Consulting is one of the best ways to generate incremental income. Depending on your expertise, you can charge hundreds or even thousands of dollars per hour.
It’s been a while since I ran my consulting company during business school, so I wanted to survey the current offerings in 2023. There are so many posts about figuring out your consulting niche or finding clients. But I’m more interested in the operational aspects of this task - which company structure to choose? How to get a Tax ID and a bank account? How to Invoice, so that’s what I cover below. Please don’t do any of this stuff unless you have a very strong lead on your first consulting customer. You should have already agreed on your hourly rate or project cost. They should be ready to send you a contract. Otherwise all this business formation work is premature.
I hope this is helpful to you!
You are going to bring a new entity into the world. The first thing you need to decide is what to call it. Consulting companies are often simply the name of the principal consultant (e.g. ”Choi Consultants”) and there’s power in naming your company after yourself. If you want to scale the company beyond a single person, or see it outlive your participation, you may want to name it something more generalizable (e.g. “Bulldog Consulting”).
After you name it, you should register a domain name and set up your email. I prefer Google Domains since it integrates best with the Google Workspace, which is the best bang-for-buck email/storage/docs provider.
Don’t worry too much about the url. The shorter the better, but you definitely do not need to buy a premium url. Search engines and links will drive all the traffic you need.
Some clients will be fine with you as a “sole proprietor” consultant. But most companies, especially the largest ones, won’t hire you unless you’ve created a business entity that can sign contracts and send invoices.
Of all the various corporate structures available in the US, the best two for solo consultants are:
LLC - Forming a “Limited Liability Corporation” company for your business shields your personal assets from some liabilities. Profits and losses can be passed through to your personal income without paying corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security.
An LLC is formed by filing articles of organization with the state's secretary of state office. LLCs are not incorporated and do not file articles of incorporation.
LLC regulations vary state by state, and they are generally more complicated for lawyers to deal with, so expect comparatively higher legal and tax bills.
S Corporations - As with LLCs, an S Corp structure allows the shareholders to pass income, losses and deductions through to their personal accounts for federal tax purposes. This allows S corporations to avoid double taxation on the corporate income.
There are requirements to forming an S Corp, but a solo consultant based in the US should have no problem meeting them. As with all this advice, it’s worth double checking and it’s worth what you pay for it.
Other drawbacks to consider with an S Corp: you must name a board of directors (which could just be you), and there are rules about holding board meetings and keeping records
In order to become an S corporation, the corporation must submit Form 2553, Election by a Small Business Corporation signed by all the shareholders. See the Instructions for Form 2553 for all required information and to determine where to file the form. The business setup sites listed below will help with this.
If you are creating a business in Connecticut, the state has a long but thorough guide to doing so here.
There are several online services that will file the relevant forms, pay the appropriate state fees, generate business documents and give you a Tax ID. Among the leaders in this segment are:
I haven’t used any of these myself, and there are reasons to not use a service like this and instead hire a lawyer. But for a quick S Corp, I would use Legal Zoom. You can always bring their documents to a lawyer once your consultancy is off the ground and generating revenue. I would certainly consider Stripe Atlas for an LLC.