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

Mike Finley

That's why I said "I'd say you can simplify all the corporate structuring listed above by purchasing a good umbrella policy." I'm only referring to protections in regard to your business liability and personal liability. Wives, ex wives, wives hiring contract killers, wives going insane... etc... that's beyond all this, if you want to protect yourself 100% don't earn any money or keep it in mason jars above the 100 year flood line.

I'm referring only to business and personal liability - IE - being sued, which is what the original question is all about. When we go into business we open ourselves up for liability and lawsuits. When we aquire personal wealth you need to protect personal assets. You can do so through 30-40 corporations and trusts or simply incorporate your business as a first line of defense to issolate your personal assets from the business and purchase an umbrella policy as your 2nd line of defense if for some reason your corporate veil is pierced. In my experience with those 2 things in place you're financially secure against 99.99% of anything you may ever face.

Barring crazy wives or fraud.

One thing overlooked by people advising all sorts of corporate wrangling is the cost of all the accounting associated with it. Unless you are getting a 10 for 1 deal with your accountant, that's a crap load of accounting to pay for at tax time, not to mention during the rest of the year filing quarterlies, keeping current with your state for your entities and the list goes on and on...

Bill

Everyone hollers LLC or INC. But what you dont know is that if say you go to a store and see a tv or something you would like to have. Now you use your bank card and pay for it. You have just committed a federal crime. You CAN NOT spend any company money for your personal use. You MUST write yourself a check and pay for personal things from that. I know, many people will say "I do", but be honest, 80% of you do it. Also there is NO guarantee that your personal assets are safe just because you hide behind a cor veil. If they want, they can get to you and your personal things as well. Granted its not as easy as a SP, but it can still be done. I have talked to CPA's, lawyers, and I have seen it happen. So if you dont believe it then go ahead. If you do anything that implies GROSS NEGLIGENCE then you are not protected behind the corp. They can and will come after you personally. Like I said, I have seen a few corps have this happen to them. Me? SP. I call my company by my name so the checks can either be cashed or deposited. JMO.

__________________
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Mike Finley

You're not breaking any laws unless you don't separate the TV from your business assets (even then maybe it's a case of semantics only still).

I can write a business check for a new Ferrari if I want. Come tax time I had better reclassify that $200,000 check as a distribution to myself and pay the taxes on it.

If I didn't and tried to declare the Ferrari as a business expense and deduct the $200,000 as a direct business expense, I still wouldn't be breaking any laws, only openning myself up for an audit where the IRS agent would decide whether my reasoning was sound or not and backed by the tax code. If found that it wasn't I would then be liable for the penalties and interest accrued on the deduction I've already taken for the Ferrari.

If I didn't pay the interest and penalties I could ultimately go to jail, but even that would be a stretch.

The bottom line to all this is very easy-

If you have no assets, IE - nothing to lose right now... then who cares? Keep all your reciepts in a shoe box and be a sole proprietor. You have nothing to lose at this point and nothing to protect or worry about. Bankruptcy will ultimately wash away almost everything if it comes to that.

If you plan to accumilate anything you want to keep then it's time to incoporate now and just be done with it.

Then once you do accumilate things, it's time for an umbrella policy.

Cache

Piercing the corp veil is not common unless the case involves fraud or gross negligence. If that is the kind of person we are talking about, then I think we should advise that he pay a lawyer $500/hr to set up 100 corps in the most complicated structure possible. That way if he is gonna defraud people, at least it will have cost him a boat load of money to do it.

Anyway, to everyone else here. Over the years as LLCs have gotten more popular, the IRS has given them most of the advantages of the other forms of business. Allow me to comment on the proposed structure of setting up a C-corp and two LPs.

I already mentioned the idea that LLCs now get most of the C-corp write-offs. Actually they get all of the C-corp write-offs if you chose to have it taxed as a C-corp. The difference is that it is less hassle to appropriately run an LLC. Just make sure to check with your state, to make sure of its stance on LLCs.

