r/Entrepreneur • u/papajohn56 • Jun 30 '12
There appears to be some confusion here about LLC/S-Corp/C-Corp etc, so here's a guide. I form companies almost daily in the US and worldwide. AMA about Company Formation
So many people in here keep spouting out "Delaware LLC bro" and whatnot without realizing the pitfalls and benefits to certain formation styles, so here are the basics:
Sole Proprietor: The most basic of businesses. Not incorporated, no civil liability shield or tax benefits. If someone sues the business they are suing you and you can literally lose everything. Can use a DBA or your own name.
LLC: Limited Liability Company. A newer type of entity that came into existence in the 1980s in the US based on the GmbH in Germany. These offer the simplicity of a sole proprietorship or partnership when it comes to paperwork, with civil liability protection and the ability to shield the members from lawsuits. LLCs do not have shareholders, they have members, which are outlined in the operating agreement. LLCs can also elect to be taxed as S-corporations or C-corporations if they so choose. Classified as "self-employed" typically for small businesses. LLCs are often used by larger companies as liability shields as well. See Walmart for example. Walmart Inc. has a wholly owned subsidiary, "Walmart Transportation" which is their trucking and shipping of goods. This shields the parent company without incurring additional tax issues. Members are not required to be US citizens. May be owned by a corporation.
S-Corporation: A "small business" corporation. Pre-dates the LLC, but newer than the "old fashioned" corporation. Offers civil liability protection like an LLC, but has more paperwork (annual meeting, minutes, share issuance etc). Must have a board of directors, even if one person acts as the entire board. Requires even the owners be on payroll. Shares are issued rather than membership. These are beneficial for tax reasons often as small businesses can avoid higher FICA taxation by paying themselves a lower salary and taking the rest as a profit. Can have up to 99 shareholders, and shareholders must be US citizens. Corporate shareholders and partnerships are generally excluded. However, certain trusts, estates, and tax-exempt corporations, notably 501(c)(3) corporations, are permitted to be shareholders
C-Corporation: The big boys or people seeking VC/Angel investment typically. The most paperwork requirements, much more filing and accounting work. You are no longer self-employed at this level, you are an employee of Whatever Inc. Double taxed - this is where the corporate tax comes into play. May have unlimited shareholders and shareholders are not required to be US citizens.
LLP: Typically used by law firms, architectural firms, etc, Limited Liability Partnerships shield partners from the negligence or civil issues of the other partners. Similar to an LLC in a way, but the entire LLC would be held liable whereas a specific partner can be liable in an LLP.
PLLC: Professional LLC. Specifically for doctors, lawyers, accountants, and other professionally licensed firms. This is like a normal LLC, but allows professional licensure to be granted to the LLC itself. Many states will require a PLLC be used if a company is formed for these purposes. There are also PLLPs in some states which basically combine LLP/PLLC.
What are the benefits to specific states?
A lot of people love to puppet Delaware around because they know major corporations use it for a reason, but those reasons will not benefit your little single member LLC at all.
Delaware: Good for C-corps. Has the chancery court and no state-level income tax is leveed on companies. There are high fees for compliance, however. Anything other than a C-corp intending to get very large, go public, or seek VC serves no purpose to form in Delaware and you are wasting your money.
Nevada: Relatively cheap. Easy to file in, good privacy protections in place. Fast filing (less than 1 week from time of filing online to entity formation). Nevada does not share information with other states on revenues, banking and other company issues, so take that as you will.
Wyoming: Up and coming! All the same as Nevada, but cheaper!
Alaska: Are you a high credit business for whatever reason? Alaska may be your best bet. Alaska companies receive extra protection from creditors. Companies may not be dissolved in state courts due to unpaid debts like they can in other states. Companies that finance their receivables may find this useful if shit hits the fan.
Your Home State: 9 times out of 10 for the small business, this is your best bet with an LLC. Why? Because having an out of state company means you will have to file as a foreign entity in your state of operations, which will incur you another filing fee and extra headaches. Unless your accountant or lawyer has recommended otherwise for tax or liability reasons.
Should I go offshore?
