Whether you are planning on starting your own home cleaning business or professional office cleaning business, you are likely looking at the logistics and asking a myriad of questions. Your thorough research is not in vain, as your success as an entrepreneur depends on it.
Should your cleaning business be an LLC- Limited Liability Company? Yes, legally registering your cleaning business as an LLC protects your personal assets in the case of a lawsuit. The high level of trust required of a cleaning business yields a need for registration as a legal entity, and an LLC also offers taxation benefits, flexible management, and easy/inexpensive setup.
To become profitable in the cleaning business industry, you will need to ensure that your clients are able to trust you to be (cleaning) around their belongings, that your cleaners are dependable, and that your company is professional. Registering as an LLC can bode well for your entrepreneurial journey for many reasons. Continue reading to learn more.
What an LLC is and What it Does to Help Your Cleaning Business
There are five ways to register your cleaning business as a legal entity: Sole Proprietorship, Partnership, Limited Liability Company, S-Corporation, or C-Corporation. As an LLC, your cleaning business will benefit from the personal asset protection (not offered by a Sole Proprietorship/Partnership) while avoiding administrative requirements of Corporation status.
Reaping the benefits of personal asset protection, appropriate taxation on profits, flexible management, and easy, low-cost setup and maintenance are a few of the main reasons for registering your cleaning business as an LLC. In this case, someone cannot sue you, personally, for any mishaps that might occur (like breaking a vase) during your cleaning services.
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Personal Asset Protection- Limited Liability
Personal asset protection is likely the most important reason that you should register your cleaning business as an LLC. In this industry, your hired cleaners will be close to your client’s belongings including fragile and expensive objects and information. Protecting yourself in the case of a lawsuit is incredibly important.
If one of your hired workers were to accidentally cause glass to shatter in someone’s home, for example, this client would not be able to sue you, the business owner, for the mishap.
As a registered LLC, you will be protected with “limited liability” to your personal assets. This means that the client could sue your cleaning business, but you will not risk losses to your personal bank account, home, car, or other personal assets.
Another example could be the unfortunate accusation of theft by one of your cleaning employees. Since you will be in and around people’s personal and professional belongings, you will have to establish trust with your clients. But in the instance that this trust is broken (allegedly), the client can file a lawsuit against your cleaning business as a legal entity, but they cannot file a lawsuit against you.
This can offer you peace of mind as you will know that the assets you have worked so hard to obtain will not be in jeopardy for any true or false accusation such as this.
If you were to opt for registering as a Sole Proprietorship or a Partnership, you would not experience these same benefits. Instead, a disgruntled client that files a lawsuit could come after your personal finances or home. Imagine what a nightmare it would be to not only lose your cleaning business that you worked so hard to build, but losing the very home, car, or other personal assets that this business helped you to acquire.
Another factor to note that is particular to the cleaning business industry is the here-say of most claims. As not all homes or offices have cameras, a client’s word versus your cleaner’s word might be the only thing that can vouch for their claim. If your cleaner has given any reason not to be trusted or act professionally, then your client’s attorney might use this to build the case in the lawsuit.
Even if you are the only hired cleaner in your cleaning business, it is still best to seek protection for your personal assets through registration as an LLC. Plus, registering as an S-Corp or a C-Corp likely just does not make sense for your new cleaning business. You will likely not need the investment of time, money, or input from shareholders or a Board of Directors.
Instead, as a cleaning business, you will enjoy the low budget that stems from minimal overhead costs. So, in this case, you, as the owner (termed “member”) of the LLC, might not have to worry about too significant purchases for your cleaning business until it gets its start, either.
You can use the profits from your first few steady clients to invest in machines that offer a deeper clean, for example. And if one of these accidentally wrecks someone’s carpet, you do not have to worry about this client being able to sue you, personally, either.
Taxation on Profits
So far, this article has contained information on the benefits of registering your cleaning business as an LLC as opposed to a Sole Proprietorship, Partnership, or Corporation. However, one “drawback” to this type of legal entity is that it does not have a filing status like the other options do.
