts will not save you from your errors in filing. There is no margin for error and what you “intended” doesn’t count. In a later blog posting we’ll help you avoid these common mistakes.

Mistake #2: Assuming that filing Articles of Organization completes the process. In Missouri an LLC with a sole member (i.e., one owner) is required by law to have an “operating agreement.” What does this mean? It means: no operating agreement = no limit of your personal liability.

So now all you need is an operating agreement from the internet right? Wrong. This is where the “self-help” must end. Find an attorney who will help you complete an operating agreement. Solution?: if you have multiple (i.e., more than one), members/owners, no written operating agreement is required in Missouri; so think about adding your spouse as a member/owner. Concern: if you don’t have a written operating agreement, how will you document who the owners are?

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