In regards to the LP, the only thing it really offers is an advantageous managment structure. This can be duplicated by forming an LLC that is manager-managed instead of member managed.

What I'm getting at is that the proposed structure is easier to setup and more versatile if you were to do three LLCs, making sure to form them correctly. The only advantage to forming the actual C-corp for the first entity is to form a close corp in either Nevada or Delaware to avoid state tax. Just be aware that many times this isn't exactly legal, and many companies are getting in trouble for this.

Ayan Gonzalez

I agree with what you say.

However, "the only way" to protect youself completely "100%" is with a charging order.

For example, how would an umbrella policy protect you against a false federal law suit against you and your business.

Case in point. I had an employee once that sued my company an I claiming unpaid overtime on a federal project.

Durring the discovery process I found out that he was an illigal alien that lied on his application, by providing a fake drivers license, and fake name and other identifiaction.

He had 3 arrest warrents on him. One for not reporting to his porrol officer after serving two years in jail for assult on a police officer and another from the imigration office trying to find him to have him deported.

Because this was a federal case, if I notified the police that I new where he was I would have gone to jail for interfearing with his rights under the Fair Labor Standards Act.

I paid nearly $ 100,000.00 in legal fees to defent the case. Yes I one but did I?

That was before I learned the power of a charging order. Had I had my companies structured the proper way at the time, the claiments councel would never had filed the suit in the first place.

An umbrela policy does nothing to protect you against cases like this. In fact with the right structure you don't need the expence of an umbrella policy in the first place.

Now compare the $ 100,000.00 in legal fees defending my company against just one false suit and compare that to what to a good accountents bill not to mention how much money you will save in taxes with the correct structure.

Ayan Gonzalez

OK so here is Jon.

Jon desided to work as a sole proprieter. Jon is smart he gets the best umbrella policy in the world.

He has a problem and losses a suit.

Oh, but Jon has no assets and he files chapter 7 or 11 or whatever...........

So Jon lives a happy life and years later (lets say 10 years for this case) he has a good income and some money given to him when his dad passed.

But wait thers's more...........

All of a sudden Jon's bank accounts run dry.

Oh no, Jon didn't know that chapter 7 or 11 did not protect him from negligence claims....... "SUPRISE"

The atturny for the claiment was patient and Jon Boy is back to farming again.

Mike Finley

An umbrella policy is for personal assets, it has nothing to do with your business.

Anyone can sue you any time for any reason. You can't prevent that, you can only deter the intent based upon the chances of an award large enough to entice a lawyer to take the case on contingency.

If you spent $100,000 to defend yourself... well, all I can say is you certainly have all the twilight zone, one better story toppers all covered and I'm sure with any example you will have a personal one in a million story to cover it.

My advice to you is to start playing the lottery with the odds you seem to attract.

A $100,000 spent defending yourself on one case plus in your own words you've spent more than another $100,000 more on legal advice, books and seminars over the years learning about corporate structures and asset protection for your businesses.

Um, there is something wrong with this picture.

Anyone?

gtmstang

I'm a sole prop. Have been for years and no problem. I'm changing to an LLC now because I'm taking on partners and its time to change the structure. I had a GC I used to work for that was LLC and the whole nine yards. When he went bankrupt the company had such high debt the judge told him to sell everything to make amends. He couldnt sell in this great housing market now and had to file personal bankruptcy. Where was his protection? His bankruptcy stemmed from customers lawsuits for not finishing work. He now has 60 days to change his license to another name, but in the great state of Tennessee you need 35,000 in the bank for a minimum build limit. He's bankrupt. How can he change the name without his financial statement showing 35,000 in the bank. I've had complaints, who hasnt, but I've got a bulletproof contract and I do what I say. Also in my state when I change to an LLC I have to go through getting another license, cant just change the name. New license, all my bonds and insurances all have to change. So find $500.00 and do it now if you can. I'll loose around $3500.00 doing everything again. I feel stupid.

