Partly from advice from searching Breaktime, I’m going to be setting up my fledgling remodeling biz as an LLC.
Curious if I should pay my attourney a grand to do it or should I set it up using one of the zillion companies who advertise on the web to do it for a couple hundred?
Thanks, Jon
Replies
I did ours over the internet through a company in Rhode Island. They have different laws. It took 30 minutes and a few hundred bucks.
What state are you in? Many do not accept LLC as the basis for a license; consumer laws are strong here.
good luck
You might fill in your profile, so we know what state you are located in.
I am in Maryland and was able to file all the paperwork myself. Pretty easy. They had a sample articles of incorporation to file and them apply for the name.
Forrest
Thanks. I'm in PA. BTW-no license is required for a genl. contractor in the PA or the local cities.
Jon
I set up my LLC last year in Pa with the help of my accountant.He said ididn't need to pay a lawyer to do it and took the time to go to the state web site with me and found the correct forms. Fill them out send the state a check and your good to go.
If you can't find the forms and can look through my records and point you in the right direction. I am in the middle of moving so it might be a few days till i can get back to you.
Andy D
I'm sure the attorneys on the site can provide more info, but our lawyers always advised of one big issue you don't want to forget -- someone has to do the annual paperwork.
We were always told that's one of the big ways lawyers "Pierce the corporate veil" when they're suing you.
Help fight cancer.
Ken, an LLC does not have the same annual reporting requirments as a corporation.
blue
Hi Blue,Edit: I see we have an attorney pitching in, so I'm gonna stop running my mouth.
Edited 9/10/2005 9:58 am ET by Ken
Jon, if you are paying an attorney a grand for an LLC, you probably are overpaying.
It could easily go highe than that if you have multiple partners, or other complicated needs. If it's only you, then the basic "standard" operating aggreement is what you'll get anyways.
There is always a need to consult with an atty to properly get your business started, but there are ways to reduce your atty costs with simple stuff like this.
I've paid 750 for a horrible experience to set one LLC up. I paid substantially less for a second much better experience, and I've filed one set of corp papers myself copying a corp that I set up in the early 80's. I don't remember how much the first corp was.
If you decide to go a cheap route, make sure you read and understand every line in the document. It's not that hard of a read. Most of the standard LLC language is fairly understandable.
blue
Jono, I almost forgot...you probably can go to the bookstore, pick up a copy of a book about llc's and they will include a model. You'll save a couple hundred, but you'll also get a fairly good understanding of what and why the LLC language is needed. Then, if you decide to have it reviewed by an attorney, at least you'll be able to ask intelligent questions.
I'd offer up a book suggestion, but it's best to browse around and find one that talks to you in a language you understand.
blue
I paid my accountant $500, and another $125 to the state of PA for a one time fee. Signed the check, and about 4 forms. Took me a total of 10mins. Worth every penny.
Dustinf, I highly doubt that it is worth $500 to have an accountant fill out the LLC request and submit the articles.
That's like asking your Chiropractor to drill and fill your cavities in your teeth.
blue
Are you suggesting that my dentist should not be cracking my back? ;)
The Breaktimer formerly known as "Steve-O"
"Preach the Gospel at all times; if necessary, use words." - St. Francis of Assisi
I'm not sure why everyone thinks there is so much reporting needed to maintain a corporation. Here in WA I send in a one-page form to the state every year, listing the officers of the corp. That's it. There is more case law dealing with corporate entities than there is with LLCs. I rarely see contractors as LLCs here, although there are a few... but there are lotsa corporations.
David, I think they are trying to warn about maintaining proper corporate records. Instead they are mentioning reports.
There is significantly more work to be done to maintain a corporation. If you didn't have a board meeting to authorize the treasurer to open a bank account, your corp veil could be susceptible. The same is not true for an LLC.
Corporate records cannot be taken lightly.
blue
>>I'm not sure why everyone thinks there is so much reporting needed to maintain a corporation. The reason to be sure to follow the requisite dance steps (reporting, corporate/llc meetings, keeping finances separate, etc) is to minimize the chance of losing the limited liability of the shareholders of the corporation/llc through "piercing the corporate veil."Note that most likely, in most, if not all states, the limited liability only protects the shareholders in their role as shareholder.If you are a shareholder and also do the corporation's/llc's work, you are almost certainly liable for your screw ups in your capacity as the individual doing the work.OTOH, even some attorney's don't realize this and it may keep the dogs (sharks<G>) at bayPlease recall, I no longer pratice law and am not only out of date, but I probably never practiced in "your" state, so this message is not intended to provide legal advice: Take this as advice and get screwed? Sorry, fella, never met cha!
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Sojourners: Christians for Justice and Peace
Jon, I think my attorney charged me about 300 bucks to set my LLC up last spring, plus whatever the state fees were. I don't think there is really a whole lot to it; seems like his secretary did most of the work.
Mike
Thanks everyone for the feedback. Think I'll pick up a book on LLCs and set it up myself. That way I'll understand the sucker in the process. While my atty. is good, I could use the extra $$ elsewhere too.
Thanks again, Jon
Have the lawyer do it. If he or she is decent, you will get a meeting and some advice on how to properly handle the business aspects. I routinely tell clients things during a first meeting that they don't know, things that could insulate them from liability that could be screwed up even with the LLC or the Corp. I talk about taxes too.
