Do I Need an LLC for a Cleaning Business?

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Many cleaning businesses start as sole proprietorships, with only one person owning and operating the business. Although this is a simple way to start a cleaning service business, the owner puts their personal assets at risk.

Small business owners prefer LLCs because they protect their personal assets and are easy to set up and maintain. However, there are many other significant benefits to forming an LLC for your business.

What Is An LLC?

A limited liability company (LLC) is a business entity that is a hybrid of a corporation, offering personal liability protection and a sole proprietorship, where you can report your business income on your personal tax return.

How Does an LLC Benefit a Cleaning Business?

Protects Your Personal Assets

The cleaning industry has more risks than other types of businesses. Whether a janitorial service company or a residential cleaning business, you may deal with toxic chemicals, injuries on the job, and potential property damage. The most significant benefit of choosing an LLC as your business structure is personal liability protection.

As a sole proprietor, if you break something while on the job or someone slips and falls on a wet floor, a customer can sue you and take your home, car, and money. Operating your cleaning company as an LLC means your personal assets are separate from your business activities. If someone sued your business for property damage, they could only take your business assets.

Allows for Flexible Tax Structure

If you are a corporation, you may be subject to double taxation, which means you pay a corporate income tax and an individual income tax. LLCs offer pass-through taxation, so there is no federal tax on LLC income. As an LLC owner, you can report your income on your tax return, avoiding double taxation.

Secures Your Business Name

An entrepreneur operating as a sole proprietor uses their name or registers another name as a DBA (doing business as) their business name. If you form an LLC, you register your business name with the state, so you do not have to file a separate DBA. Once you register your business name, no one else can use it in the state.

Conveys a Professional Image

Potential clients may have more confidence in your business if you are an organized business entity. Having an LLC behind your business name demonstrates a more established business. And businesses looking to hire you want to prove you are an independent contractor and not an employee. If the IRS considers you their employee, the business must pay benefits and employee taxes. Having an LLC is evidence that you are an independent contractor running your own business.

Makes for Easier Bookkeeping and Tax Reporting

As a new business, you have startup costs and ongoing expenses. You want to account for your business expenses properly for tax purposes. You can deduct your cleaning supplies, equipment, etc. and having a separate business account makes for easier bookkeeping and tax reporting.

How Do You Form an LLC?

You can create an LLC with your Secretary of State’s office by filing Articles of Organization and paying a filing fee. In these articles, you would include the following basic information:

• The business name of the LLC and address of the principal place of business

• The business purpose of the LLC

• The name and address of the LLC registered agent

• The names of the members and managers

Once the Secretary of State approves your filing, you will receive a Certificate of Formation for your LLC.

The only other requirements for maintaining an LLC are completing a Business Owners Identification Report (BOIR) and filing annual or biennial reports with the Secretary of State. Some states require an LLC to have an operating agreement, which is an outline of the business structure and management. Even if your state does not require it, having an operating agreement for your LLC may be a good idea.

What Else Do I Need for a Cleaning Business?

Forming an LLC is an important legal structure for your business. There are other things you may want to set up:

Employer Identification Number (EIN). An EIN is like a Social Security number for your business. It is a unique number that you use for business applications. You can complete an online application with the IRS to get your EIN.

Business Bank Account. For legal and tax purposes, it is important to keep your business activities separate from your personal ones. Open a bank account and credit card under your business name and only run business transactions through your business accounts.

Business Licenses and Permits. You will need a business license and permits to operate your business. Check with your state and county for local regulations and requirements.

Employment Requirements. If you hire staff, you may need to provide workers’ compensation insurance and pay employment taxes.

Other Ways to Protect Your Cleaning Business

Your LLC protects your personal assets, but you may also consider what types of business insurance can protect you and your business. For example, a general liability insurance policy or a business owner’s protection (BOP) policy covers personal injury, property damage, etc. A janitorial bond protects your customers from employee theft. You may want to investigate what coverage will make sense for your business.

Whether you run a house cleaning business or a commercial cleaning company, cleaning business owners have a unique type of business. They should take steps to protect their personal assets, set themselves apart as independent contractors, and make tax reporting easier.