As a freelancer, you may be wondering whether it's necessary to form a legal entity for your business. While forming an LLC or corporation can provide certain benefits, such as liability protection and potential tax advantages, it also comes with costs and ongoing maintenance requirements.
Many freelancers may form a legal entity without fully understanding what it entails, leading to unexpected expenses and headaches down the road. In this article, we'll explore the costs and benefits of forming a legal entity as a freelancer, and provide guidance on when it may be necessary and when it's best to hold off.
What is a legal entity?
A legal entity is a business structure that is recognized as a separate legal entity from its owners. This means that the business has its own legal rights and responsibilities, such as the ability to enter into contracts, sue or be sued, and own assets. There are several types of legal entities, including sole proprietorships, partnerships, LLCs, and corporations.