WHY YOU NEED AN LLC
First things first, let’s decide on what kind of business entity you will have for your preschool business. Since you are going to be creating a business, the Internal Revenue Service (IRS) wants to know what kind of business structure you’re going to have.
DISCLAIMER: We’re not lawyers, so this information that we are providing is solely for information purposes only and should not be used as legal advice. Be sure to consult your own lawyer.
There are a few different types of business structures that you can form your business under. The most common business structures are sole proprietorships and limited liability companies (LLCs). Because we have had experience with both, we’ll explain why initially we began our business as a sole proprietorship and eventually changed it into an LLC.
However, our suggestion to you is to start with an LLC in the first place, regardless if you have an online preschool or a local preschool. I REPEAT: I suggest you have an LLC for local and/or online preschools. It’s that important!
Difference Between an LLC and a Sole Proprietor
A sole proprietorship is fairly quick, easy, and inexpensive. However, that’s about where the benefits stop, and the overwhelming downsides start creeping up. You see, if your business is a sole proprietorship, all of your business assets are connected to your personal assets.
This is especially concerning when your business is taking care of children, as you have a higher likelihood of being sued if a child is injured while in your care. Even with an online preschool, you still have liability where children are concerned. Even with “waivers and releases of liabilities” you can still be found guilty and liable for damages.
In the case of a sole proprietorship, if preschool parents sued your preschool, they would effectively be suing you personally as well. And if the parents won, not only could the court seize all your preschool assets to pay for the damages (which might not be much) but they could also seize all your personal assets (i.e. your home, car, belongings) and liquidate those same assets to cover the amount you were being sued for.
I initially set up my business structure as a sole proprietorship (because it was cheaper), but after finding out that my personal assets were connected to the business, I quickly changed my business entity to an LLC.
The wonderful thing about this business entity is that there’s a separation between your business assets and your personal assets. So, if you got sued and lost, the court might take everything connected to the business, which might not be much. On the other hand, the court would most likely not be able to take your home, car, personal bank accounts, or personal belongings.
And while an LLC does cost a few hundred dollars, can you imagine losing all of your personal assets… JUST because you chose not to spend a few hundred dollars to protect yourself? It is our opinion that if you are not willing to protect the business you’re starting with an LLC, then you shouldn’t start the business in the first place. We’re here to help you create ASSETS, and your business is an asset! Just like you get home insurance, car insurance, etc. to protect your personal assets. getting an LLC protects your business assets.
HOW TO REGISTER YOUR BUSINESS NAME
At the same time you’re forming your LLC, you’ll also need to register your business name (DBA). Business Name Registration is required in many states (or at the city or county level.) You can find complete instructions on how to do this in the article How to Register Your Preschool Business Name (DBA).
This lets the state know that you will be transacting business under your chosen business name and gives you the legal right to do so. To register your business name, you’ll file a form called “Doing Business As” (DBA). In other words, Jane Doe is “Doing Business As” Butterflies Preschool. In your state, the DBA form might be called something else like:
- Fictitious business name (FBN) or fictitious firm name
- Assumed business name (ABN) or alternate name
- Trade name
What To Do When:
- Your business name includes your full legal name
- i.e. Jane Doe’s Preschool: In many states you are not required to register your business name IF your business name is your full legal name. For example, your preschool name would have to be “Jane Doe Preschool” (first AND last name). “Jane’s Preschool” would not include my FULL legal name.
- Our recommendation is still to file a DBA with your state because your bank might need it to open up a business bank account.
- You already have a preschool, but you’re adding a new component
- i.e. Butterflies Preschool Online: If you already registered Butterflies Preschool with your state, you don’t need to register a new DBA for the online component. If it’s within the same business, HOW you do business is irrelevant, whether that’s local, or online, or with a summer camp, or all day, or adding a service like kinder.
- i.e. Butterflies Private School: If you already registered Butterflies Preschool with your state, but you’re adding K-6, you should definitely register a new DBA as that is too far outside the scope of the previous business which was only preschool.
- You only want to do an online preschool
- i.e. Butterflies Preschool Online: Even if you only want to do online preschool now, we encourage you NOT to use the word “Online” when you register your business name. Instead, simply register it as: Butterflies Preschool.
Other Issues You Might Run Into
When you’re doing a Name Registration, you might run into a few other phrases that are unfamiliar to you.
All a Name Reservation does is save the name you chose until you get all the other business set up requirements completed. It will reserve the name for anywhere between 30 days to 120 days and some states allow you to extend the reservation, if necessary. However, because we are doing this process quickly, we do NOT recommend you reserve your name. We want you to REGISTER your business name instead.
Getting a trademark is the only way to truly protect your business name (word mark) and/or logo (mark). If you are going to grow into a huge franchise, then YES I do recommend getting a trademark. However, most preschool owners will not be able to secure a trademark, and these are my reasons why I suggest you don’t pursue it:
- If you don’t categorize your trademark correctly, it will get thrown out and you will still lose the money you paid
- If you don’t categorize your trademark correctly, your business name won’t be covered
- Trademarks cost several hundred dollars on your own and even more to hire a trademark attorney to do it for you
- Even if you do hire a trademark attorney, there’s no guarantee you’ll be granted the trademark
- Unless your business name is entirely unique and unrelated to any other word (i.e. words like MailGun, SendGrid, MailChimp, Twilio, Nike, etc.) it will be difficult to secure a trademark
- Even if you do secure a trademark, you will spend tens of thousands of dollars trying to protect it if someone ever infringes on it
HOW TO FORM YOUR PRESCHOOL LLC
WITH AN LLC: Your business assets are SEPARATE from your personal assets. If someone sued you and won, the court could only seize your business assets.
As an entrepreneur, you’re likely to create multiple businesses, and you can put each of your DBAs underneath one LLC. That’s why we recommend you name your LLC something more generic than the name of your preschool. The graphic below illustrates what I’m describing.
Your LLC is like an umbrella.
It protects your personal assets from getting seized and it can also hold several similar businesses inside of it (or businesses that have a similar liability risk). That way you don’t have to get a new LLC for every new business you start! In this case, the 4 business names underneath the umbrellas would be DBAs of The Best Business Ever, LLC. The LLC would “own” and protect these businesses.
Now let’s explain this example. Right now you are starting a preschool. For now, you plan to teach preschool classes either locally or online. But, what if, after teaching for a few months, you notice that your crafts kits you have been sending to your virtual students are a big hit, or you want to start selling t-shirts or marketing videos to your fellow preschool owners.
You decide you want to start marketing these products or services to make some extra money, but trying to sell advertising videos as “The Best Preschool Ever” sounds odd, so “The Best Ad Videos Ever” would probably be more effective. Now, you could go through the process of forming another LLC and effectively own two separate businesses (which would cost even more money!) or you could register a DBA under your LLC name.
So, when you form your LLC, carefully consider whether you may want to do something other than teach preschool in the future, like doing K-12 virtual assistance or any other business. If so, consider naming your LLC something that would cover many businesses, such as “The Best Business Ever, LLC.” An easy LLC name could be “LastName Educational Services, LLC.” It’s important to remember that in this situation, most people will never know what your LLC name is, and that’s okay.
THEN, you can file your DBA as “The Best Preschool Ever.” Your LLC would be “The Best Business Ever, LLC,” but you would be doing business as (DBA) “The Best Preschool Ever.” And, maybe in a few months you could register another DBA as “The Best Craft Boxes Ever,” etc.