converting to LLC

Aweston, this is where an operating agreement comes. If you are going to form an llc, even if its only you, put one together with your lawyer. Mine states how I get paid in it. I can choose to collect a fixed salary once a month. If I don't take it say this month, I don't get paid, there is no back pay. This is part of the separating you from your business. Every month, my payroll sends me checks, I have to approve each one, including my own.
 
frederick said:
Aweston, this is where an operating agreement comes. If you are going to form an llc, even if its only you, put one together with your lawyer. Mine states how I get paid in it. I can choose to collect a fixed salary once a month. If I don't take it say this month, I don't get paid, there is no back pay. This is part of the separating you from your business. Every month, my payroll sends me checks, I have to approve each one, including my own.
Click to expand...

Right, but are you not the only one that makes the decisions and benefits financially from those decisions? If not, there seems no reason to be in business.

I'm very interested to learn more about your operating agreement and how you're protected from liability.
 
As I have been in business over the years, I have learned that simply having an LLC doesn't protect you 100%.

The corporate veil is supposed to protect you, and if something happens the business can/will be sued.

But that doesn't stop a third party from suing you personally as a member of the company. Regardless of what protections are afforded by a corporation/LLC, anyone can sue anyone for any reason.

So, just to protect yourself personally, you should operate under the assumption that the corporate veil is not going to protect you at all and get yourself some insurance. Hopefully it will never be needed. And if an event does come up, hopefully it will not pierce the veil either.

Regardless of all the laws and what should or should not happen, know that it can happen and insurance is your friend here. Let's say you are sued personally and the case doesn't even have any merit whatsoever, it's going to cost minimum $5000 or more just to get a lawyer to take the case and draft a few letters etc.. You would want insurance covering this even though there is no fault of any kind from you personally. Let the insurance company worry about counter-suing this other party to get their money back.

I think the right question to ask might be "what can my company do for me personally to help me avoid being personally liable?" Ie- have your company buy the insurance for you personally, ie tax deduction for company etc..

A quick google shows these words right out of a few lawyers mouths.
http://www.avvo.com/legal-answers/can-an-officer-of-a-corporation-be-personally-sued-363650.html
http://www.expertlaw.com/forums/showthread.php?t=49220
 
Last edited:
As tom put it, I'm protected from business actions. If they wanted to sue me, that would be a separate lawsuit. The discussion is about the business and what an llc covers. This is where needing a lawyer to create a corporate viel that separates the owner(s) assets from the companies. State laws may vary on what the viel can cover. The best thing to do is separate yourself as far from the business as possible. Yes you own and direct it, but you need a line of separation. I don't even introduce myself as the owner, I introduce myself as the CEO or manager. This places emphasis on the fact that I work for the company, and that actions are carried out it in the interest of the company.
 
frederick said:
As tom put it, I'm protected from business actions. If they wanted to sue me, that would be a separate lawsuit. The discussion is about the business and what an llc covers. This is where needing a lawyer to create a corporate viel that separates the owner(s) assets from the companies. State laws may vary on what the viel can cover. The best thing to do is separate yourself as far from the business as possible. Yes you own and direct it, but you need a line of separation. I don't even introduce myself as the owner, I introduce myself as the CEO or manager. This places emphasis on the fact that I work for the company, and that actions are carried out it in the interest of the company.
Click to expand...

Right.. Until the Plaintiff can prove egregious actions on your part that were not in the best interest of the company and the Courts find you responsible personally. That's what piercing the corporate veil is all about. I've also seen cases where a one man show tried hiding behind an incorporation but because they were the company in every respect they were found liable for the actions of the company. A sole decision maker, one point of contact, from what I've witnessed, is not immune.

That's actually not a separate lawsuit. It's the same lawsuit. Both parties (the LLC and you as a director) are named.

I definitely like the recommendations of Tom suggesting having E&O insurance as well. You never know when you'll need it. Even more so I like the idea of delivering the highest level of service, embodying the highest of standards, to ensure (as much as is humanly possible) the satisfaction of every client. That's the best approach.
 
Last edited:
Llc

Talk to a good attorney and CPA. The reasons (other than corporate veil protection) are tax savings. We are an S corporation. With a good CPA and an S corp you should save $5,000 on every $50K as the ball park figure from what I'm told.
Basically if you are any kind of Corporation it is treated as a separate entity, like its own person in a way. Meaning that, my corporation has its own credit line (separate from me) etc.... BUT... a separate corp means that just like a separate person, it has to file its OWN tax returns etc. So you would have the corps returns to file as well as your own personal.
If you have at least decent sales volume then I think its a good idea, but your CPA would be the best person to ask this question.
 
ComputerPro said:
You need to switch banks lol. Some things you have to guarantee but some credit lines you don't. Depends on you business. If your brand new then it will be harder of course.
Click to expand...

After the credit crunch down there I don't see a lot of banks eager to hand out money. If you're an LLC without a lot of assets and cash you're not getting any credit without a personal guarantee.
 
aweston said:
After the credit crunch down there I don't see a lot of banks eager to hand out money. If you're an LLC without a lot of assets and cash you're not getting any credit without a personal guarantee.
Click to expand...

Yes, those days are long gone.

You might be able to get a vendor to lend you credit, I have a revolving line of credit with Dell, although not very much, it is tied to the business and not me.

If you want serious business credit, you need to get a DUNS number.
 
On the corporate veil thing. As has been mentioned how things are done is VERY important. I'm on a email list from nl.blr-news.com which discusses HR related things. This was in my email this morning.

In one recent suit, Irizarry v. Catsimatidis, the court held that the president and CEO (and owner) of a chain of grocery stores was an “employer” under the FLSA, and thus personally liable for FLSA violations. If one of your higher-ups doesn’t want to follow the wage/hour rules, says Brinkerhoff, just introduce him or her to this case.
Click to expand...

From the article below

http://hrdailyadvisor.blr.com/2014/...n-low-hanging-fruit-for-plaintiffs-attorneys/
 
I'm submitting the LLC form to my state today, thanks for reminding me! Any extra little bit of protection can't hurt and its easy to fill out and is only $150, but I'm sure its no magic shield.
 
ell said:
I'm submitting the LLC form to my state today, thanks for reminding me! Any extra little bit of protection can't hurt and its easy to fill out and is only $150, but I'm sure its no magic shield.
Click to expand...

One thing you may have to keep in mind. I know the title of this thread says you are converting to an LLC, but you are really not technically converting.

Essentially, you are closing your sole proprietorship and opening a new llc company. I think technically that means you are going to have 2 schedule c's on next years income tax.
 
You must log in or register to reply here.

Similar threads

thecomputerguy
$300k wired and lost.
Replies
5
Views
712
Sky-Knight
Sky-Knight
callthatgirl
How to Import and Export PST into New Outlook
Replies
0
Views
159
callthatgirl
callthatgirl
1
Is anyone using Quickbooks Desktop Pro 2020 on Windows 11?
Replies
3
Views
645
194MT
1
thecomputerguy
[REQUEST] Service to get a new Phone # that is only used to transcribe voicemail to Email.
Replies
7
Views
482
britechguy
britechguy
HCHTech
Microsoft signin issues - TPM
Replies
1
Views
204
Sky-Knight
Sky-Knight
Back
Top