No big deal for corporations? Well, for a few examples of records that need to be filled out regularly.There are resolutions - other than the one the bank is going to use on their form - and there are minutes. Minutes come from meetings, and if there aren't any meetings then an argument can be started that the company is a sham. How many people know the difference between a Board of Directors and the Officers? Who exactly owns the shares? Are they going to be issued? How many?
I am still licensed as a lawyer so everybody will say I'm prejudiced, but that's not so. I am not going to make any money off anybody here and for most intents and purposes I don't practice. Just being honest.
This is sort of like when a homeowner comes in here and wants to be his own GC...everybody screams "pay the guy who knows what they are doing." One of the happiest jobs I had was when woman told me she could get her corporation done cheaper at Staples, then had to pay me for two years to litigate crap with her son/partner and NYS Tax Dept. because of the way it was set up.
As far as Blue's thought that you should read up on the stuff, that's a great system. Reading is wonderful if you have the time and the incentive and you understand what you are reading. Most people don't. Blue is an exception.
It makes me laugh that most people will go out and spend a grand in a heartbeat on a tool, or a tv, or clothes or something else but when it comes to paying for a professional to handle the paperwork for a business that is expected to be around for years, they want no part of it.
My two cents.
Don
DOn, I'm with you on this.
I did the LLC thing myself. In P.A. it's very easy to do. The state has a web site and you can do it all onlline.
It isn't until later that you find out if it was a good idea or not. As it was explained to me (by a real live lawyer, and also by the accountant who asked me if I was smoking crack when I did), an LLC or LLP is for a limited venture. Maybe you want to form a corporation under which to build three houses on those lots you own and have no plans beyond that. an LLC is easy to set up and disolve ( at the time I did mine there was even a spot for you to enter a date when it would disolve automatically). It doesn't necessarily offer any better or worse protection ot tax advantage than a Sole Proprietorship or an S-Corp.
My lesson was learned the hard way and I'll pay a lawyer next time before I do anything else. It's much cheaper than what can come from the audit.
an LLC or LLP is for a limited venture
Robert, I beg to differ with you.
Maybe in PA, that is a true statment, but I don't think so. You can't lump the LLC and LLP into the same category, then throw in the Joint Venture (I'm assuming the term limited venture, means joint venture). Those are three different entities, each having their own peculiar strengths and weaknesses.
I will agree that you should have a professional consultation with both attorney, as well as your CPA to make the best choice and to accomplish the goals that you've set out for yourself. IN the end however, since you're the guy who's neck is on the line, you better have a very solid understanding of what you are trying to accomplish, what you are willing to risk, and how you're going to get to where you want to be. Sometimes, that means going in a different direction than your lawyer, or accountant might suggest.
If you want to minimize the professional fees when you go for the consultations, I suggest doing some homework before you set the appointments. Probably one of the most important things you'll learn by doing the homework is how to interview the laywer and accountant to find out if they are the right types of professionals to help you in YOUR business.
blue
blue,
I can only go by what my lawer has to says. He's good and familiar with the construction business.
Knowing what I know now, I would never recomend an LLC. To easy to peirce by any halfwit slip and fall lawyer with a business card and letterhead. unless you are very careful, it is too easy to make your LLC nothing more than a sole proprietorship by your own actions. Ask around. My sister confirmed it for me and she is in fact an attorny as is her husband.
Never been sued, never plan on it, but not taking chamces.
For someone like you neither a LLC or corp will offer much protection.For example Joe a labor for Billybob Construction backs over a customers child.Who gets sued, Joe the driver and Billybob Const.Now in a case like that an LLC or Corp will protect the owners of Billybob. The max that the lawsuite can collect is the assest of Billybob and Joe doesn't have anythign for them to get anyway.But if robert of roberts construction LLC has the same accident who gets sued.robert the driver, and Robert Construction LLC. Now the LLC does not have much in the way of assests and with the LLC they can't go after robert the ownere of Robert Construction LLC.But they can still go after robert the driver.
Bill -
You have an argument there. It's one that I have used myself in different settings.
But as a practical matter, unless it's an auto accident most people don't sue the individual. Maybe it's because they think the corporation/business has more assets. In over 20 years of litigation, handling thousands of cases (mostly defense), I can only remember a handful where the individual was sued, and some of those were design professional cases where the archi or engineer had sealed the drawings.
Don K
Bill,
You've just broken the problem down to it's base element. Many small guys are being pushed in the direction of LLC's and told of all the protection it offers, just like an S-Corp, and how you can still pass income thru just like a sole proprietorship.
Problem is that most small guys lack the saavy needed to set the thing up properly. And even if you have a few employees, your still not protected if you don't run the company properly and meet all the requirements.
I can't tell you the number of people I know who have set up LLC's, and then continued on down the road just like before. Blissfully unaware of how thier business has been changed and how they have pi$$ed away what little protection they were offered by the change since they failed to change how they operate.
So, what are you supposed to change in order to keep the LLC effective?
