Why would my job recruiter want me to form an LLC?
Your recruiter is likely trying to avoid having to pay the employer's side of employment taxes, and may even be trying to avoid having to file a 1099 for you by treating your relationship as a vendor/service provider that he is purchasing services from, which would make your pay just a business expense. It's definitely in his best interest for you to do it this way. Whether it's in your best interest is up to you. You should consult a licensed legal/tax professional to help you determine whether this is a good arrangement for you. (Most of the time, when someone starts playing tax avoidance games, they eventually get stung by it.) The next big question: If you already know this guy is a snake, why are you still working with him? If you don't trust him, why would you take legal/tax advice from him? He might land you a high-paying job. But he also might cause you years of headaches if his tax advice turns out to be flawed. This sounds very like disguised employment. You act like an employee of the company, but your official relationship with them is as a contractor. You gain none of the protection you get from being an employee, and this may make you cheaper, less risky and more desirable for the company who is hiring you.  Depending on your country you may also pay corporation tax rather than income tax, which may represent a very significant saving. Also, the company hiring you may not have to pay PAYE, national insurance, stakeholder pension, etc. This arrangement is normal and legal providing you genuinely are acting as a subcontractor. However if you are behaving as an employee (desk at the company, company email, have to work specific hours in a specific location, no ability to subcontract, etc.) you may be classified as a disguised employee. In the UK it used to be common practice for highly paid employees to set up shell companies to avoid tax. This will now get you into hot water. Google IR35 It sounds like your relationship in this case is directly with the recruiter. You will have to consider if the recruiter is acting as your employer, or if you remain a genuinely independent agent. The duration of your contract with the recruiter will have a bearing on this. In the UK there are a whole series of tests for disguised employment. This is a good arrangement provided you go in with your eyes open and an awareness of the legislation.  However you should absolutely check the rules that apply in your country before entering into this agreement. You could potentially be stung very badly indeed. "There are a few sites out there that can give you some reasoning behind the request. LegalZoom, for instance.  To quote the LZ doc in case the link dies: Employee vs. Independent Contractor If a worker is an employee, the employer is responsible for paying   Social Security, unemployment insurance, Medicare, and possibly other   costs like workers' compensation insurance for the employee; at the   end of the tax year, the employer is responsible for compiling all   necessary payroll reports, including W-2 forms. If a worker is an independent contractor, the employer is not   responsible for any of the above taxes or payments, and the only added   paperwork is the issuing of a 1099 to the independent contractor at   the end of the tax year, if he or she has made more than $600 with the   employer. As Kent suggested, you should speak with an attorney (really you need one if setting up an LLC). There are a lot of companies out there these days that try to classify people as contractors rather than full-time employees as it gets them out of paying benefits and dealing with taxes. This is being heavily cracked down on, and several ""contractor"" employees are winning lawsuits to get full-time status.  If you are truly acting as a contractor, then setting up an LLC can help with a few items such as taxes and protection on certain business aspects (see comments below regarding this). It's easy and relatively cheap (cost me about $250 with extra legal advice tacked on). If you are reporting directly to a manager with the company, or really working in any way that isn't consistent with the definition of a contractor, then I'd turn down the offer and ask to be made a FT employee.  Additional information: https://www.sba.gov/content/hire-contractor-or-employee" I don't know about the US, but in the UK this is common practice, even required in some situations, and not sketchy at all. It's perfectly legal, saves you tax, and protects you from a legal standpoint. (i.e. what if you break something and your employer wants to sue you?) This is what companies are for, they are legal entities that are separate from an individual. There is no requirement for a company to have more than one employee. "The ""independent contractor"" vs. ""employee"" distinction is a red herring to this discussion and not at all important just because someone suggested you use your LLC to do the job. Corp-2-Corp is a very common way to do contracting and having an LLC with business bank accounts provides you with more tax deductions (such as deducting interest on credit lines). Some accounting practices prefer to pay entities by their Tax ID numbers, instead of an individual's social security number. The actual reasoning behind this would be dubious, but the LLC only benefits you and gives you more advantages by having one than not. For example, it is easier for you to hire subcontractors through your LLC to assist with your job, due to the opaqueness of the private