My accountant slid a piece of paper across his desk to me, and in that instant, my heart sank.
I’d gone in for what I thought was a routine meeting of updating my LLC paperwork. It was supposed to be quick, easy, and painless.
But instead, I learned that my LLC had been administratively dissolved by the state of North Carolina, and neither of us had any idea why.
(For those of you who are unfamiliar, setting up an LLC (limited liability corp) is the #1 way freelancers in the United States can protect themselves. If you have one in place and something goes wrong and your business gets sued, all of your personal assets are still protected. If you don’t have one, every single thing you own is up for grabs.)
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I hadn’t done anything wrong, to my knowledge, and never even had any warning that this was about to happen.
The story ends well, I got everything back on track, but I learned some serious lessons in the process about how to protect yourself, your money, and your assets as a freelancer.
1. Hire a competent lawyer… Or make yourself the primary contact for state correspondence
As I’d find out through this experience, the lawyer I hired to file my LLC paperwork in 2015 literally just collected the money, filed the paperwork, and then promptly shredded everything.
All I had (and all I could get after calling his office multiple times) were the copies of the paperwork I’d requested and kept for myself. They didn’t have anything on file… on paper or on a hard drive somewhere.
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So if you can get a good reference from someone you trust for a lawyer, follow that lead.
Unfortunately, the ability to tell whether a lawyer is good or not can be kind of hard when you’re first getting started. After my first meetings and calls with this guy, I thought he was a good one. He kindly answered my questions and moved things along quickly. Kind, educational, and prompt. Just the way I like it.
But turns out he was a good first date and not long-term relationship material. And boy did he ever ghost me when things got serious.
So to avoid that, when you file your LLC paperwork, make sure your name and your address are the ones listed for contact and correspondence.
The reason my LLC was dissolved was because I’d failed to file annual reports for two years. But… my lawyer never told me about them, and because he was the contact person for state correspondence for the LLC, he was the one getting the mailings from the state requesting the reports to be filed. But he never told me about them, and I suffered $500 worth of consequences.
2. File your LLC paperwork
I do everything 100% ethically in my business. I don’t plagiarize, I don’t rip people off, and I always do my best to do an amazing job.
But that doesn’t stop people from complaining, and in one case, it didn’t even stop her from reporting me for financial fraud.
I worked with my payment processor and her bank, and my name got cleared. I hadn’t done anything remotely financially shady, and after presenting my evidence it was obvious.
But what if I hadn’t been so meticulous with the evidence collection?
Or what if more than a few hundred dollars was at stake?
Bad things sometimes happen to good people, and the best thing you can do is protect yourself.
So, like I mentioned in the intro, getting LLC paperwork in place immediately protects you from anything negatively affecting your personal finances, no matter what happens in your business.
3. At the very least, separate business & personal finances
If you’re just starting out as a freelancer and don’t have the means to set up an LLC yet, there are still some things you can do to protect yourself.
You won’t have the protection of having your business as a separate legal entity, but you will be able to show your good intent to keep things separate should push come to shove.
First, set up separate bank accounts. Even if your business account is just a different sub-account under your main bank account, set it up.
Funnel all your business income into this account and this account alone, and transfer it over to what you’ve dedicated as your personal spending account before you spend it.
For spending on business expenses, get a separate credit card, and pay this credit card bill from the business bank account you’ve set up.
Many times, you can’t get a “business” credit card unless you’ve got a legitimate business set up with paperwork, but you can still get an additional personal credit card that you dedicate for solely business use.
Again, the amount of protections this provides is limited, but it’s soooo much better than doing nothing and waiting until you’re “ready” to hire a lawyer. Plus, it’ll be a life-saver when tax time comes.
“At the end of the year,” advises Karin Price Mueller on Entrepreneur, “all your income and expenses will be in one place, making record keeping and tax filing easier… Keeping good records year-long will give your proof of your business expenses if you do get audited.”
4. Take one action this week
If you already have a separate business entity established for your freelancing, are 100% sure it’s up-to-date, and have your finances in spotless condition, you don’t need to do anything.
But if even one of these is out of line, make sure you check in on them this week and put it in your calendar to take action on them and get everything as sorted out as you can to make sure you’re protecting yourself.
If you don’t have an LLC already established, take time to do it soon. Services like LegalZoom make it quick and easy.