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  1. #1
    Join Date
    May 2002
    Posts
    200

    Inc, LLC, Corp....?

    When going into the business yourself, and only yourself... no investors, no partners, what should you register your business as?

  2. #2
    I'm no lawyer, nor accountant, so please take the advice accordingly!!! - but if you are just looking for a safe little shell to operate your small business from, and LLC is the easiest to set up, pay tax, etc.

    Basically an LLC offers the same protective shell as a corp, but carries less tax burden.

    Now if you ever do get into partners or investors, especially investors, is where you will find some drawbacks to the LLC.

    Please re-read sentence 1!!!

    Good luck.

  3. #3
    Join Date
    Nov 2000
    Location
    San Diego
    Posts
    3,407
    Inc and Corp are the same thing.

  4. #4
    Join Date
    Jul 2002
    Posts
    541

    *

    hmm, I got myself a book about a month ago about how to corporate your business, and there was a few mentions of the other types of corps, LLC being one of them.

    Again, take the previous posters disclaimer that we are not lawyers, but I thought it was mentioned that LLC was available in all states of the union - but that there needed to be atleast 2 people in that corporation to make it a valid one. This is true in all states but for one, and I am unable to remember which state it was.

    You'd think it was Delaware given it's love for corp's, but I don't believe that was the state.

    So if you are a 1 man/woman shop, there might be no chance of you getting into an LLC.

    Also, seems there's not as much liability protection for service corps as I originally believed. Might want to get a book of your own, make it a recent one, and make it one with entries for all states or your state - but after reading small parts of the book it would seem that corporating isn't too productive for many small webhosters.

    Good luck-
    -WC-

  5. #5
    Join Date
    Jul 2002
    Location
    ... in my mind ...
    Posts
    159

    to inc or not to inc...

    ...although we are a corporation at present, our next business venture will be LLC... almost the same benefits with less hassle...

    http://www.llc.com/ will answer some questions...
    http://www.incorporateabusiness.com/corpllc.htm will show a brief comparison...
    Mothers of the world unite! Spank your sons and make them quit fighting...

  6. #6
    Join Date
    Aug 2000
    Location
    NYC
    Posts
    6,623
    Originally posted by WildCard
    Again, take the previous posters disclaimer that we are not lawyers, but I thought it was mentioned that LLC was available in all states of the union - but that there needed to be atleast 2 people in that corporation to make it a valid one. This is true in all states but for one, and I am unable to remember which state it was.
    If that's what it says, your book is out of date.

    If you are in a state where a one-person LLC is allowed, it's likely to be the best choice for the situation in question. But both the LLC and standard corporation have specific benefits and liabilities, so there really isn't a one-size-fits-all answer. The LLC was, though, "invented" specifically for small businesses, so it's certainly worth serious consideration.
    Specializing in SEO and PPC management.

  7. #7
    Huh? I am a 1 man LLC - and have been a 1-man corp before too. On a corp you have to have a president, vice pres and treasurer, and I think that must be made up of at least 2 people, - but there can still be just 1 share holder if you want.

    An LLC is certainly a nice fit for a 1-person operation. Perhaps you just got those two facts mixed up?

  8. #8
    Join Date
    Jan 2002
    Location
    Scotland, UK
    Posts
    2,688
    Originally posted by lpguitars
    On a corp you have to have a president, vice pres and treasurer, and I think that must be made up of at least 2 people
    As far as I know, one person can hold all the 'management' positions.

  9. #9
    Join Date
    Aug 2000
    Location
    NYC
    Posts
    6,623
    Yes, in most states a single person can hold more than one, and even all, of the required positions within a corporation.
    Specializing in SEO and PPC management.

  10. #10
    Join Date
    Aug 2002
    Location
    Seattle
    Posts
    5,525
    Delaware and Nevada are the spiffiest incorps

  11. #11
    Join Date
    Aug 2002
    Location
    Downers Grove, IL
    Posts
    304
    what about working under an Assumed Name? will you be able to provide services to other states as such?

  12. #12
    We have recently, formed LLC ( Limited Liabilty Company ) in OH, two weeks ago, and such. I just turned it over to my laywer, and he handled all the hassle . Although I'm interested in where I can go to see if we are "registered" online, as a business yet/LLC.

  13. #13
    Join Date
    Nov 2000
    Location
    San Diego
    Posts
    3,407
    Originally posted by ChickenSteak
    We have recently, formed LLC ( Limited Liabilty Company ) in OH, two weeks ago, and such. I just turned it over to my laywer, and he handled all the hassle . Although I'm interested in where I can go to see if we are "registered" online, as a business yet/LLC.
    I wanted to check out your new LLC, so I went to your website. Thi shad to be the funniest thing I have ever seen. No flame. Just good humor.

    "Rack Easy, an Ohio based company. One of the most diverse, isp's leading in the industry world wide, specializing in providing high-end managed dedicated server's. We have offices throughout Canada, and the United States.