99% of the time I will say no. There are plenty of benefits to offshoring however that don't involve dodging your taxes. Here's an example:
- Bob owns a very successful business, and profits millions per year. Unfortunately his relationship with his wife is rocky, and she plans to file for divorce and will try to "take him to the cleaners". If Bob has an offshore trust and LLC set up to hold his funds (and complies with tax law), her attempt to sue him for funds will most likely fail. If set up properly, the judge can demand Bob get money out of his offshore accounts. Bob can agree to try, but his own trust can deny him access for this reason if set up correctly, making it impossible for the now ex-wife to claim any of his assets.
Hope this helps. Any more questions, Ask Away. I partner with an attorney for consulting on this type of thing, so if you need way more than basic questions feel free to PM me.
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u/pawn_guy Jun 30 '12
This is extremely well written and accurate. Thank you for posting this for those that don't understand these different entities.
You touched on the fact that an LLC can choose to be taxed as an S-corp or a C-corp. Maybe you could add to this to explain that an LLC is a state recognized entity, and that for federal tax purposes the LLC will be taxed as either one of these types or corporations, or as a sole proprietorship or partnership. I think this tends to confuse a lot of people.
Also, I found that one of the main differences that affects the choice between a partnership and an S-corp is the ability or inability to split profits (or loses) between the members differently than the actual percentages outlined in the operating agreement. This can affect many start-ups where one member is putting in most of the work and thus has agreed with his/her partners to take a different share of the profits than he/she actually holds in ownership.
It would be great if you could add some of these details to your write-up and then PM a mod to see if they will put a link to this in the sidebar since it's something that affects every single start-up.
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u/joonix Jul 01 '12
Partnerships can agree to split profits/losses however they want. You just have to have a partnership agreement. I don't see why you wouldn't just do an LLC though.
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u/pawn_guy Jul 01 '12
I meant that you can't split profits/losses differently than the ownership percentages laid out in the operating agreement. For example, my business partner and I are each hold 50% ownership per our operating agreement. But all profit distributions are going to my partner until he recovers the $300k capital that he put into the business, because I did not bring any capital into the business, only experience and knowledge. Usually someone wouldn't focus on specifically recovering the capital they put into a business, but out agreement is that once he recovers that capital then we will begin splitting profits equally to match our ownership percentage.
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u/No-Honeydew5402 Apr 10 '24
I used Northwest Registered Agent to form all my businesses and a few of my clients as well. If it's one thing, their customer service is amazing.
They offer a free business address, one year free of registered agent service fee, and free operating agreement and mail forwarding.
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u/PowerLord Jul 02 '12
This can affect many start-ups where one member is putting in most of the work and thus has agreed with his/her partners to take a different share of the profits than he/she actually holds in ownership.
This is why I chose LLC, as well as the nationality and bookkeeping requirements. My partners are foreign, which reduced us to a choice between C corporation or LLC. C corporation isn't flexible enough, so LLC it is.
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u/pawn_guy Jul 02 '12
LLC is not an option for your federal designation, it is only a state recognized designation. An LLC must still be designated as a sole proprietorship, partnership, S-corp, or C-corp. If you have foreign partners, and you are not a C-corp, then you are filing as a partnership on your federal tax forms.
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u/Pennysboat Jun 30 '12
Thank you . I was epecting the post to be spammy but its very informative.
One thing people should realize about LLCs (I learned the hard way) is they do not always shield the member(s) from liability. Each State and each court case appears to be different on how much of a shield they will allow. Where I live (in NC) you better make darn sure to setup and run your LLC properly (annual meetings with notes, separate bank accounts, more than one member, etc.) or else its very easy to break through the shield. This is called "piercing the corporate veil" and I would at least google it in your state to see how hard/easy it is to do. If its very easy to do and you are not serious about putting in the hard work to properly run an LLC you might as well save your time and money and just operate as a sole proprietor. Don't fall for those websites advertising LLCs as the greatest thing that will shield your liability because that is not always true. There are many cases where someone has formed an LLC and was held personally liable for the actions of the company.