Justin Fink - FHB Editorial
The money you quote is way too high, IMO, but of the three bills or so that I paid for my corp. the more valuable part is in the interview to help me determine whether a LLC, an S-Corp, or a C-corp would be best for me in the long term.
clerks fill out the forms, you pay the fees, but the legal begle knows from experience which choice is going to work best. That is where the value lies
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I got quoted a price of $250 to have an LLC set up, so I can see that $300 isn't completely insane. But I do have to wonder what they are charging so much for?Justin Fink - FHB Editorial
First, ask your CPA what the tax consequences are for you. You might find a better business form. (My wife does this for free for clients. And if time allows does it for free for non-clients.)
Your CPA should be able to point you to the state's Secretary of State web site. You should find the forms there. Fill them out. Send them in with a check.
$100 should get you an LLC and a good meal.
Two things come to mind.
Each state has different incorporation/llc laws so make sure to check with your state for specific requirements if you are doing it on your own. Many state have simple forms that are almost fill in the blank.
Second, the federal government spends millions supporting state-operated small business development centers. They offer a great deal of free information on all sorts of small business issues including the pros and cons of each type of business entity. If your local office has their act together they probably also have the forms available electronically and can guide you through the process as needed.
Cheers,
I'm in PA also.
I did it thru a company recommended by AmEx. Paid about $300 in all with their fee's plus state fee's.
then ... found out from my accountant "the rest of the story" ... like all the other freaking forms I was supposed to file ... plus getting a seal ... certificates ... etc.
Looking back ... I'd gladly have paid a lawyer $1000 to do it once and do it right ... right from the very beginning.
Sure there are books ... sure there are website ... and U can bet they leave out lotsa individual/state specific details.
depending where in PA U live ... U can probably get in done for a few dollars less .... but if it's a lawyer U trust and are planning on staying in contact with ... what's the worry over $200 or $300?
Jeff
Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Jeff,
Did you go corp or LLC?
Thanks, Jon
LLC.
asked a lawyer buddy, my accountant , and my insurance guy. All three said LLC was the best bet for me at this time.
I have no employees, sub all the mechanicals , and go between running my own jobs as a full service remodeling contractor and subbing myself out as a cabinet installer/trim sub/tile sub.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
I always get such a kick out of these lawyer discussions
nobody ever needs a lawyer...
until they need a lawyer...
and then it's too late...
and then lawyers suck...
especially the other guy's lawyer...
besides, everybody here knows the law. just ask them. they'll tell you. and their cousin's a lawyer anyway, which makes them a lawyer too. but their cousin's a good lawyer. not like those evil rip-off lawyers.
heheheheh.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
hey, why U yelling at me?
I told him to spend the loot and hire a pro ...
gee ... that sounds familiar?
I musta said that maybe once before ... maybe about a construction related question
... odd how that works?
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
I wasn't yelling
who you calling yelling?
not me.
no
nope
not me
no yelling here.
shhhh.
but it's different with lawyer than construction, ya know. lawyers are evil.
well ... U got that last part right.
fire with fire ... that sorta thing.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
I'll second Jeff's answer. I asked the same question of my accountant. I was leaning towards Sole Proprietorship and he convinced me that LLC was the way to go.
I would still be able to file my taxes for business and personal all in one form, but I get the advantage of separating business from personal in case of legal action against me.
Here's a scenario for you: Something goes wrong on an install and the homeowner wants to sue you for all the money they can get...
Sole Propietorship: They can take all your business money, your tools, your truck, and even go as far as your personal money, house, whatever!
LLC: They can only attack your business. This all but guarantees that you will still have food on the table and a roof over your wife and kids - That's cheap insurance in my book.
...The catch is that I don't plan to sub anything out. If the customer needs electrical work done on the project, they are in charge of finding that electrician and it's a whole separate bill. Easy as pie.
Justin Fink - FHB Editorial
"LLC: They can only attack your business. This all but guarantees that you will still have food on the table and a roof over your wife and kids - That's cheap insurance in my book."They can also sue the idiot that screwed up the installation.And who is that? And what assets does the idoit have?
But that's my point Bill...they can sue "businessman Justin", but "personal Justin" is still protected.Justin Fink - FHB Editorial
Why can't they sue personal Justin, if personal Justin is the idiot that caused the damage.Look at the news for any law suites from a major accident. Say a city bus crash. You will see the bus company, the bus manufacutre, the brake manufcature, etc included AND ALSO THE DRIVER.Now often the driver will latter get dismissed because he does not have any assests compared with the bus company, the manufacture, etc.But if the bus driver had more assest than the other he would be included until the end.You can't get rid of your PERSONAL liability for your PERSONAL ACTIONS.Now if you have rental properties than putting them (or each one) into an LLC would be perfect. For example if there was a fire from old electric then the most that you could lose is the cost value of the house.But say YOU did some refinishing in the house and YOU LEFT oil rags that caused a fire. Then don't count on an LLC to protect you.
I'm still not sure...if that's the case then why go LLC in the first place? I think they can't come after your personal assets. Just because you screw up somebody house, they still shouldn't be able to close your bank accounts and have the bank take your house...it seems that the worst would be your business is shut down because it's bankrupted.
Maybe we can get some other people to weigh in on this Bill. I'm not trying to butt heads with you, I just want some more information as well.