Ayan Gonzalez

You don't need an umbrella policy with the right corporate structure.

No attorny will take a case when he see's he will end up with a charging order.

I think it would be wise for you to learn what a "charging order" is.

And while we're at it, mmmmmmmmm, lets see?

Been in business 28 years, paid $ 100,000.00 defending one of many suits 23 years ago, spent about $ 130,000.00 setting corporate structures, talking with asset protection attorney's, going to siminars and settiing up companies, mmmmmmmmm,

That's about $ 4,642.85 per year.

Whats so twilight zone about that?

I would think that 28 years, 75 full time employees and $ 25,000,000.00 a year average business revenues would add up to a few little stories.

Don't you?

Mike Finley

Charging orders are to protect you personally, such as when somebody sues you personally as a member of a business instead of the business itself.

If that's the case, I'd much rather have my umbrella policy for $300 a year and have my insurance companies attorney's defending me for free.

Ayan - if you feel the need to spend in your own words more than $200,000 in legal fees, so be it.

The average contractor here or on these boards is lucky to keep a separate checking account for his business. Advising such a person to set up multiple corporations and tens of thousands of dollars is akin to informing a kid running a lemonade stand that he needs to incorporate. While both might offer protection to the individual in question for a one in a billion set of circumstance, both are going to end up as the same result - with the person in question looking at you cross eyed and doing nothing.

A good friend of mines wife kept seeing the digital pictures her other friend took of her family on vacations using an $80 Canon Powershot point and shoot, so her husband bought here a $4000 Canon EOS1-D. The result? She still doesn't have any vacation pictures because she can't figure out how to use it.

Meanwhile her other friend keeps bringing home great vacation pictures because her camera is simple enough for her to use. Meanwhile the husband is pissed and keeps yelling, you wanted to take pictures, I bought you a fricken $4000 camera, why don't we have any pictures!!!!?????

gtmstang

HEY! Wait a minute. I'm a professional.I have a business checking account......................hold on.....................never mind. My wife just told me I was overdrawn again and we have to close it. So I DID have a business account.

gtmstang

So MTA, has your question been answered here?

MTA

Yes... So it look like i would need to get an llc.. do you guys know of any good places to go online for really cheap..

mahlere

Here is a quick example of what Ayan is talking about....however, contrary to Ayun's recommendation of a corporation, this attorney recommends an LLC and explains why....

as for the OP, you need more help than worrying about whether to start as a SP or LLC or S corp or whatever....like Mike Finley said, "it's ready, set, go"

gtmstang

I'm doing mine online at my states website. Maybe check there. I'll get mine for 300.00 instead of 500.00 to 1300.00 that some lawyers told me they would do it for.

gtmstang

I heard of www.legalzoom.com also. I don't know anything about them, but may be worth a look.

BattleRidge

my guy could probably do it for ya. PM me and I will give you his number, he's not expensive at all really.

Giftcard

You can do it yourself for $175 http://www.secstate.wa.gov/corps/

Mike Finley

Agreed, MTA- the first step for you should be to get out the yellow pages or google and look up "accountant" go sit down with one for a free hour of advice, or even pay for an hour if you have to. In my life I've been a sole prorietor, an LLC, a LLP and a S-corp. There are a lot of choices based upon what you are doing.

Call an accountant and get started correctly. This is simply the RIGHT way to go about being in business, not a choice or maybe what you should do or not, it's the way every business should start out.

You probably know the correct way to do your trade and just as there is a standard set of steps to completing a task, a business entity is no different.

Giftcard

Why call an accountant when your local gov provides all the info on their site for forming a LLC. You may want to vist a accountant or lawyer for proper use but to fill out a form. Please.

Mike hate to pick on you buddy, but did you really call an accountant if so get your money back. Your signature on your site still leaves you liable. Yep