    We have been in business, since January 1st, 2002, providing shared, dedicated, and colocation solutions to both individual's, and corporate businesses. Expert's believe by the end of year 2005, we will be one of the largest isp's world wide."



    Sorry, I just had to post that. I really do wish you success.

  14. #14
    It was some filler text, as you can see the current problem's we are having with designers. Although I do enjoy your since of humor . In the final layout, etc everything shall be correct.

  15. #15
    Join Date
    Nov 2000
    Location
    San Diego
    Posts
    3,407
    I figured it was filler simply because the site is still under development. I just got a laugh out of it. Thanks.

  16. #16
    Join Date
    Sep 2002
    Location
    Lakewood, NJ
    Posts
    18
    Currently I operate as a Sole Proprietor, mainly because I am a one man show. I am mulling the idea of forming an LLC, but right now it is just easier to stay the Sole Prop.
    David White
    Internet Business Planning, Dial Up ISP, Web Hosting & Design
    http://www.Best-XXX-Hosting.com

  17. #17

    Talk to your tax person

    .. and see what they recommend, and ask them what they're going to charge you to prepare your personal return, and what they're going to charge for the business entity's return.

    There's a good chance that moving from sole proprietor filing on a Schedule C to an LLC or S or C corp is going to add $600-$1000 to your bill for tax preparation. (Or you've got a lot of reading ahead to learn to do it yourself.)

    You'll also want to talk to them about cash flow, and how to minimize the overall tax burden - either by getting the most favorable rates for the profit you're taking, or by generating losses & deductions you can use to shelter other income from taxation.

    If all of that sounds like too much trouble, don't bother with forming another entity - it adds a significant burden in terms of money & paperwork. That comes with some benefits, if you do it right, but it's wasted effort if you don't have the time & energy to follow through.

  18. #18

    Re: Talk to your tax person

    Originally posted by gbroiles
    There's a good chance that moving from sole proprietor filing on a Schedule C to an LLC or S or C corp is going to add $600-$1000 to your bill for tax preparation. (Or you've got a lot of reading ahead to learn to do it yourself.)
    A 1-member LLC is a disregarded entity for Federal Tax Purposes. You would list your income on your Schedule C, just as if you weren't in the LLC.
    Kevin Bombino
    Founder
    Action Verb, LLC

  19. #19
    Join Date
    Feb 2001
    Location
    Atlanta. Georgia
    Posts
    252

    Re: Re: Talk to your tax person

    Originally posted by bombino


    A 1-member LLC is a disregarded entity for Federal Tax Purposes. You would list your income on your Schedule C, just as if you weren't in the LLC.
    I believe that is true - sounds like LLC is the best thing around for a 1 person company. You can get a "corporate shield" around your assets and still be able to file a relatively simple tax return

    <----WOO HOO!! Post # 300!!!!
    Peachtree WebWorks, LLC
    http://www.peachtreewebworks.com

  20. #20

    It totally depends on where you are...

    The answer to your question on whether an LLC or another entity is best for you *really* depends on where you are.

    Each state makes its own laws on how corporations are formed. In one state you may need two individuals, in another only one. Each state legislature makes the rules for the individual state so depending on where you are the rules will be different than someone else. Now you can always form a corporation in another state under their rules, but you may not want to do that as I will explain in a moment.

    A LLC is a legal entity which provides you protection of a corporation but allows you in certain instances to be taxed on your profits at your personal income tax rate rather than the higher corporate rate. Generally speaking there are two income tax rates: personal rates, and corporate rates. There are also two different rates for most states. That is, if you are a corporation in a state you might have a different rate of taxes on your corporate income. So there are four different tax rates to keep in mind and which must be examined.

    Now, a LLC can either be taxed at your personal rate or at the corporate rate. Here is the important part, depending on which state you live in you might have to have a specific number of individuals required before you can be taxed at your personal rate. If you don't have the required number of individuals then you might be subject to the higher *state* corporate rate even though you might be taxed at the lower *federal* rate. You have to check into this before you make your decision.

    Now for legal protection basically what incorporating does for you is it separates the monies that the corporation has from your own personal monies. For example consider two people, one incorporated and one not. If they were to be sued and lose $30,000 the person who was not incorporated could have his *own* personal items attached for judgment--that is, he pays from his own pocketbook if there is not enough money in the business. The incorporated person is only limited to the amount of assets in the corporation, so if the incorporated person had no assets (maybe just reselling month to month) and only $5.00 in the corporate checking account then the person who won the lawsuit would likely only get $5.00 and the person could retire to their fully paid for Florida mansion. (Of course the judgment would still be there against the business so its not like they wouldn't owe the money but you can't get blood from stone). None of this protection is any good unless a person keeps accurate corporate records, does not co-mingle personal money and corporate money, and complies with all their state regulations however. If you don't then it can be like there is no corporation and they could come after you personally (this is called piercing the corporate veil). Also if you sign contracts only on your signature and not on behalf of the corporation you might be putting yourself on the hook rather than the corporation. You have the same corporate protection with a LLC, a S-Corp or a C-Corp.