Justin Fink - FHB Editorial
Look at what Bob just wrote;"Note that most likely, in most, if not all states, the limited liability only protects the shareholders in their role as shareholder.If you are a shareholder and also do the corporation's/llc's work, you are almost certainly liable for your screw ups in your capacity as the individual doing the work."If it was that easy then everyone work become and LLC for everything that they do.You could setup an LLC car service and have the LLC buy a car and hire you to drive the car.Then you could drive around without any insurace.
"You may choose to see it like this - the LLC is a partnership that offers the limited liability protection of a corporation...
Since you and your company are now two separate legal entities, lawsuits can be brought against your company instead of you personally.
When debt is incurred in the company name, you are not personally liable and your assets cannot be taken to settle company obligations. "
Justin Fink - FHB Editorial
>>to settle company obligations. "That's things like money borrowed solely by the corporation. (Which is why the bank has the shareholders of small corps co-sign or guarantee the loan.)Another obligation a company can incur is liability for the wrongful or harmful acts of it's employees.When a company employee screws up, the company is liable under the doctrine of "respondeat superior" or some Latin bs like the that.The employee is ALSO liable for his own acts.Often the employee won't get sued because it isn't worth going after him.If he has assets, though, he'll get dragged in.
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Sojourners: Christians for Justice and Peace
now that you have expanded the discussion to debts of the corp -Very few businesses will extend credit to a new corp or LLC without first having a paper from the principles putting their personal gaurantee that they will in fact be responsible for the debts of the corp with regards to that account.So while it is theoreticly possible to avoid collections personally, it is far less likely in practice.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
and....
"Liability is limited to the amount a person has invested in the business. Creditors cannot take personal holdings or assets should the corporation fail or be sued for more than the corporation is worth. (An exception might be for a new corporation where the lender or supplier may ask the owner for a personal guarantee.) "Justin Fink - FHB Editorial
"Creditors cannot take personal holdings or assets should the corporation fail or be sued for more than the corporation is worth."Absolutely correct.Never suggested otherwise.That is for the amount that corp or LLC is sued for.But what about other parties being sued?If you think that gives you absolute protect then why don't you set up an LLC for a car service to driver yourself and drop insurance.The cost for setting up the LLC is probably less than a years worth of insurance.So are you going to do it.
So we agree that the LLC separates the business and the personal in terms of assets available to debtors. I just wanted to make sure we are on the same page there.
So, then the best strategy is to set up as LLC and get personal liability insurance as well? In other words, what is the best way to protect myself from being sued?Justin Fink - FHB Editorial
"So, then the best strategy is to set up as LLC and get personal liability insurance as well? In other words, what is the best way to protect myself from being sued?"Well I am not in insurance, but I think that you get a liability policey that covers the company (LLC or Corp) and the EMPLOYEES.
Jfink, the question of protection is complicated. There are several methods suggested by sophisticated wealth protectors. It is not as simple as just forming an LLC, although that is a good suggestion, depending on the tax issues in question.
Asset protection is a multi-pronged agenda. The use of entities is one aspect. Hiding your assets is another. Placing assets in jointly held trusts is another. Maintaining proper insurance, including umbrella policies is another.
The more you have to lose, the more you need to do one, or more of the above.
Try checking out this Dyches Bodiford site: http://www.assets101.com/Home/
I attended a one day seminar a couple of years ago. It was quite involved. I wish I was a better note taker. In the crowd was the #1 realtor in our area, a guy by the name of Ralph Roberts. He is known as the #1 realtor in the world. I asked him what he was looking for at this seminar since he already was hugely successful. He estactically exclaimed that he had learned a ton of stuff and was heading back to the office to implement a couple ideas immediately.
LLC's are exploding right now primarily because some recent IRS court rulings have eliminated some of the doubt surrounding single member LLC's.
blue
Jim, speak to me on the recent rulings re. single member LLC's.
and how the single member (me) would be affected.
thanks.Remodeling Contractor just outside the Glass City.
Quittin' Time
Calvin, when the LLC's first surfaced on the scenes, the lawyer's tended to shy away from them (many still do). They're fear is that the LLC doesn't have as much case history.
One of the scare tactics was to use the IRS as an adversarial example. They'd point to laws that prevented individuals from owning corporations (something about alter -ego) and claim that the IRS might not recognize the LLC for tax purposes as it was intended. Then, recently (maybe in the last three or five years), an important ruling was made that settled that fear. The IRS now has established case history that a single person LLC is legal, if the individual states allow it. Most states allows this type of LLC.
Corportions can be very simple to maintain too, if you understand the "game", but the issue of double taxation is hard to overcome. In recent years, the tax advantage for corporations has changed too, making it less desirable, considering the paperwork needed for board meetings, resolutions, etc. Its complicated too to maximize the tax breaks needed in any of the entities. It's usually more complicated than it's worth for most of us with our pithling incomes.
The only thing that no one should do is operate as a sole proprietor. They get audited more by the IRS and everything you own is exposed to lawsuits.
General partnerships are the absolute worst form of exposure. You could lose everything because your partner drives drunk home from the bar after work (nd maims someone) in the company vehicle.
blue
ThanksRemodeling Contractor just outside the Glass City.
Quittin' Time
>>Calvin, when the LLC's first surfaced on the scenes, the lawyer's tended to shy away from them (many still do). They're fear is that the LLC doesn't have as much case history.>>One of the scare tactics was to use the IRS as an adversarial example. They'd point to laws that prevented individuals from owning corporationsHuh? What on earth are you talking about?If you're going to give legal advice, you'd better start providing citations for your assertions.