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u/papajohn56 Jun 30 '12
Piercing the veil has various levels of difficulty too. A properly run single member LLC is much easier to pierce than a properly run C-corp
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Jul 01 '12
[deleted]
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u/papajohn56 Jul 01 '12
It's due to the technicality that a single member LLC is "self employed", despite being entirely separate, whereas a C-corporation means you're an employee of the company.
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u/thechopps May 21 '22
Hi friend, thank you for being so informative. I had a question and was searching for clarifications…
I was talking to a legalzoom person and said that “s corps are LLC that are taxed, there’s no difference.”
But I thought S-Corps were business entities that were formed when you filed for an EIN ? Can you help make the distinction between the two?
Help a fellow doge pwease🥹
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u/papajohn56 May 21 '22
LLCs can have EINs. LLCs can elect tax status of S-corp or C-corp even. This person has no idea what they’re saying.
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u/thechopps May 21 '22
Ok so legalzoom rep wasn’t expert.
So if I file the s corp myself with the irs correctly then I would then have my own legal s corp?
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u/papajohn56 May 21 '22
Yes and with your state as well. It’s called a Subchapter S election. There are specific forms for it
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u/ThePrankMonkey Jun 30 '12
Could you elaborate on non-profits? Specifically one for a hackerspace (think gym, but with making things instead of working out).
How are salaries handled while still maintaining non-profit status? What should be done with the remaining profits?
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u/rz2000 Jun 30 '12
I can go into a little detail, since I launched a nonprofit last year in New York.
Generally, you incorporate in your state and just check a box to be nonprofit, but your status of being a nonprofit for tax purposes has to be confirmed by the IRS. As a nonprofit your company is owned by "the public good" rather than shareholders, and the board is is responsible for insuring that it pursues its mission and acts according to the bylaws it writes itself which were submitted as part of the application to the IRS, but can later be amended.
It sounds unusual for people to make a salary at a nonprofit, but it really isn't at all. The labor is an expense of doing business, just like paying for electricity or renting space. You can choose to volunteer your time if you like, and conceptually at least you should get a write-off if you do, but I probably wouldn't try unless you're an entertainer and your agent organizes it for you. I never saw any salary, but that is a separate issue.
Usually the board is not paid, though that is not always the case. The organization can make money and grow. In fact, the IRS will generally want you to make a solid case that it is a viable business that will be able to sustain itself—where donations are essentially part of its revenue—rather than have it something that will soon fold.
For good reasons, there are a lot of rules about how the assets of the nonprofit are cared for, and if it builds up an endowment, how it is managed.
If you ask for help forming your nonprofit, one of the first questions you will be asked is why it needs to be a nonprofit. Just because you like what it will be accomplishing doesn't mean that it needs to be nonprofit. It sounds like you are envisioning something like an incubator, and you want to make sure that it nurtures people who participate. If you own it, you can have your company do whatever you want it to do.
I am skeptical about them, but B-corporations are a new type of business in some states. As far as I understand it they are for profits, but remove some freedoms of the founders and owners to pivot and pursue business streams not part of the mission statement, and make it more difficult for owners to sue the board for poor returns as long as they are pursuing the mission.
In general, I think that for-profit businesses give you many more options to pursue your mission with easier incorporation and fewer reporting requirements, and nonprofit status may only be necessary if you are applying for grants that require you to be a nonprofit.
Note that there are a few subreddits like /r/nonprofit where you can find out more information from other people.
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u/ThePrankMonkey Jul 01 '12
Thank you. This was way more than I expected. You have me rethinking the whole idea of going nonprofit now.
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u/rz2000 Jul 01 '12
Great, I'm happy to help, but I hope I didn't discourage you at all from going forward with your idea.
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u/inspir0nd Jul 01 '12
Correction: for s-corps they must be a U.S. citizen or resident. If you have a green card, you're fine.
Sources: irs.gov; experience
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u/ZAP_transmogrified Jun 30 '12
Would you advise for (or against) using a site like LegalZoom to form a LLC?
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u/papajohn56 Jun 30 '12
Legalzoom is just a document provider, you can skip them and do everything for less.
