Choosing a Business Structure
Most local businesses should be LLCs. That doesn't make it the right call for you — but it's the right starting point.
The four options, ranked by likelihood of being right for you
There are technically more (partnerships, professional corporations, B-corps), but for a local service business, you'll almost always end up at one of these four:
- Sole proprietorship — you and the business are legally the same person. Cheapest. Riskiest. No liability protection.
- LLC — separate legal entity. Limits your personal liability. Simple to file. Flexible tax treatment.
- S-corporation — actually a tax election layered on top of an LLC or corporation. Can save self-employment tax once you're consistently making over ~$50k profit.
- C-corporation — the entity startups and big businesses use. Almost never the right pick for a local service business — double taxation usually kills the value.
Why LLC is the default answer
The LLC was invented for situations exactly like yours. It separates your business assets from your personal assets, so if a customer sues you for botched work, they're suing the LLC — not your house. The tradeoff is a small annual filing fee in most states and a bit more paperwork than a sole prop.
You can form an LLC yourself for $50–$300 depending on your state. You don't need a lawyer for the initial filing. You do need one if you have business partners — get the operating agreement in writing before you take the first job together. Verbal partnerships are how lifelong friendships end.
When the S-corp election makes sense
If you're consistently netting more than about $50,000 in profit (after expenses, not revenue), an S-corp election can save you thousands per year in self-employment tax. The mechanism: you pay yourself a reasonable salary (subject to payroll taxes), and the remaining profit comes through as a distribution (not subject to the 15.3% self-employment tax).
Downsides: you need real payroll (a service like Gusto or QuickBooks Payroll runs ~$40-60/month), you'll need a CPA to do the more complex tax return, and the IRS expects "reasonable" salaries — paying yourself $5k of salary and taking $200k of distributions will get you audited.
Rule of thumb: under $50k profit, stay an LLC. Over $80k profit, run the S-corp math with a CPA. Between $50k and $80k, it depends on your state and tax bracket.
What you do NOT need on day one
Most new business owners overspend on legal setup. You do not need:
- A trademark — wait until you have revenue and a name worth defending
- A custom operating agreement — your state's default is fine until you bring in a partner or take on investors
- Multiple LLCs for different services — one LLC can run multiple services under different DBAs
- A separate holding company — premature for almost every local business
- An expensive registered-agent service — most states let you be your own registered agent
How to actually file
Go to your state's Secretary of State website. Search for "form LLC" and follow the link. Fill out the Articles of Organization. Pay the fee. You'll usually be approved within a few business days.
Then: get an EIN from the IRS (free, takes 10 minutes online). Open a business bank account using the EIN and your filed Articles. From that moment forward, every dollar of business income goes through that account, every business expense comes from it. That separation is what keeps your liability protection real.
Talk to UpEngine
We're a marketing company, not a law firm — but if you're overthinking which entity to pick before your first marketing spend, the answer is almost always: form the LLC, get the EIN, get back to growing.