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Sojourners: Christians for Justice and Peace
>>Calvin, when the LLC's first surfaced on the scenes, the lawyer's tended to shy away from them (many still do). They're fear is that the LLC doesn't have as much case history.
>>One of the scare tactics was to use the IRS as an adversarial example. They'd point to laws that prevented individuals from owning corporations
Huh? What on earth are you talking about?
If you're going to give legal advice, you'd better start providing citations for your assertions.
Please tell me RJW what advice I've given? Just highlight the advice and change the color to red.
The only advice I've given in this thread is to go to the library and read up about entity structuring. I stand by that advice. I give that advice because I know firsthand how fast $200 for a CPA consultation adds up.
blue
>>The only advice I've given in this threadOK. call it an assertion of law: "They'd point to laws that prevented individuals from owning corporations"Where did you come up with that?
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Sojourners: Christians for Justice and Peace
I said "One of the scare tactics was to use the IRS as an adversarial example. They'd point to laws that prevented individuals from owning corporations"
You said
"OK. call it an assertion of law: "They'd point to laws that prevented individuals from owning corporations"
Where did you come up with that?
I won't try to explain your truncated version. I will elaborate on what I was trying to say.
I am not offering any advice. I am attempting to give a brief historical perspective on reasons that some lawyers don't believe in the validity of LLC's. These skeptics point out that there are questions that have not been answered with case history becuse the use of LLCs is relatively new compared to the history of corporations. Corporate case law goes back many, many, many years...I think the shipping companies of England first came up with the idea to shield losses incurred by pirates and ships that sunk.
Some lawyers will point out that there is a lack of case history regarding the IRS. One of the issues was that the IRS could throw a monkey wrench into someone with a sinble person LLC and rule that it was a scam setup and claim it to be an alter-ego because it lacked the structure that corporations had: Boards of Directors, Officers, etc. The IRS posistion was that it should be taxed as a soleprorietor.
I'm not going to be doing any research in this department, but I'm sure if you do a little digging, you'll find some of this information out there. Basically, there's two schools of thought out there: some people still don't trust LLC's and others do. I was merely explaining some of the history of the two schools of thought. In the end, each business person has to know and understand each entity, and make an educated choice. They shouldn't let a lawyer, nor a cpa choose for them.
What entity have you chosen?
blue
It just occured to me: are you thinking of "personal service companies?"I forget the details, but that's an obscure area of tax law where, if I recall correctly, the IRS disallows corporate expense deductions which are really those of an individual which would not be deductible to the individual.
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Sojourners: Christians for Justice and Peace
Having the IRS declare your corporation to be a "personal service company" can have disasterous results. I can't quite remember who they are attacking when they do this, but it's just another tactic of theirs to prevent an individual from writing off items that might not be a legitimate write off of normal corporate activities.
But no, that wasn't what I was thinking of. I really don't want to pull out my corporation books.....please don't make me....please...
blue
>>But no, that wasn't what I was thinking of. I really don't want to pull out my corporation books.....please don't make me....please...
OK, if you won't make me dig out my corporate taxation materials <!---->
Your points on unknown treatment of LLC's are well taken; it was the very broad statement about single shareholder corps I was wondering about.<!---->
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Sojourners: Christians for Justice and Peace
So is there a specific insurance that will cover me from getting into serious trouble if I drill into a hidden water pipe, or knock over that ming vase on a pedestal when my extension cord gets caught?
How does one go about protecting themselves in these cases?Justin Fink - FHB Editorial
To all: Please, please...[insert at least four score and ten more pleases here] don't give legal advice. In return, I won't give engineering advice. While it may seem simple, how to organize your business to protect yourself from your own, or someone else's stupidity, bad karma or malice isn't a job for amateurs. I am spending a lot of money every month to pay a professional builder to build me a house, even though it sure looks simple and I'm sure I could do it. I could also remove my own spleen, smelt my own copper and build my own airplane. I think I'll stick with practicing law.
What you got against building your own airplane? http://www.eaa.org/education/homebuilt_aircraft.html
Help fight diseases -- donate computer time here.
Well, you corporate legal types might not like it, but just think of all of the work the litigators will pick up, cleaning up all of the messes!
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Sojourners: Christians for Justice and Peace
You're insurance guy will answer that Justin. I would assume that a general liability policy covers those types of accidents.
The problem is that if you file a claim, they wont insure you! I've never filed one, nor thought about it. I treat my general liabilty like a major medical policy.
blue
<<I treat my general liabilty like a major medical policy.>>
So, basically you keep the insurance there for those major accidents that you pray won't happen, but pay out of pocket for any minor problems that could arise..right?
Justin Fink - FHB Editorial
So, basically you keep the insurance there for those major accidents that you pray won't happen, but pay out of pocket for any minor problems that could arise..right?
Yes JFink. That's what I do.
I've never filed a claim in 25 years.
I did have two occasions where the homeowners were trying to scam my insurance company. I stood firm and refused.
The first incident was a guy trying to get his concrete drive replaced by my insurance. I wouldn't go for it because the drive looked like a dried up desert before we started construction. He tried to saw we broke it all up with equipment.
