How Early Should You Form Your LLC?

Informal Beginnings

When people ask me how long I’ve been running JPG Legal, it’s hard to decide what to say. My first client hired me for trademark work in the summer of 2015, back when I was just Jeremy Peter Green. As I started picking up more clients, I put up a website in mid-2016, filed a trademark application, and registered “JPG Legal” as a DBA (Doing-Business-As, similar to a trade name or fictitious name in other states).

I continued as a sole proprietor for a while. JPG Legal was my day job for a few months, then my side gig for the first half of 2017, and then my day job again after my first Google Ad campaign took off. I wasn’t being lazy or cheap, really; I just knew that as an individual business owner and as an attorney, the difference between being a sole proprietor and being a single-member LLC was negligible, in terms of liability. Attorneys with LLCs are still individually responsible for any ethical issues, and my general impression was that the layer of protection provided by a single member LLC to its owner is pretty thin compared to that of a corporation or an LLC with multiple members.

Falling Into Formation

Regardless, after I had a couple of big months and I quit my day job, I finally formed an LLC in July of 2017. I had formed LLCs for several clients at that point, so it seemed appropriate to do so for myself. DC actually wouldn’t let me form an LLC named JPG Legal because the name was already taken by my DBA. Bizarrely, I had to formally dissolve my DBA in person at the DC business agency office, then form my LLC online as soon as I received notice in the mail that my DBA had been dissolved. So I actually had a period of a few days where I was, arguably, illegally presenting myself as JPG Legal!

Why I Should Have Formed the LLC Earlier

Liability didn’t turn out to be relevant at all. But I still wish I had incorporated earlier. In mid-2018, around a year after I formed the LLC, I decided to look into small business loans. I figured that with my six-figure revenue, I had a decent chance of getting a solid offer. I set up an appointment with Capital One, with whom I maintained my checking account and my main business credit card. Once I got there, the bank representative asked me how long I had been running the business. I said, “Well, I technically formed my LLC about a year ago, but I’ve been in business for about three years.”

The Loan Wanderer

Unfortunately, they didn’t actually care how long I had been doing business — they only cared about how old my LLC was. They had a strict, unbending requirement that the business entity be at least two years old. Anything less than that and they wouldn’t even start the application process with you, no matter how much revenue you’d earned and how long you’d been doing business without an entity. I found that most other banks had the same requirement, so I gave up on getting a loan at that point.

For that reason alone — a loan — I wish I had formed my LLC earlier. It’s still possible to get a small business loan with favorable terms if your entity is less than two years old, but your options are limited.

JPG Legal has three full-time employees including myself and brought in over $700,000 in revenue last year, but because of an arbitrary requirement on the part of many banks, a lot of doors will open for us simply because our LLC will be two years old in two weeks.