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View Full Version : LLC or Sole Proprietor


weseal
02-15-2008, 07:44 PM
Im in the process of starting a new computer tech business and am wonder what business structure (ie. sole proprietor/LLC/S-corp) you all recommend and are operating under. I'm leaning towards sole pro right now just for simplicity and cost savings. I will have liability insurance so i will be some what covered.

I have read the differences in each and am familiar with them but just was interested in what you all have to say.

p.s. first post and I love the site!

focuz
02-15-2008, 11:52 PM
You really want to stick with an LLC. Someone correct me if I'm wrong by I believe that with a sole owned biz if someone sues you they can take all of your personal property. If its an LLC they can only sue you for what the biz is worth and can't touch anything you personally own, hence the name limited liability.

In michigan any ways registering a sole is $20 and $50 for a LLC so the price difference isn't much to worry about.

weseal
02-16-2008, 03:00 AM
in IL where i live its 20 for a sole p and 500 for a LLC so the costs are alot more. If i were to do a sole pro right now i would eventually switch over to a LLC or even a S corp.

focuz
02-16-2008, 03:46 AM
holy crap thats a big price difference.

Simmy
02-16-2008, 09:40 AM
I agree weseal, I would stick with a sole trader for the time being as it's cheaper to setup, easier to maintain (you don't need to hand in yearly accounts to Companies House) and you can always switch later on.

Although the tax rates of a sole trader are slightly higher, you can expense alot more than you can in an LLC, so it usually balances out. Considering you are just starting out, income won't be massive, you'll have alot to expense, so you probably won't pay much/any tax in the first year.

Being a sole trader for the past 2.5years, the risk of being sued has never bothered me mainly because I have insurance in place to cover me. Plus in my line of work, not alot can go wrong. I can delete some important data, but at the end of the day the customer is responsible for that. I can break a computer or even several computer in an office, but I can't imagine doing something that would warrant a customer sueing me for all I'm worth (which isn't much anway :p)

hawks5999
02-16-2008, 01:42 PM
in IL where i live its 20 for a sole p and 500 for a LLC so the costs are alot more. If i were to do a sole pro right now i would eventually switch over to a LLC or even a S corp.

weseal... maybe it makes sense for you to consider a Nevada state corporation. a service like Intuit's mycorporation.com can set it up for you for about $300.

I just registered myself as an LLC in Washington state ($195 to secretary of state). I echo what's been said by focuz - go the llc route. If you service a company and, God forbid, they end up losing proprietary or business data or they try to hang you out to dry for some type of non-disclosure violation you could lose everything. Insurance is a must but what is your coverage? $1,000,000? If you, again God forbid, are found negligent and cost a customer it's business or competitive edge they could come after you for $10 mil. You, not some company, will become a bankrupt pariah who will never be insurable again. If it's an LLC, you have a lot better chance of keeping your home and the ability to form a new LLC in the future and be insured again. US society is too litigious to risk it for the sake of $500.

tartis
02-17-2008, 12:15 PM
in IL where i live its 20 for a sole p and 500 for a LLC so the costs are alot more. If i were to do a sole pro right now i would eventually switch over to a LLC or even a S corp.

Forget the S corp. Too much paperwork, and you need a CPA and tons of help. I own a seperate business that is an "C" Corp, and I am always dealing with the IRS, and CPA's. Stick with the LLC, which helps protect your personal assets. An LLC only protects you as long as you seperate your private and company funds (seperate bank accounts, etc.).

IcedFalcon
03-03-2008, 03:21 AM
Hawks is right insurance is a great thing to have in case you fry a hard drive someones vacation photos but if you do work for a company that looses millions that insurance wont help much.
Say you won a contract to maintain systems for a medical group and an update patch causes every system on the network to go down. What ever happened to cause it you are now the target of a major lawsuit. Having been an LLC your business is broke but you still own your house and can drive your kids to school every day. Even an S-Corp not holding any other assets would be better than a SP. Without one to protect you your house and car go to pay your bills and you are still left owing.
An LLC is best for tax and protection reasons and you can form one in almost any state even if you don't physically live there. This is best for any business unless you have some reason to go Inc.

weseal
03-03-2008, 03:16 PM
Thanks for the great advice. After much thought i have decided to right now go with a sole pro setup with the best insurance for my situation in place. I have a bachelors in business admin and am aware of the liability issue that can arise as well as taxation and what not.

My thoughts for the decision where based on the fact that im am just starting out with low revenue in the beginning with full intentions to go LLC in the future once established. Plus my grandfather is owns his own insurance company and he assured me that a am very much covered for the work that i plan to do. Lastly, in the beginning im going to focus on only home customers so liability wont be all that high.

Thank you all for the info again!

tartis
03-03-2008, 06:31 PM
In Michigan you can form an LLC for about $50.00. You have less liability, and you can use a schedule "C" to itemize business deductions. It may also prevent someone from taking everything you own if you burn down the house that they live in. Remember the Judge from NY that sued the dry cleaner for 67 million dollars for losing his pants?

http://blogs.wsj.com/law/2007/06/06/judge-sues-dry-cleaners-for-54-million/

mortisult
03-04-2008, 02:16 AM
I'm by no means an expert on this stuff but I just had a conversation with my accountant about going from an llc to an s-corp. Also, I'm going from memory on some of this stuff so bear with me if it's not exactly right.

Once you can maintain at least 25k in net revenue per year then it's better to file as an s-corp because you then take a "fair" wage from the company, say 12.5k, and then the other 12.5k is company profit that you can take. On the "fair" wage that you take you need to pay all the employee/employer taxes (social security, medicaid, whatever else.) You pay the 7.5% as employeer and 7.5% as employee. Then you are taxed again on your standard taxes. On the "profit" you take from the company, you'd be only subject to your standard tax rate for your bracket. With an LLC all money that you take from the company is considered a wage and subject to that "double" tax.

It is true there's a bunch more paperwork with the s-corp, but my accountant said that for the first year (and would be less for subsequent years) the cost would be around $800 for any work and filings and my savings on the tax side would be about $1200. Not very much difference, but that would be more significant as you revenue increases.

Either way it's best to get a good accountant who can advise you since every situation can be very different. I am by no means giving advise, just passing along what I was told.

If anyone has better info than me on this type of thing I'd be very interested to hear.

Good luck!