The other incident involved a guy who tried to claim that an expensive fur coat was missing from a closet. Again, I refused to file a claim. Insted, I offered to pay for the coat after we all went down a took lie detector tests. I offered to pay for the lie detector tests too if any of my guys was found to be lying. The guy quit his claim.
Insurance is complicated and the exclusions can break you. It's probably a good idea to have your lawyer review your insurance policy if you are truly interested in protecting yourself. In the end though, we all have to decide as to how much risk we can tolerate because realistically, we really can't totally insure ourselves from every risk-we simply couldn't afford it. That's why I've said that if you have a lot to lose, you have to have redundant layers of protection.
It's sad, but the truth is that there are a lot of people out there gunning for your empire.
blue
Thanks for input Blue, really appreciate your time and point of view.
I've done a little reading up on the insurance side of things, and it seems like I can get all the coverage I need from General Liability Coverage (GLC).Justin Fink - FHB Editorial
I've done a little reading up on the insurance side of things,
That's a smart man that reads on things that he knows little of. I wish I had that much sense in my earlier days.
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>>So we agree that the LLC separates the business and the personal in terms of assets available to debtors. I just wanted to make sure we are on the same page there.
No. NO. NO!!!!!
This isn't pitching pennies!
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Sojourners: Christians for Justice and Peace
"In other words, what is the best way to protect myself from being sued?"Don't do dumb stuff or act negligently
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Piffin, thanks for the advice...but "Don't do dumb stuff or act negligently" isn't always going to work and we all know it. That's why we have car insurance, home insurance, auto insurance, and so forth...because mistakes do happen. Sometimes out of our control.
What do you do about those instances?
Justin Fink - FHB Editorial
that's easy too - buy contractor's liability insurancenot that I know how well that works. Never had to use it. I've done a couple of dumb stuff, but the cost was small and I took care of it out of pocket.
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If you think that gives you absolute protect then why don't you set up an LLC for a car service to driver yourself and drop insurance.
That won't work Bill. The law provides for the piercing of the corporate veil if the corporation is underinsured. I'm sure the same logic applies to LLC's.
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If you could get it out of a book or web site, do you think the world would put up with lawyers for one more minute? <G,D&R>
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Sojourners: Christians for Justice and Peace
Creditors will not lend or give credit to a small corporation or LLC without having one of the owners cosign.And if one owner has to cosign, he makes sure that the others cosign also.
Creditors will not lend or give credit to a small corporation or LLC without having one of the owners cosign.
And if one owner has to cosign, he makes sure that the others cosign also
I think you should re-state that as Banks (or other institutional lenders) will not lend or give credit, blah, blah, blah.
The only reason I mention this is because we all tend to get too accustomed into thinking that the only people that lend money are bankers. Private lenders might very well give a loan to a small corp or LLC without a personal guaranty. It would all depend on the type of loan, the collateral, and of course the rate of interest!
It's not unthinkable to pick up a fixer upper, using an LLC or Corp, and get owner financed while it is rehabbed, and never be personally liable for the debt if it goes south. That would be an example of private financing advantage for an entity.
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You're going to haggle about my choice words?Of the 72 posts so far the only ones with merit are those that say seek a professional. I recommended CPAs. Others recommended lawyers.All of the other advice is good enough to put one in a very deep hole.
You're going to haggle about my choice words?
Actually, I wan't haggling. I was saying you are wrong. Your actual statement implied that credit cannot be obtained without a personal guarantee. Many of the people reading that line might accept that at face value, without questioning it. I was merely pointing out that banks and other institutional lenders might very well agree with you, but that private money and smaller lenders might not give a hoot. It all depends on the deal.
Of the 72 posts so far the only ones with merit are those that say seek a professional. I recommended CPAs. Others recommended lawyers.
I find it odd that you want to toss all the other conversation in a hole, but want to stick with the CPA suggestion, which I also think is dead wrong. The decision to choose an entity should be carefully weighed. The CPA would offer his opinion based on the tax ramnifications. He would be the expert regarding this aspect of the decision. The Lawyer would make his suggestion regarding the legal ramnifications regarding the entity with respect to liability issues. The businessman would then take these sometimes conflicting opinions and make a decision based on his own needs and goals.
Once the decision is made to choose a particular entity, it would be the lawyer who would draft the proper language, to allow the businessman to set up the entity to meet the liability goals and the tax goals as well as making sure that the new entity properly started it's own life out right.
My advice was to know and learn as much about these issues before you set foot in the door of these professionals. I say this because of my experiences with both. I've had to fire two cpas so far in my business. I've had a lawyer do such a poor job on a simple home purchase that I easily had a no-brainer malpractice lawsuit against him....just one problem though: the two year statute of limitations expired four years before I discovered his error. We spent $15,000 cleaning up that lawyers mess! I happen to know that in that same neighborhood, another guy just spent at least half that fixing a similar mess and his neighbor is about to lose 15' of prime lakefront. That's be costing them about 15k or more in equity if they don't try to fight it.
The lesson I learned was to know as much about the contracts that I'm signing as the lawyer. I know I won't/can't possibly do that, but in the end, I know I can't trust my lawyer to read all the fine print. I have to do that myself, then be able to ask intelligent questions.