entity. Similarly, your LLC can sign Non Disclosure and Intellectual Property agreements, automatically extending the trade secrets to all of its members, as opposed to just you as an individual. By signing whatever agreement with the company that is paying you through your LLC, your LLC will be privy to all of this. Next, assuming you did have subcontractors or other liability inducing assets, the LLC limits the liability you personally have to deal with in a court system, to an extent. But even if you didn't, the facelessness of an LLC can deter potential creditors, for example, your client may just assume you are a cog in a wheel - a random employee of the LLC - as opposed to the sole owner. Having a business account for the LLC keeps all of your expenses in one account statement, making your tax deductions easier. If you had a business credit line, the interest is tax deductible (compared to just having a personal credit card for business purposes). Regarding the time/costs of setting up and managing an LLC, this does vary by jurisdiction. It can negligible, or it can be complex. You also only have to do it once. Hire an attorney to give you a head start on that, if you feel that is necessary. Now back to the ""independent contractor"" vs. ""employee"" distinction: It is true that the client will not be paying your social security, but they expect you to charge more hourly than an equivalent actual employee would, solely because you don't get health insurance from them or paid leave or retirement plans or any other perk, and you will receive the entire paycheck without any withheld by the employer. You also get more tax deductions to utilize, although you will now have self employment tax (assuming you are a US citizen), this becomes less and less important the higher over $105,000 you make, as it stops being counted (slightly more complicated than that, but self employment tax is it's own discussion)." This is pretty normal.   I am in the UK and currently doing the exact same thing.  As some answers state there is additional tax law called IR35. But thats all it is, an additional tax law that may be applicable to your situation (it very well may not). It is all perfectly legal and common (all my university friends now do it). You will be the director of a company, and invoice the recruiters company.  This has benefits and disadvantages. Personally I love it, but each to their own. Don't do it if you don't want to. "LLC is, as far as I know, just a US thing, so I'm assuming that you are in the USA. Update for clarification: other countries do have similar concepts, but I'm not aware of any country that uses the term LLC, nor any other country that uses the single-member LLC that is disregarded for income tax purposes that I'm referring to here (and that I assume the recruiter also was talking about). Further, LLCs vary by state. I only have experience with California, so some things may not apply the same way elsewhere. Also, if you are located in one state but the client is elsewhere, things can get more complex. First, let's get one thing out of the way: do you want to be a contractor, or an employee? Both have advantage, and especially in the higher-income areas, contractor can be more beneficial for you. Make sure that if you are a contractor, your rate must be considerably higher than as employee, to make up for the benefits you give up, as well as the FICA taxes and your expense of maintaining an LLC (in California, it costs at least $800/year, plus legal advice, accounting, and various other fees etc.). On the other hand, oftentimes, the benefits as an employee aren't actually worth all that much when you are in high income brackets. Do pay attention to health insurance - that may be a valuable benefit, or it may have such high deductibles that you would be better off getting your own or paying the penalty for going uninsured. Instead of a 401(k), you can set up an IRA (update or various other options), and you can also replace all the other benefits. If you decide that being an employee is the way to go, stop here. If you decide that being a contractor is a better deal for you, then it is indeed a good idea to set up an LLC. You actually have three fundamental options: work as an individual (the legal term is ""sole proprietorship""), form a single-member LLC disregarded for income tax purposes, or various other forms of incorporation. Of these, I would argue that the single-member LLC combines the best of both worlds: taxation is almost the same as for sole proprietorship, the paperwork is minimal (a lot less than any other form of incorporation), but it provides many of the main benefits of incorporating. There are several advantages. First, as others have already pointed out, the IRS and Department of Labor scrutinize contractor relationships carefully, because of companies that abused this status on a massive scale (Uber and now-defunct Homejoy, for instance, but also FedEx and other old-economy companies). One of the 20 criteria they use is whether you are incorporated or not. Basically, it adds to your legal credibility as a contractor. Another benefit is legal protection. If your client (or somebody else) sues ""you"", they can usually only sue the legal entity they are doing business with. Which is the LLC. Your personal assets are safe from judgments. That's why Donald Trump is still a billionaire despite his famous four bankruptcies (which I believe were corporate, not personal, bankrupcies). Update for clarification Some people argue that you