Sole Or LLC.. Need Some Help.. Thanks..

MTA

I am starting a construction company as a GC would it be ok to get a sole proprietorship right know until we start to make some money..

Then I would get an LLC.. please let me know Thanks

BattleRidge

Why wait until you start making money? just do the LLC now. sole proprietor has no protection, if you have a house or such.

MALCO.New.York

Limited Liability Company all the way!

SP is NOTHING but a tax number.

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Cache

If you've determined that the LLC structure will best meet your needs, you should just go ahead and set it up. Takes a few minutes to do, and all of about $100 depending on the state. A sole proprietorship is automatic. Sort of the default for anyone who starts a business without forming an entitiy seperate from themselves.

Essentially all that the LLC does for you is to seperate personal assets from business assets. This exempts personal assets during litigation. IOW, if your company is responsible for damage to a person or property, they will be able to seek to recover those damages from your business only. They will not be able to go after your house, car, etc... unless you've used those as collateral for business loans.

OTOH, LLC owners often mistakenly believe that the LLC structure protects the business from personal litigation. That is not necessarily the case. If you are guilty of a personal offense for which the business has no liability, the offended party can come after all of your assets. Often, ownership in a company falls in this category, although your business is afforded some protection. The nice thing about this has to do with partners. If your partner gets tangled up in something, the LLC structure prevents you from being liable for his problems.

Anyway, if you're in doubt then just take a couple minutes and setup an LLC. Nobody in a construction trade, especially a GC, should operate as a sole proprietor.

Aiken Colon

Nobody in any business should operate as a sole proprietor. Higher taxes, all the liability, and more sole proprietor also has more audits from the IRS than any other classification.

You might also want to consult a CPA about this as well. There is some benefit from running an LLC under a C or S corporation. I don't remember what it is, but ours told us we should never just have an LLC. It had something to do with being able to write off more.

JJ

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Cache

Historically there were many more write-offs available to a C-Corp. Many have now been covered by provisions for LLCs that make the two very similar. You don't run an LLC under a C-corp. You can choose to have your LLC taxed as a C-corp. C-corps are subject to taxes that LLCs aren't. One of these being the accumulated earnings tax and then of course there is tax on dividends. Let me get into the nitty gritty a bit because I've got a few moments.

Corporations' earnings are taxed at a lower rate than individuals. 15% to be exact on earnings less than $50K. This applies to corprate earnings that are not dispensed to employees or given out to shareholders. So you could start a c-corp and take advantage of all the write-offs and then have the corp retain $50K and dispense the rest to yourself as salary.

This sounds like a great plan, but really it is only great if you make right around $100K per year. The average american only pays about 16% income tax anyway after deductions. If a corp accumulates more than $250K in its coffers then it is technically supposed to pay an additional 15% tax on new income. This can be avoided for the most part though.

The reason I mention accumulated earnings though, is because over the years most advantages of the c-corp have been applied to the LLC such as write-offs for health care, leases, and otehr expenses. But, an LLC still can't accumulate earnings at a lower tax rate. this gets even better when you consider the idea that these accumulated earnings aren't subject to self-employment tax in a c-corp. Also, some of the "fringe benefits" for c-corps are a bit better than LLCs.

In a nutshell, the best way to go about it might be to form an LLC and request that it be taxed as a c-corp. The reason for this is that it reduces the amount of paperwork for you. C-corp need to have board meetings and should have more than one owner. An LLC can have a single owner if necessary and doesn't need to have those meetings.

So here's my general rule....

If you plan on making less than about $50K a year, or if you plan on having enough expenses to be written off that you will actually show a loss.... then the LLC is the way to go. Losses of a c-corp can't be written off against other personal income.

OTOH, if the business is likely to make more than $75K and you're considering company life insurance, and other fringe benefits as well as allowing the company to accumulate earnings of less than $50K per year.... Form the LLC and send in a Form 8832 to request taxation as a c-corp.

JPC2

I live in Delaware and last year the state passed legislation that cracks down on contractor's not having worker's compensation insurance. So everyone around here ran out and became an LLC. Executive officers of a corporation are covered under the Delaware Worker's Compensation Law. Up to (8) exec. officers that are stockholders of the corp. may elect not to be subject to the WC law by completing an agreement between the corp. and officers. This waives any and all benefits to which you might be entitled under the Del. WC law.

