My business is a sole proprietorship. Ive been thinking of making it an LLC Is this a good idea? Does anyone have some good advice on how to go about this?
Thanks in advance, mike
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Mike, check out the thread on the JLC board, on this subject...
http://forums.jlconline.com/forums/showthread.php?t=24646
quick answer -- maybe. This is really something you need to discuss with a lawyer. Privately. No matter what anyone around here says about their personal experiences and their expert opinion on all matters legal.
SHG
Mike, Shg is giving you good advice. Unfortunatly, you might need some more advice before you talk to your lawyer.
A coupla questions: Do you have any idea about the differences in business entities? Do you understand the basic ideas of liability for each entity? Do you understand the tax consequences of each? Do you understand the clerical duties?
These are the big questions. I would suggest getting a solid understanding of those basic questions, BEFORE I sat down with my $500 per hour attorney. If you can't intelligently discuss the liablilty needs/wants, and don't understand the clerical requirements, you might ultimatly end up spending a lot of money and accomplishing nothing!
Theres actually quite a few decent primers that explain quite a bit of the basics. I'd suggest getting a hold of a book called "Loopholes of the Rich" by Diane Kennedy, CPA. She has an easy informal style and includes some basic explanations of the reasons why you might want to be an LLC or a Corp.
There is one thing that I'm fairly certain of....you probably don't want to operate a construction business as a sole proprietor. YOu certain to be paying more in taxes, have increased liability exposure and open yourself up to more tax audits.
I like the LLC entity for me, despite the risks that there isn't a substantial court history on much of the LLC laws because it's the "youngest" entity. It offers a nice compromise over the formalities required to maintain the corp while limiting liablity and offering pass through income for tax purposes.
But...only you, in conjunction with your Law and Tax advisors, can ddecide what's best for you.
Dyches Boddiford offers some great info regarding entity and tax strategies. Do a google.
blue
Warning! Be cautious when taking any framing advice from me. Although I have a lifetime of framing experience, all of it is considered bottom of the barrel by Gabe. I am not to be counted amongst the worst of the worst. If you want real framing information...don't listen to me..just ask Gabe!
How much did you pay to organize your LLC?
Actually I've organized two. And Ive got some pretty good lawer stories as a result.
The first one was the most expensive. I originally contracted to pay I'm thinking...$650..maybe $750. The lawyer was "well respected" real estate lawyer who was on the board of the REIA club that I was member of.
He provided a horrible service, and the LLC itself contained 26 errors..blatant errors....like reffering to section 26b, article 3...and there wasn't any section 26b! That particular LLC had to be reviewed by a partners lawyer...who turned it over to his "more knowledgable" "business" expert lawyers, who DIDN'T FIND THE ERRORS yet charged my partner MORE than I payed to have the thing drawn up! I found out about the errors becaue my daughter, who had a duplicate LLC on similar property, had theirs checked by a different laywer for $200 who found the 26 errors!
And...it took about a month...and we had to hound the guy to finish...in fact my Son-in-law had to go into the guys office and rummage around on his desk when the lawyer wasn't even there to get his final copy (other lawyers in that office knew how bad this guy was and just sent Steve in there!)
Incidently, I never fully paid that lawyer for the LLC, and he's never asked....but he didn't fix the errors either! I don't remember exactly how/why the bill didn't get paid in full.
The next time I was going to duplicate the LLC, but just didn't want to trust the operating agreement due to the first fiasco. I got the next one done for a very reasonable price, using a prepaid lawyer service that I subscribe to. If I remember right, I was quoted 250 for a single person llc, but we had a partnership and it was maybe 300 or 350. In any case, we got very good service, very fast service, very thorough service, all calls returned promptly and got it all done in a week or ten days including government ids and tax numbers etc.
The moral of the story is...if you don't know a lot about what needs to be done, the lawyers leach off guys like you.
Operating agreements for simple LLCs are very standard mundane stuff. There are maybe ten important elements and most of the stuff is very simple. If you are a one person LLC (not all state allow that), these operating agreements can be done in one hour including the pertinent client interview. In our case, we didn't have any complicated exit policy, weird capitalization formulas, etc. Because I had already got raked over the coals and subsequently invested a substantial amount of time understanding the real issues regarding llc's, I was able to communicate everything I needed to get my second one done in a five minute discussion with my new lawer.
blueWarning! Be cautious when taking any framing advice from me. Although I have a lifetime of framing experience, all of it is considered bottom of the barrel by Gabe. I am not to be counted amongst the worst of the worst. If you want real framing information...don't listen to me..just ask Gabe!
Mike,I agree with everything that blue_eyed_devil has said. Buy the "loopholes for the rich" book. I own a copy and read it before I decided what I wanted to do. I have an investment property I own under an LLC and it cost $2500 at the time (about a year ago), and I was very pleased with the service. It cost more than I expected but such a small price to pay if the unthinkable happens. I was more concerned with frivelous lawsuits then anything else, which was my motiviation.S or C corps are also a good way to go for a service-based business. One of the corporations ( i can't remember which) allows you to deduct more things, such as all your health insurance costs, wherein the others do not allow you to. S and C corps also require the services of an accountant, where with an LLC you are not required to have one. There are pros and cons to all of them. At least here in California, you need to by the state their $800 a year fee regardless of which strategy you choose.Read the book, get yourself educated a bit, and then review your needs with an attorney. It goes without saying that if you can get yourself really good insurance, perhaps even a commercial umbrella which can protect all your assets, thus a LLC or corporation is less necessary.My desire for an LLC, is that it puts the asset "in a box". Defendent attorneys that think they can cash in on your insurance, now know that they are in for more of a fight and they can not reek as much havoc on your life by going after or threatening to go after your other assets. It keeps the frivilous lawsuits away too, in my opinion. Also an LLC agreement can severely limit their ability to get to the asset even after they win a judgement against you. Since time is money, lawyers will settle for pennies on the dollar. My $.02Tark
As SHG said.
And note, laws on this stuff varies from state to state - what follows might not apply in your state.
There is a very basic misunderstanding of what "the corporate shield" (or the LLC shield) will do for a sole proprietor/business person.
Incorporation protects the shareholders of a corporation from liability in their role as shareholders.
But a person can wear more than one hat in relation to a corporation.
It DOES NOT protect someone who works for the corporation for the consequences of what he or she personally does, een when "working for the corporation."
You are (almost) always responsible for the consequences of your own actions!
As the owner of an LLC, I am not liable for the acts of other employees of the LLC - although the LLC as a legal entity is.
I am responsible for the consequences of my own acts regardless of whether I was acting under the LLC "cover."
The one thing it buys you is that there are a lot of lawyers who don't understand this and only go against the LLC if there is going to be an action at law.
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