are still liable for your personal actions. You should consult with a lawyer about the details, but most business liabilities don't arise from such acts. Another commenter suggested an E&O policy - a very good idea, but not a substitute for an LLC. An LLC does require some minimal paperwork - you need to set up a separate bank account, and you will need a professional accounting system (not an Excel spreadsheet). But if you are a single member LLC, the paperwork is really not a huge deal - you don't need to file a separate federal tax return. Your income will be treated as if it was personal income (the technical term is that the LLC is disregarded for IRS tax purposes). California still does require a separate tax return, but that's only two pages or so, and unless you make a large amount, the tax is always $800. That small amount of paperwork is probably why your recruiter recommended the LLC, rather than other forms of incorporation. So if you want to be a contractor, then it sounds like your recruiter gave you good advice. If you want to be an employee, don't do it. A couple more points, not directly related to the question, but hopefully generally helpful: If you are a contractor (whether as sole proprietor or through an LLC), in most cities you need a business license. Not only that, but you may even need a separate business license in every city you do business (for instance, in the city where your client is located, even if you don't live there). Business licenses can range from ""not needed"" to a few dollars to a few hundred dollars. In some cities, the business license fee may also depend on your income. And finally, one interesting drawback of a disregarded LLC vs. sole proprietorship as a contractor has to do with the W-9 form and your Social Security Number. Generally, when you work for somebody and receive more than $600/year, they need to ask you for your Social Security Number, using form W-9. That is always a bit of a concern because of identity theft. The IRS also recognizes a second number, the EIN (Employer Identification Number). This is basically like an SSN for corporations. You can also apply for one if you are a sole proprietor. This is a HUGE benefit because you can use the EIN in place of your SSN on the W-9. Instant identity theft protection. HOWEVER, if you have a disregarded LLC, the IRS says that you MUST use your SSN; you cannot use your EIN! Update: The source for that information is the W-9 instructions; it specifically only excludes LLCs."
An LLC is a very flexible company when it comes to taxation.  You have three basic tax options: There are other good reasons to create an LLC (mainly to protect your personal assets) so even if you decide that you don't want to deal with the complications of an S-Corp LLC, you should still consider creating a sole proprietorship LLC. "The biggest problem with this that others seem to have missed is that a corporation must have a profit motive.  Meaning at some point after a ""startup phase"" your company needs to turn a profit to not be considered a hobby. Will your employer be paying your corporation for your salary?  Is that the company's business endeavor?  If you run profits through the company and treat it like a true business, this may be technically possible, but as others have mentioned probably will cost more than any benefits you'd receive.  And at every step you'll be throwing tons of audit flags. Rich Dad Poor Dad advocates a light version of this.  Essentially running a business like Real Estate through an LLC, and then using that LLC for ""business trips"" (vacation with some justifiable business motive) or capital purchases (laptop, etc...) and the like, such that you're paying with ""Pre-tax"" money instead of ""Post tax"", but again the business needs a revenue source." I'm in connecticut and I have met with RobertHalf and another recruiting firm. They both said they would be in constant contact with me yet I haven't heard from either so far. I have emailed and called and haven't gotten much.  I try to apply to at least 4 or 5 new positions a day but never hear anything back.  [This](http://www.w3schools.com/sql/default.asp) is what I have been trying to familiarize myself with just to get the gist of SQL. "S-Corp are taxed very different. Unlike LLC where you just add the profit to your income with S-Corp you have to pay yourself a ""reasonable"" salary (on w-2) which of course is a lot more paperwork. I think the advantage (but don't hold me accountable for this) is if your S-Corp makes a lot more than a reasonable salary, then the rest of the money can be passed through on your personal return at a lower (corp) rate." "I work in the legal services industry, selling these products for a competitor of theirs who shall remain nameless.  The LLC filing itself in most cases is a simple fill in the blank form. You can likely file yourself either online or through the mail, depending on the state. Only a handful require an original document.  You can apply for the EIN for free on the IRS website and usually have it within a few minutes. If you already have someone assisting with your annual LLC taxes you wouldn't need their services for that either. If their compliance kit involves any business licensing research, it may be worthwhile - but you can also order those services a la carte from vendors like LLX and BusinessLicenses.com.  