This is an issue that has really changed things for the small guy in our state.

Do your homework!

RCPainting

Might want to check your State License Board also. I started as a sole and when my acct advised me to change to corp I had to get a new license.

MTA

Thanks..

right know I dont have the money for an LLC.. I just have the money for the inc and bonding... and the contractor lic..

So it will be ok to get the sole proprietor then just switch over when I get the money for it.. to have someone do the LLC will cost me about 500.00

BKFranks

Where are you located? There's no LLC's in California for contractors.

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MGSProperties

very true

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MTA

Washington state

Aiken Colon

wow that is crazy I never knew that. Can you guys do S or C corps?

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BKFranks

Yeah, corporations are OK.

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Ayan Gonzalez

The best thing to do is to have three corporations for asset and personal protection.

The first company should be your C corp. construction company and it should be incorporated in Delaware, Wyoming or Alaska.

These states provide you with the best laws to protect your corporate structure.

The second company should be an LP. It should own all equipment and rent it to the C corp.

And the final company should be another LP. Here is where you keep your safe assets such as cash, stocks bonds ext.

LLC are best used for real estate.

I would STRONGLY advice you to spend $ 15.00 and get a book on the subject before you make a mistake. I would recommend Owning Your Own Corporation, from the Rich
Dad Poor Dad collection.

This would be a good start. Once you have a better understanding of these concepts, you will can progress to other books on the subject and eventually learn about the power of the charging order.

Bob Kovacs

I fully agree that one needs an understanding of the legal structures available, but your choice of books is suspect- I prefer to get legal advice from someone with a legal backgraound, not someone who's entire past has yet to be proven to have actually taken place as it's written.......

Ayan Gonzalez

I fully agree with you about legal advice. The book I recommended was written buy several atturny's.

I have spent more than $ 100,000.00 on legal advice, books and syminars over the years learning about corporate structures and asset protection for my businesses.

First off, you can't go to just any atturney or accountant on this subject.

Out of the nearly 20 million atturny's out there, only about 950 of them specialize only in asset protection and understand that I am talking about.

Chances are the gentlman posting the original question will not ever run into one of them or even know how to find one of these specialists....

Because of the format of the question he posted, I dought he can affored the $ 500.00 per hour one of them charges.

That is why I suggested spending just $ 15.00 on a basic book that would only begin to explain the concept of asset protection.

I could have recommened other books on trusts, family limited partnerships, limited partnerships, S. corporations, C corporations, limited liability corporations, charitable remainder and irrivocable trusts and wills so that he can incorporate maximum asset protection along with maximum tax savings to his business.

All of which someone looking to properly create an asset protection structure needs to understand.

But some of these books would have cost him as much as $ 3,000.00 just for one.

Mike Finley

I've been all through this, and I'd say you can simplify all the corporate structuring listed above by purchasing a good umbrella policy.

It's ( Ready... Get set... GO!)

not ( GO! ... get Ready... Get Set... oh F cK!)

Always be two steps ahead of yourself in everything you do in business, never get into the trap of playing catch up.

Ayan Gonzalez

An umbrella policy is a good idea but not by istelf to protect you against false law suits and unavoidable mistakes.


It should be incorporated into a good asset protection strategy.


Case in point.


I know a GC that had a very successful construction company. He thought he was smart by putting his assets ( over 1 mill) in his wife of 25 years name to protect himself from law suits.


One day his wife had an auto accident. After she came out of it, she had brain damage that changed her personality.


She became a paranoid skitso, and thought he was out to kill her.

She then died just three months later from a brain hemorrhage.


However, before she died her sister helped her create a will leaving everything in her name to her.


He was fifty nine years old when this happened and is now broke.

An umbrella policy would have not been able to help him.

The_Game

get the llc online

more competition for the agency = cheapest price

i was for doing it to 1 agency here years ago and i when on line. Save my self $175.00 and got the big package whit nice book for the company and seal. took 2 weeks to get everything.
Go online they compete you save $$
about a fuel thank of fuel loll