So You're Going Independent: LLCs, EINs, and What Comes Next
You quit. Or you're about to. You have a few clients lined up, a decent network, and real expertise.
What you don't have is a company. Here is the order I'd do things in, and what I'd skip.
Read your employment agreement first
Before you announce anything, pull out what you signed. Look for non-competes, non-solicits, IP assignment clauses, and moonlighting restrictions. Plenty of people find out about these after a former employer's lawyer finds them. Ten minutes now beats a demand letter later.
Form the LLC
You can operate as a sole proprietor with no paperwork, but you shouldn’t. An LLC separates your business liabilities from your personal assets, and it signals that you are a business, not a side gig.
Be clear on what it does not do. It doesn't lower your taxes by itself. A single-member LLC is taxed as a sole proprietorship by default, so your income flows onto your personal return. The S-corp election can make sense later, once profits justify the added payroll and compliance cost. That is a conversation for a CPA, not something to do on day one.
Form it in your home state unless you have a reason not to. If you're in New York, know that there is a publication requirement after formation, and it can be expensive depending on which county you form in.
Sign an operating agreement
Even if you are the only member, it’s good hygiene to have an operating agreement. It documents how the company works and reinforces the separation between you and the entity. Your state may also require it.
Get your EIN
It's free from the IRS website and takes about ten minutes. Never pay a third party for one. An EIN lets you open a business bank account and hand clients a W-9 without your Social Security number on it.
Open a separate bank account
This is the step that a lot of people skip and regret. Mixing personal and business money is one of the easiest ways to undermine the liability protection you just set up (to “pierce the corporate veil”). It also makes bookkeeping and tax time far less painful.
Stop working on handshakes
Get a written for every engagement. It can be a master services agreement with SOWs, or an engagement letter. The important thing is writing it down. At a minimum, cover scope, payment terms, IP ownership, confidentiality, and a limit on your liability. Your first client may offer their paper. Don’t accept it blindly.
Plan for taxes and insurance
Nobody withholds taxes from your invoices anymore. Move a fixed share of every payment into a separate tax account, and figure out how to estimate and then pay your estimated taxes quarterly. Your CPA can also help.
Then look at professional liability insurance. Consultants get sued over advice that didn't pan out, not just over mistakes. Some clients will require proof of coverage before they sign.
This post is for general information, not legal or tax advice.