What you're really paying for is the registered agent service - the address for public record with the state so they know where to send any service of process - and you're paying for the convenience of a ""one stop shop"" instead of handling all the legwork yourself." "Get some professional accounting help. You're going to have to pay for everything out of the fee you charge: taxes, retirement, health care, etc. You'll be required to pay quarterly. I don't think you should base your fee on what ""this"" company will pay as a full-time employee, but what you can expect in your area. They're saving a lot of money not going through an established employment firm and essentially, making you create your own. There are costs to setting up and maintaining a company. They have less risk hiring you because there are no unemployment consequences for letting you go.  Once you're hired, they'll probably put you on salary, so you can forget about making more money if you work over 40 hrs. IMHO - there have to be better jobs in your area than this one." "The primary advantage is protection of your personal assets. If your LLC gets sued, they can't take your house/car/dog/wife. There aren't really any financial incentives to be an LLC; because of the pass-thru taxing structure, you wind up paying the same in taxes either way. ""The cost"" will depend on where you're located, and usually involves a few factors -- Expect to pay $300-500 to start it, depending on your state and who you register with (technically, you can usually register for free at the secretary of state, but wouldn't you rather pay an expert?), and ""State Franchise Tax"", which will can be a minimum of up to $1000/year depending on the state, plus even more if your LLC earns more than $xxx,000. EDIT -- As an aside, I'll mention that I'm based in California, and our state franchise tax starts at $800/yr. I'm all-web-based, so I've been investigating incorporating in Nevada or Delaware instead (no franchise tax, lower filing fees), but from what I've found, it's hardly worth the trouble. In addition to having to pay a Registered Agent (someone to act as my permanent mailing address in that state for ~$100/yr), apparently California likes to search for people just like me, and charge them $800 anyway. You can fight that, of course, and claim that your business really is done in Nevada, but do you really want to?" "If you start an LLC with you as the sole member it will be considered a disregarded entity.  This basically means that you have the protection of being a company, but all your revenues will go on your personal tax return and be taxed at whatever rate your personal rate calculates to based on your situation.  Now here is the good stuff.  If you file Form 2553 you can change your sole member LLC to file as an S Corp.  Once you have done this it changes the game on how you can pay out what your company makes.  You will need to employ yourself and give a ""reasonable"" salary.  This will be reported to the IRS and you will file your normal tax returns and they will be taxed based on your situation. Now as the sole member you can then pay yourself ""distribution to share holders"" from your account and this money is not subject to normal fica and social security tax (check with your tax guy) and MAKE SURE to document correctly.  The other thing is that on that same form you can elect to have a different fiscal year than the standard calendar IRS tax year.  This means that you could then take part of profits in one tax year and part in another so that you don't bump yourself into another tax bracket.  Example:  You cut a deal and the company makes 100,000 in profit that you want to take as a distribution.  If you wrote yourself a check for all of it then it could put you into another tax bracket.  If your fiscal year were to end say on sept 30 and you cut the deal before that date then you could write say 50,000 this year and then on jan 1 write the other check." If I understand you right, people are giving the LLC money for an ownership share.  That is NOT income - it would go under equity on the balance sheet.  It is analogous to getting a loan from the bank.  It is not income - you get cash (an asset) and have an increase to debt (a liability) There's no reason to keep the California LLC if you don't intend to do business in California.  If you'll have sales in California then you'll need to keep it and file taxes accordingly for those sales.  You can just as easily form a new LLC in Washington state and even keep the same name (if it's available in Washington, that is). Keeping the California LLC just creates paperwork for whatever regulatory filings California will require for no purpose at all.   As for your question about it looking suspicious that you just set up an LLC and then are shutting it down, nobody's going to care, to be honest.  As with your situation, plans change, so it isn't really all that unusual.  If you're concerned the government will say something, don't. LLC doesn't explain the tax structure. LLCs can file as a partnership (1065) Scorp (1120S) or nothing at all, if it's a SMLLC. (Single Member LLC). I really enjoy business, and helping people get started. If you PM me your contact information, id be more than happy to go over any issues you may have, and help you with your current issue. It makes no difference for tax purposes. If you are 1099, you will pay the same amount of taxes as if you formed a corporation and then paid yourself (essentially you are doing this as a 1099 contractor, just not formally). Legally, I don't know the answer.  