    So what makes a LLC different or better than the other corporations; S-Corp or C-Corp? Well again it depends on the state you are in. The first difference is that a C-Corp only taxes itself at the corporate rate, there is no flow through entity so you can be taxed at a lower rate. Also depending on how you work it you might be double taxed at a C-Corp taking profits out of the corporation because profits come out as dividends which are taxable to the individual. A C-Corp is a good investment when you believe you are going public with your company or have substantial investors. Microsoft is a C-Corp. For a one-person business this is generally not the best choice.

    A S-Corp is a corporation which allows a person to be taxed at the lower personal tax rate, but it limits the amount of people or entities which can ultimately own the corporation. You generally can't have more than 35 people be owners of this corporation. Other than that it is similiar to a C-Corp in that the corporation consists of Articles of Incorporation and bylaws and ownership is evidenced by stock ownership or membership.

    A LLC is a relatively new entity which allows a person to be taxed at the lower person rate and can limit how many people are owners (depends on your state). Effectively it is the same as a S-Corp, but is consists of a Certificate of Incorporation and a partnership agreement or operating agreement which spells out how the LLC runs. The LLC was created to fill in a gap where there are partners running businesses which wanted corporate protection but without the corporate documents.

    Does this make the LLC better than a S-Corp? Not necessarily, in some states there will be effectively no difference for a one person owner. What you have to watch out for is the yearly registration fee for the two types of corporations. A S-Corp might have a yearly fee of $100.00 while a LLC might have a fee of $150.00.

    While on the subject of registration fees I have to point out that 95% of all people do not need a Delaware or Nevada corporation. The laws which protect the corporations in those states are designed to protect the *biggies* in the corporate world, the Microsofts, etc. Rarely will incorporating in those states give you more protection for the cases in which you need protection. And generally it will probably cost you more to form a corporation in those states because after you pay the incorporating fees in those states AND you will have to pay the fee in your state as well. If you just incorporated in your state you only pay one fee. Also if you incorporate in another state you will generally have to pay someone to be your agent (to receive official documentation on your behalf) each year while if you incorporate in your own state you could just receive mail at your own house. Further the fact that Nevada has no corporate tax means nothing to you because if you are operating a corporation in your state the corporation pays state income tax just for operating in the state.

    As for one person being a president, secretary and treasurer, I believe almost all states allow a single person to be all. It really doesn't matter, it is just that your state wants a name for all positions they really don't care who fills the positions as long as they are 18 years old and compentant. And you can always make up any position or title you want.

    A quick note about taxes . . . if you can do your own taxes (not the short form) you probably can do your own business taxes as well. Unless you have massive amounts of revenue and expenses which are all over it is just a simple matter of proper filing throughout the year. Before you run to an accountant try it yourself with a software package first. Spending $600-$1000 is too much for a simple flow through entity in a one-person operation.

    So what is the final advice? Figuring out which is better for you is dependant on the state you are in. A C-Corp is probably too much, your choice is between a LLC or S-Corp and both would probably serve you well with a little research done on your part.

    I know this has been longwinded but I hope it clears up some misconceptions.

    Richard
    An attorney who forms corporations for people in his day job

  21. #21
    Join Date
    Aug 2000
    Location
    NYC
    Posts
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    Re: Re: Talk to your tax person

    Originally posted by bombino
    A 1-member LLC is a disregarded entity for Federal Tax Purposes. You would list your income on your Schedule C, just as if you weren't in the LLC.
    Just to clarify, any LLC is treated the same way by the IRS -- it's just not recognized as an entity type, being a creation of state laws. What that generally means for a single-member LLC is that the LLC's tax liability is simply passed through to your individual return; for a multiple-member LLC it's treated as a partnership. But, any LLC -- even if it has just one member -- can elect to be classified for tax purposes as a corporation.
    Specializing in SEO and PPC management.

  22. #22
    Join Date
    Feb 2001
    Location
    Atlanta. Georgia
    Posts
    252
    beachtrader - Thanks for that long-winded, but very helpful , reply. Its nice to see such a thought out response from a newbie to these boards!

    Welcome
    Peachtree WebWorks, LLC
    http://www.peachtreewebworks.com

  23. #23
    Checkout http://www.nolo.com

    It has some good descriptions and resources to get started.
    *AlphaOmegaHosting.Com* - Hosting since 1998
    Managed Dedicated Servers and VPS
    Hosted Exchange 2010 Email Service

  24. #24
    Thanks Michael, I appreciate your comments and welcome. Hopefully I can impart some small wisdom.
    Richard
    Multiple Domain Hosting | See our Ad in PC Magazine
    Windows Reseller Hosting @ www.e3servers.com

  25. #25
    beachtrader :

    Interesting and insightful post there.

    If possible, could you please give me some input on : how to incorporate company, me being a non-american ??

    last time i checked, non-americans cannot form an LLC , right ?? is it still the same ??

    I am particularly interested to Incorporate my company in Delaware state of US ?

    How can go about it and what i should be aware of, so that atleast no one takes me for a ride ??

    Thanks much

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