Becoming an LLC: what impact does this have on a freelancer's work with agencies?
Thread poster: Rebekah Fowler
Rebekah Fowler  Identity Verified
United States
Portuguese to English
+ ...
Jun 15, 2010

Hello,

I was recently told that it is to my advantage to incorporate as an LLC (in the United States), rather than continue to be a sole proprietor. I understand that incorporation offers certain business and tax advantages (like liability protection and paying less tax), but I would like to know whether this would have a negative impact on my ability to work with agencies as a freelancer.

For example, some agencies will say "freelancers only" when posting job offers or looking for outsourcers. Does this mean that if I become an LLC, some agencies will not work with me, presumably for financial or tax reasons? Or can one continue to work as a freelancer for agencies and also be an LLC? If the business status does make a difference as a freelancer, then does such a distinction need to be declared to these agencies, or only to the IRS and other "non-agency" entities?

Many thanks in advance for any and all feedback and clarifications.

-Rebekah


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Daina Jauntirans  Identity Verified
Local time: 08:21
German to English
+ ...
No impact Jun 15, 2010

I have an S-corp, and this has not affected my interaction with agencies at all. I don't outsource much, so I make sure to let them know that I complete the work myself unless a different plan is agreed in advance.

You do need to have checks and payments made out to your business name, so there is no way to "hide" your status. Again, though, it hasn't made a difference in my business.

Check out the different ways to incorporate to see what is best for you. My accountant suggested it was best for me to be an S-corp, not an LLC. As long as I pay myself a reasonable salary (goes through like regular payroll, which is nice for me, since taxes are taken out right away, and I don't have to do quarterlies), I can take the remaining net income as distributions that are not subject to self-employment tax. On the other hand, there is some paperwork involved in an S-corp that I understand is easier with an LLC. Both offer some liability protection.

HTH!


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Michele Johnson  Identity Verified
Germany
Local time: 15:21
German to English
+ ...
Liability issues? Jun 15, 2010

I always thought liability was one of the major issues here? Sort of like a GmbH vs. Einzelunternehmen in Germany. Clearly you need to ask your legal advisor but my understanding is that you are liable with 100% of your personal assets as a "regular" independent contractor/sole proprietor, while if the work runs through the LLC, the liability is limited. If liability comes up, say for instance due to negligence in translation, AFAIK it makes a huge difference, so clearly you need to be up front (on both a legal and ethical basis) with your customers about who their legal business partner is. For this reason I would expect a preference for working with sole proprietors vs. corporations/LLCs but I have no idea how this plays out in practice in the US. In Germany for instance English Limiteds and "mini-GmbHs" i.e. "UG haftungsbeschränkt" do not enjoy a particularly good reputation according to my tax advisor and I have declined working with a number of them because they seemed flaky (not just because of the business form but it played a role).

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Daina Jauntirans  Identity Verified
Local time: 08:21
German to English
+ ...
Still no difference for me Jun 15, 2010

Yes, with an S-corp or LLC your personal assets will not be involved if a lawsuit is brought against the company, as far as I know. Not a single agency has brought this up in the 5 years I have been incorporated, though, so I don't see the preference for sole proprietors. YMMV!

PS I work for agencies and direct clients in both the US and Europe.

[Edited at 2010-06-15 18:01 GMT]


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Luisa Ramos, CT  Identity Verified
United States
Local time: 09:21
Member (2004)
English to Spanish
Errors and omissions insurance policy Jun 16, 2010

I prefer to maintain an E&O insurance policy rather than having to keep all sorts of accounting and legal records beyond what I now keep. Hays has a special E&O policy for members of the American Translators Association. In my experience, agencies and clients do not care as much whether you are a sole proprietor, an LLC, or a corporation, but having the policy when they ask... that makes a difference.

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Nicole Schnell  Identity Verified
United States
Local time: 06:21
English to German
+ ...
No difference Jun 16, 2010

Rebekah Fowler wrote:
but I would like to know whether this would have a negative impact on my ability to work with agencies as a freelancer.

For example, some agencies will say "freelancers only" when posting job offers or looking for outsourcers. Does this mean that if I become an LLC, some agencies will not work with me, presumably for financial or tax reasons? Or can one continue to work as a freelancer for agencies and also be an LLC? If the business status does make a difference as a freelancer, then does such a distinction need to be declared to these agencies, or only to the IRS and other "non-agency" entities?


1.) How you pay your taxes doesn't affect the outsourcer
2.) Having a company name followed by LLC or Inc. doesn't make you look like an agency automatically (as long as you don't opt for a company name such as "International Translations Worldwide", that is)
3.) Advantage: Nobody will ever ask you for bizarre things such as copies of your passport, SSN, shoe size, etc.


Edited for typo

[Edited at 2010-06-16 00:44 GMT]


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Daina Jauntirans  Identity Verified
Local time: 08:21
German to English
+ ...
Good point! Jun 16, 2010

Nicole Schnell wrote:


3.) Advantage: Nobody will ever ask you for bizarre things such as copies of your passport, SSN, shoe size, etc.


Edited for typo

[Edited at 2010-06-16 00:44 GMT]


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Rebekah Fowler  Identity Verified
United States
Portuguese to English
+ ...
TOPIC STARTER
Thanks to all for your feedback! Jun 16, 2010

Thank you, everyone, for weighing in on the matter. Your feedback is very helpful and it's helped clear up some key questions I've had in terms of how to take my translation business (as opposed to the art of translation) to another level.

I think my confusion resided in the idea that being incorporated as an LLC or S-corp equated to being an agency, or being viewed as one, which could result in a change to my client base (currently agencies).

Based on feedback from Daina and Nicole, it looks like this is not at all the case, and that your business status (sole proprietor, LLC or S-corporation) has no bearing on whether Agency X will want to work with you, provided you make it clear that you are the one doing the work. Great news indeed!

Thanks also to Luisa, for mentioning the E&O insurance and the ATA reference. I will look into this as well.

Kind regards,
Rebekah


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