Summing up my advice: ask intelligent questions. If you don't know the differences, liability wise and tax wise, don't set any appointments. Go to the library and read until you know...then call the professionals and have a consultation. If you choose to file your own paperwork then, it'll probably be right.
The filing is simpleton paperwork. The drafting of the operating agreement is the nuts and bolts. Most single person LLCs only require the basic operating agreement with the standard outs. It's really no big deal. When you start adding partners, the operating agreement becomes much more critical very fast!
By the way, I wonder how many in here know that the IRS can make a ruling that you've been operating as a corporation, and tax you like a corporation, even though you've never incorporated?!!! Dont' ask me if they've ever done it, I'm just telling you that they can!
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I am sure you can fool some unsuspecting person who will invest without a cosigner.---I have always regarded lawyers as professionals. I simply did not recommend lawyers. Others did. Why you distort your reading so much I don't know.
I am sure you can fool some unsuspecting person who will invest without a cosigner
You're thinking about it in the wrong vein.
The issue of personal guarantee is of little importance when the asset is properly collateralized.
I myself would gladly make a "hard money" loan to an LLC that has poor credit IF they have a good asset and the numbers make sense. Of course, I would be charging a lot more than a bank that only offers 15 and 30 year mortgages that have strict qualifying guidelines. The key for me would be the asset, not the borrower.
blue
Blue,
It's nice to know that you might loan the money without a personal guarantee. Unfortunately, you are not a licensed lender and don't do this daily as far as I understand. If you do, let us all know and you will be inundated with borrowers, for sure.
The reality is that the companies that do this routinely want personal signatures. Not all, for sure, but by far the majority. I've seen a lot of people try this fancy financing, but haven't seen it work. I'm sorry, it DOES work, for the companies hawking books, seminars and tapes with these concepts to unsuspecting people.
Presenting a situation that may work 1-3% of the time as reality is not an acceptable solution to the problem.
Don
Actually Don, I think your figure of 1% to 3% is kinda low and I'm thinking that it's a w.a.g. So we won't bother debating that.
You said :"The reality is that the companies that do this routinely want personal signatures. "
I never implied that that didn't. I specifically stated that banks and other institutional lenders require them. I'll further elaborate and say that they almost always will require a personal guarantee for residential loans, but quite often they don't require them for commercial loans. You can borrow 2 million for an apartment building without a personal guarantee (each bank or institution sets it's own guidelines-some will some won't) easier than you can get a 50% mortgage on your own home without the personal guarantee.
Your statement about people hawking books and tapes is just plain silly. I'm not talking about anything "fancy". I'm just talking about private loan sources. I've bought two pieces myself in therecent years on Land Contracts, which is a form of private financing. I didn't have to personally guarantee either transaction. I'll admit that I didn't buy either one in an LLC, because I wasn't savvy enough at that time, but I could have. The contract language alllowed me to assign my contract and if I decided to assign it to my LLC, there wasn't any specific terms that precluded that.
Most people (that is my w a g) think that the only source for loans is the banks, and it surprises them when they find out that there are a multitude of different ways to borrow money. I'm simply trying to prevent a common misperception from being perpetrated to someone that is trying to make a decision about their entity structure. I'm not trying to show anyone up, I'm just trying to do what I think is the right thing to do: keeps the facts straight.
blue
Forgive my ignorance, what's a "w.a. g."?
As far as the percentage of people that are on this site, dealing with financing, I venture that most of them deal with banks and other institutional lenders as the principal sources of financing. The subject of the thread is "Do I form my own LLC?" With all due respect, that's not exactly "high end" in terms of business. I will not argue with you on the percentages - this time. <g> Good night.
Don
WAG= wild azzed guess.
blue
What Bill is telling you is the truth. my Lawyer had a long talkwith me about all the ways I could still get personally hurt if sued.one advantage of LLC is for other kinds of businmesses than an individual doing service work, such as rentals, or a professional practice like Doctors and Lawyers. You exempt your assets from the mistakes or your associates. Investors use a lot of LLCsI don't believe it is right to try to avoid liability for something that you might do. The knowledge that if i mess up, I might have to make someone whole keeps me more conscientious than if I had it in mind that I migtht get away scot free after burning somebodies house down...
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I migtht get away scot free after burning somebodies house down...
not if I can help it. nobody gets away Scott free.
I think that from those that know the fine points of LLC we need some further explanation.
You write "..The catch is that I don't plan to sub anything out. If the customer needs electrical work done on the project, they are in charge of finding that electrician and it's a whole separate bill. Easy as pie."
Are you suggesting that a one man operation set up as an LLC cannot sub work without losing protection from claims against their personal holdings?
And can you further explain how the LLC or what the LLC protects re. personal assets?
Everything thus far has been a little vague.
thanks.Remodeling Contractor just outside the Glass City.
Quittin' Time
Well, if it seems vague, it may be because I don't have the full picture yet. I haven't actually set up the LLC yet, only working on the bulleted points as I understand them. (I don't claim to be a lawyer, accountant, or any sort of authority on this subject - so help is appreciated on my end as well)
Are you suggesting that a one man operation set up as an LLC cannot sub work without losing protection from claims against their personal holdings?