Therefore, your cleaning business- legally registered as an LLC- will undergo taxation as a Partnership or Corporation. More often than not, locally-owned cleaning businesses end up filing as an S-Corp though they are registered as LLCs. It is best to consult with your corporate tax attorney and your accountant to ensure quality completion of legally required documents- especially on the taxation of your business/income.
Filing as a Partnership
If your cleaning business is legally registered as an LLC, then you (and the other members) have the option to electively file your taxes as a Partnership. This does not affect the limited liability status that an LLC offers but is an option for tax filing since an LLC does not have its own filing status.
In the case of filing your cleaning business’s taxes under the filing status of Partnership, you and any other members (aka owners) will pay personal income tax directly related to the amount of the cleaning business that you own. If you own 100% of the stake, then you will pay 100% of the required personal income tax.
Filing as a Corporation
The other option for filing your taxes as an LLC is to choose Corporation as your filing status. You can choose to file as a C-Corp or S-Corp, though these will vary based on the public stock that is permitted (or not) in your company. More likely than not, you will choose to file as an S-Corp if you file your cleaning business’s taxes under Corporation status as a C-Corp would mean that your cleaning business somehow made it onto NASDAQ (which is unlikely).
Filing under S-Corp tax filing status means that your cleaning business will get to skip the “double taxation” of business and personal income tax that C-Corp tax filing status requires. Instead, you (and the other shareholders) will pay personal income tax based on the profits of the cleaning business. In this case, your business entity receives a “pass-through” and is not taxed.
While some might enjoy the ease and lack of decision making that comes in having a boss, many dream of being their own boss, and this can be a reality if you are the owner of your own cleaning business. To add to this, legally registering your business as an LLC can help to ensure flexible management so that you can run your company how you would like.
Of course, you will need to ensure a few key components to being successful in home or office cleaning. As mentioned previously, you will need to maintain a high level of trust as you will be around other people’s most precious belongings. Additionally, you will need to hold a high level of integrity, responsibility, and professionalism. Rates can become competitive with local cleaning businesses; to climb to the top, you need to consider how you and your employees (cleaning staff) present themselves- especially to new clients.
Fortunately, when you register your cleaning business as an LLC, you will be able to avoid some of the highly administrative tasks such as holding shareholder meetings, completing annual reviews, and discussing your business with a Board of Directors. These are required when your business is legally registered as a Corporation, but this is avoidable as an LLC as it is not legally required.
As you avoid fewer administrative responsibilities like these, you will be able to more closely focus on the tasks that appear on your daily calendar such as scheduling cleanings, marketing your business to new offices/neighborhoods, and interviewing trustworthy cleaners. You get the freedom of deciding what to do with your business as you will not have anyone to report to but yourself, any shared ownership, and, of course, your clients.
On the same line of protection for your management, you will also be assured of limited liability to your personal assets. Since your management style might be a bit more laid back (assuming you have hired trustworthy employees), you could find yourself in a shocking position when your employee misconducts himself or herself (intentionally or accidentally).
In this case, you might have to worry about your business, but you will not have to worry about your car being taken or your bank account being drained due to a lawsuit. Instead, your assets will be protected and only your business assets will be at risk. If you were to only have legally registered as a Sole Proprietorship or Partnership, this would not be the case. Someone can legally pursue your personal assets as they are tied to the company in these legal entities.
You will also maintain flexible management while registered as an LLC as you will be able to form your own managerial style. Whether there are 5 employees or 500 employees in your cleaning business, registering as an LLC gives you more authority in the cleaning business industry. This credibility will go a long way to help spread positive word-of-mouth references which are critical to success in this industry.
Easy Low-Cost Setup and Maintenance
Instead of federal status, Limited Liability Companies run under the legal status of state jurisdiction. This means that the state that your cleaning business is registered in will determine the exact costs and procedures that are required for setting up and maintaining your business as a registered LLC.
That said, setting up your cleaning business as an LLC is relatively simple to do, requires minimal fees for state filing, and is pretty easy to maintain, too. This is not always the case when legally registering your business (especially if you consider the legal requirements to maintain Corporation status).