I would assume you have some legal protections by forming an LLC but practically I think this won't make any difference if you get sued. They might be concerned with having to charge sales tax in California if they have a single employee in California, creating a nexus situation with CA. If that's the case, or even if there is some other issue, you might be able to switch from being a W2 employee to being a 1099 independent contractor. There's a host of additional issues this could cause, but it alleviate the nexus problem (if THAT is the problem). Here's a terrible solution you can bring up, but shouldn't do under any circumstances: offer to set up a mailing address in an allowed State, and give your company plausible deniability with regards to your legal residence. Obviously, this is a terrible idea, but exploring that option with your employer would help you suss out what the actual objection is. Ultimately, anything said here about the reason is just conjecture. You need to talk to the decision maker(s) about the real reason behind the denial. Then you can talk through solutions. Also - don't forget that you can get another job. If you are serious about a future with your girlfriend, you should put that relationship ahead of your current employment comfort and security. If you are willing to walk away from your position, you are in a much better situation to negotiate. "There are very few circumstances where forming an out of state entity is beneficial, but a website is within these circumstances in certain instances. Businesses with no physical operations do not need to care what jurisdiction they are registered in: your home state, a better united state or non-united state. The ""limited liability"" does it's job. If you are storing inventory or purchasing offices to compliment your online business, you need to register in the state those are located in. An online business is an example of a business with no physical presence. All states want you to register your LLC in the state that you live in, but this is where you need to read that state's laws. What are the consequences of not registering? There might be none, there might be many.  In New York, for example, there are no consequences for not registering (and registering in new york - especially the city - is likely the most expensive in the USA). If your LLC needs to represent itself in court, New York provides retroactive foreign registrations and business licenses. So basically, despite saying that you need to pay over $1000 to form your LLC ""or else"", the reality is that you get the local limited liability protection in courts whenever you actually need it. Check your local state laws, but more times than not it is analogous to asking a barber if you need a haircut, the representative is always going to say ""yes, you do"" while the law, and associated case law, reveals that you don't. The federal government doesn't care what state your form an LLC or partnership in. Banks don't care what state you form an LLC or partnership in. The United States post office doesn't care. Making an app? The Apple iTunes store doesn't care. So that covers all the applicable authorities you need to consider. Now just go with the cheapest. In the US alone there are 50 states and several territories, all with their own fee structures, so you just have to do your research. Despite conflicting with another answer, Wyoming is still relevant, because it is cheap and has a mature system and laws around business entity formation. http://www.incorp.com has agents in every state, but there are registered agents everywhere, you can even call the Secretary of State in each state for a list of registered agents. Get an employer ID number yourself after the business entity is formed, it takes less than 5 minutes. All of this is also contingent on how your LLC or partnership distributes funds. If your LLC is not acting like a pass through entity to you and your partner,but instead holding its own profits like a corporation, then again none of this matters. You need to form it within the state you live and do foreign registrations in states where it has any physical presence, as it has becomes its own tax person in those states. This is relevant because you said you were trying to do something with a friend." I am in complete agreement with you.  The place i have found with the sort of charts you are looking for is stockcharts.com.   To compare the percentage increase of several stocks over a period of 2 market-open days or more, which is quite useful to follow the changes in various stocks… etc., an example:  Here the tickers are AA to EEEEE (OTC) and $GOLD / $SILVER for the spot gold / silver price (that isn't really a ticker).  It is set to show the last 6 market days (one week+)...the '6' in '6&O'.  You can change it in the URL above or change it on the site for the stocks you want... up to 25 in one chart but it gets really hard to tell them apart!  By moving the slider just left of the ‘6’ at the bottom right corner of the chart, you can look at 2 days or more.  For a specific time period in days, highlight the ‘6’ and type any number of market-open days you want (21 days = about one month, etc.).  By setting a time period in days, and moving the entire slider, you can see how your stocks did in the last bull/bear run, as an example. The site has a full how-to, for this and the other types of charts they offer. The only problem is that many OTC stocks are not charted. Save the comparison charts you use regularly in a folder in your browser bookmarks.  Blessings.  I see the entire needed link isn't in blue... but you need it all.