-I actually got my wires crossed on this one. I was taking some information from another thread about LLC insurance. Specifically claiming yourself under an "artisan policy" Check this out from another post here on BT:
RobertPaulson: 61409.15 [If you have artisan's policy] "You are not allowed to hire out at all, NO SUBS PERIOD. They'll check your records and nail you to the cross and deny you coverage. Put you right out of business."
And can you further explain how the LLC or what the LLC protects re. personal assets?
-I understood it be like this: If I screw up and get sued, the customer can sue me only for what my business is worth. In other words, if it got really ugly, they couldn't take my house and car, they could only get as far as my tablesaw and workshop. It's basically a legal separation of business and personal...means they can't touch your personal stuff, only business. I thought it would be a good way to keep both halves of my life separated.
Sorry if this stuff is still unclear...I'm learning it as I go also.Justin Fink - FHB Editorial
>>I asked the same question of my accountant.>>LLC: They can only attack your business. This all but guarantees that you will still have food on the table and a roof over your wife and kids - That's cheap insurance in my book. And do you ask your mechanic about, say, effective sentence structure? <G>Let's put it this way. Sam is a contractor. Joe is a contractor. Sugar Mama wants to provide $$ to them to start a business.They form a partnership.Sam is out on one job. Joe is on another. Sugar Mama is having her nails done.Right after putting greasy suntan lotion on, the hammer flies out of Sam's hand and beans Dr. Customer, who finished his brain surgery residency and post-fellowship work a year ago and hung out his shingle. Dr. C made $1.3 million in his first year of practice.After getting bonked, Dr. C can no longer work. If he had worked to age 65, the accountants and economists agree that he would have made $100 million over his life time.Question: what is the best suntan lotion for a contractor to use?Bonus question: who's on the hook to Dr. C?Answer: Sam, Joe and Suger Mama. All partners in a p'ship are individually liable for the obligations incurred by the partnership and by the other partners.They pay off Dr. C (Suger MAma has deep pockets) and this time form a corp or an LLC named "Can't See It From My House Wood Butchers, LLC." (Aka "CSIFMHWB")Same facts and events, only this time it's Mr. Client, attorney at law, just named partner at Dewey Cheatham and How. Same $$ involved.Question: which fool agreed to work for a shark?Bonus question: who's on the hook?CSIFMHWB, as the contracting company. Sam, in his individual capacity for negligently swinging a hammer with a greasy hand.Big Mama is only a shareholder. She's off the hook under the company's limited liability. Same for Joe.Sam isn't liable as a shareholder. He is liable as the tortfeasor.If it was truly a sub-contractor who screwed up, then the company, and the shareholders are off the hook, unless, perhaps, the sub was famous for greasing up and letting fly, in which case the company might get it for negligent "hiring."
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Sojourners: Christians for Justice and Peace
Setting up an LLC, S Corp., C Corp. or anything else is easy. Instead of having him/her do the paperwork, pay your lawyer to give you the pros and cons of each type of business form and pick what's appropriate for your business, not what your (possibly) clueless pal did. You need to consider tax issues, annual reporting requirements, licensing, etc. A contractor deciding an LLC is the right form for him is like the customer deciding what size joists are appropriate. He might be right, but only by accident.
When I am suing a contractor for a client, the first thing I look at is whether I can get at the individual. Do-it-yourself lawyers make my job easier.
John:
Here in Ohio, our state has a Small Business Development Center who help people with business start-ups. Their services are free and the counselor helped me on deciding what form of business to take (chose LLC). He gave me the forms to fill out and for $125 I was incorporated. Don't know if have this option available in your state, but take time to explore.
Rookie
When I did mine, I looked at the options, cost wise. Accountant for $300, one lawyer at $750, and another at $1000. I chose to spend the grand. Here is why.
1. as a business expence, that grand is really only $650 out of pocket after taxes.
2. $650 spread out over 10 years is nothing more than a tick on a pigs butt compared to the volume of money you will have flow through your hands.
3. $65 per year. Personally I would waste more time (money), worrying about whether I did it right, if I did it myself.
By #3 I am money ahead.
4. If/When I get sued, I would rather have an established relationship with a lawyer, than walk in with my do-it-yourself LLC paperwork.
5. The firm that did the work is one of the more aggresive firms in the area in regards to construction litigation. I had a contractor friend get sued, and this firm was his opponent. Contractor friend went through 3 or 4 lawyers before he found one capable of defending him. Bob W. can correct me if I am wrong, but my understanding is that this firm could not represent someone trying to sue me, as the firm would have a conflict of interest.
6. Raise your rates $1 per hour and you have the expence covered in less than 1 year.
7. I do remodeling. Lawyers do law.
Hmmmmmm...........................taking all that into account, it was an easy decision.
Bowz
In Colorado, you fill in an online form at the Secretary of State's web page and give them a credit card number for something like $50-100. Done.
I paid my accoutant about a hundred bucks plus sixty to the state for filing and in about tweo weeks everything was in place now once a year I do a report on the internet and thats it very simple and I think the paper work took all of twenty minutes a grand seems very high but each state has thier own rules.
Nathan, the $1000 bucks isn't for the filing, it's to craft a custom operating agreement. The actually filing might be an hour for a clerk.
I could file it myself online in five minutes, once I find the right website. I might have to send in a hard copy but that would only take an extra five to find a stamp!
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