When you are first starting your home or office cleaning business, a low-cost setup for state filing fees will be pretty important. You will want to spend the initial budget that you have on basics like cleaning supplies, promotional materials, uniforms for your employees, wages, etc.
Hopefully, as your cleaning business is successful and your company grows, you can have a little more room in the budget for administrative requirements, but if you can avoid these, why not do so? Registering as an LLC will ensure a low cost for initial filing fees as well as maintenance fees. This is the case if you opt to register your cleaning business yourself or if you choose to have a professional agency do this for you.
State filing fees are generally within a few hundred dollars, with New York’s state filing fees at $200 and Colorado’s state filing fees at $50 for the initial cost. Then, maintenance fees will remain low as well. In New York, this will cost you $9 as a biennial plus annual filing fee. In Colorado, this will be an expected $10 for the annual filing fee. The exact fees will vary by state, but you can see how this will be a low administrative portion of your cleaning business’s overall budget.
Plus, since an LLC will protect your personal assets in the case of a lawsuit (ex. the cleaning supplies you used tarnishes someone’s furniture, your cleaner accidentally knocks over a piece of art, your worker is accused of theft). This means that you will be able to save a ton in legal fees and attributes and will avoid your personal assets being taken. In the worst-case scenario, your business may fail, but at least you will not risk the roof over your head.
How to Set Up Your Cleaning Business LLC- Cheap and Easy
Now that you have read about why setting up your cleaning business as an LLC is a good idea (especially so that nobody can come after your car, home, etc. in the event of a lawsuit), it is important to move onto the next phase. You will need to know how to set up your cleaning business as an LLC. Fortunately for you, this is both cheap and easy.
There are two main options that you can choose from when setting up your cleaning business as an LLC. You can choose to file with your state, or you can opt for hiring a company like Incfile to file for you. This company will even file your paperwork for free (outside of standard state filing fees that you would pay for either way).
Before you file, you need to choose the state that you plan to file your cleaning business as an LLC in. Though some large businesses can benefit from lower tax rates offered by a select state, it is not recommended to file your cleaning business in a state outside of the one that it is physically present in. If you clean homes or offices in multiple states because you are, perhaps, near a state border, select the state that your business headquarters (or your residence) is located.
Complete the LLC Registration Yourself
To complete filing your cleaning business as a legally registered LLC, follow these steps:
- Select the state for registration. It is recommended to choose the state that your business will be physically present as this can eliminate long-term complications.
- Research the requirements for your state. As each state differs slightly, be sure to review exactly what your state will require for the completion of an LLC application.
- Choose a registered agent for your LLC. An LLC has to have a registered agent who is responsible for all legal documentation on behalf of the business entity. Most of the time, a small cleaning business owner can do this themselves. You can also choose to hire a registered agent service.
- Submit the appropriate documentation. You can choose to mail in your documentation or complete it online. Most of the time, you will need simple information like your Business Name, Address, etc.
- Enjoy the satisfaction of becoming a legally registered entity. After you have sent in your application, you will await approval. Then, the legal documentation will be sent to your registered agent. Now, you can celebrate.
Complete the LLC Registration with an Organization
To have an organization like Incfile file for your cleaning business to become an LLC (for $0- yes free outside of state filing fees), follow these steps instead:
- Select the type of entity and state of registration. You will choose “LLC” and the state that your business is physically present to begin registering your cleaning business.
- Review your service options. Incfile offers a few different service options for you to choose from. The most basic option is free, and the company will file your paperwork for you. If you would like to upgrade, they can provide additional business services for a charge. Select the option that is best for you and your company.
- Provide your business information for the organization to submit. If you are using an organization to file on your behalf, you will need to provide them with all of the information you would have filed for yourself. Be sure to include the information on your registered agent.
- Receive your LLC approval, and celebrate completing this important step. Now that the organization has all of your business information, they will require you to pay state filing fees and will submit your documentation. Once this is complete, you are on your way to LLC approval.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.