Your Limited Liability Company (LLC) will be a legal “step-up” from a sole-proprietorship. An LLC provides protection of personal assets similar to a corporation, yet the one or more “members” or “owners” still possess total operational flexibility and enjoy pass-through tax efficiency.
To form an LLC is pretty easy. Legal professionals can help guide or even complete the process for you, but personal initiative and thorough research can save you money. The U.S. Small Business Administration website, and others such as Nolo.com or How to Start an LLC are great online resources. For the record, this serial will help you get started, but can not substitute for independent research and consultation of a legal professional.
Details will vary widely from state to state, but the LLC formation process is conceptually the same everywhere: Register a name, file some paperwork, pay some money, check for any state-specific requirements, and prepare for annual fees and taxes.
First, make sure your business name is available (Look it up here!). If your name is unique, does not include state-restricted terms such as “bank” or “insurance” (which are organizations usually prohibited from filing as LLCs), but does include the term “LLC” or some variant, then you’re ready to file!
File the formal paperwork, often called the Articles of Organization, and pay any associated filing fee (around $100, but can vary widely by state). You will need to appoint a Registered Agent, which for most music therapy private practices will be you! An RA is the person designated to send and receive papers, such as the annual fees required to keep your LLC active. Your Articles will include basic information about your business, the RA, any additional members if applicable, and the desired effective date of LLC. (Note that this information is made public, so expect some spam mail, and navigate all LLC responsibilities and correspondences with prudence.)
Most states do not require you to develop an LLC Operating Agreement, but California, Delaware, Maine (if more than one member), Missouri, Nebraska, and New York currently do. Regardless of legal necessity, people going into business together should write an operating agreement to discern rights and responsibilities. Further, you are not required to develop a business plan, but a carefully crafted, objective road map to pinpoint short-term action steps and guide the business towards larger, long-term milestones can be a tremendous asset.
What next? Obtain all required licenses or permits, if applicable. Beyond the MT-BC credential (and state licensure or registry if applicable), you may or may not need anything else – do your research here. You may also (but probably not) be required to publish your intent to form an LLC; this is an outdated practice, and other than New York, I’m not sure which states still uphold this step. If needed, newspapers will be happy to take your money to publish your statement of intent to incorporate.
You may want to apply for an Employer Identification Number (EIN) if you’re going to open a dedicated business bank account, host multiple members, or hire employees. An EIN is easy to apply for, free, and assigned quickly. Apply here.
Voila! You’re a business owner! Now that you have filed a little paperwork and spent some of your start-up cash, it’s time to actually serve your community, keep organized records, file taxes on schedule, and grow! To maintain your LLC you will have to file an annual report, which means paying the state another fee every year. I also encourage you to set aside at least 20% of your monthly income to prepare for taxes. Study your state tax obligations here. As your business earns more revenue, you may save money by electing for your LLC to be taxed as an S Corporation. Treated as a corp will mean a little more paperwork, but after paying yourself a reasonable salary, surplus income can be distributed through dividends to reduce the amount subject to self-employment tax.
The internet and bookstores are full of incredible resources, your familial and social networks may be better guides than you expect, and legal professionals are always available. As you study accounting, learn which expenses are deductible, improve your clinical prowess, boost your business acumen, etc., you will become a stronger clinician, a bolder entrepreneur, and a proud business owner.