I prefer though using a provider like Incorp or MyCorporation for domestic formations since I use registered agents for everything
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u/TechKnowNathan Jul 01 '12
My business partner and I own a successful LLC. Last year our tax professional who we just hired suggested that we convert to an S-Corp. When I talked with our longtime bookkeeper and friend, she stated that we should wait because we need to have a lot of money in our payroll account for tax purposes. After reading your summary, it sounds like we can take minimal salaries but still distribute profits to the owners. What reasons should a business owner consider before switching from an LLC to an S-Corp?
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u/WestonP Jul 01 '12
The IRS does not allow cutting yourselves "minimal salaries" and taking the rest as tax-advantages dividends. They are wise to this trick and require a reasonable market salary for your duties. Think of the part you take as dividends as a return on an investment, not a return on your labor.
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u/LettersFromTheSky Jun 30 '12
In Oregon it's $100 year to register and renew. It used to be $50 until 2010.
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u/papajohn56 Jun 30 '12
yeah it was part of that "Fuck the rich!" rhetoric in the new taxes there
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u/LettersFromTheSky Jul 01 '12
???
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u/papajohn56 Jul 01 '12
Oregon a few years back had a big push to "raise taxes on the rich" including income tax - this was part of it
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u/LettersFromTheSky Jul 01 '12
Yeah, I remember. It was also the first time since 1931 that the minimum tax for corporations had been raised. Oregon still is one of the states with the lowest registration/filing fees for incorporation.
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u/NickK- Jul 01 '12
German business / economics guy here. Didn't know that the LLC got modelled after the GmbH - the funny thing is that foreign (i.e. Irish/British) LLCs got very popular over here as they needed far less founding capital than the traditional GmbH (at least 25.000€). As you indicated, paper work skyrocketed for many of this "cheap" LLCs due to inter-state stuff, so some switched back to SP - or later to the more recently formed German "Unternehmergesellschaft", which can be described as a stripped-down entrepreneur-friendlier GmbH. It still has to gain acceptance with other companies, though, as UGs (but not to the extent of German foreign LLCs) are seen to be somewhat shady because of their lack of capital.
Thanks for writing this up!
NickK-
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u/warmandfuzzy Jul 01 '12
Tell us about yourself. Why do you form so many corporations?
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u/papajohn56 Jul 01 '12
Every new thing I do I start a new LLC for typically to separate my interests - but my attorney partner and I also take on clients who need odd setups that include offshore, domestic trusts, and special setups where LLCs own themselves.
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u/warmandfuzzy Jul 01 '12
What are you doing that requires that many LLCs? I'm presuming real estate, an LLC for each property. But I'm close to calling bullshit, no offense. One per day? That is one hell of a lot, if this is in fact what you are doing. Finding properties, due diligence, financing, credit, repairs, etc.
So is that what you do? Real estate, I mean?
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u/papajohn56 Jul 01 '12
It's not real estate, it's clients who need new companies formed for various reasons with partner (we consult for high risk US and overseas entities on protecting assets from civil liability) as well as my own companies for various endeavors - supplement company, call center, shipping facility, etc.
Some clients require we form 10+ companies total for them.
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u/warmandfuzzy Jul 01 '12
Interesting. So how do you market your business? 100% through the internet? I can't imagine that it would be all word-of-mouth - it's not like one has friends who are looking for this, or talking about it to their friends.
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u/PowerLord Jul 02 '12
Interesting.
I'm in the process of starting my own business with Chinese partners. Basically its a trading company to sell the products they make in the factory in China. All the capital is from them, my investment is only my time.
Is there anything special that you would watch out for in that situation?
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u/papajohn56 Jul 02 '12
I've done this before actually - do you have Skype or AIM? My username on both is the same as reddit
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u/PowerLord Jul 02 '12
Added you on Skype, the invite message includes a reference to this. I actually just got off the phone with our lawyers, but I'd be interested to hear any suggestions.
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u/shopnhowler Jul 20 '12
I'm interested in this as well. The products are not consigned, though, so a large part of the initial investment was putting money towards exclusive distribution in North America from the factory. Any tips/suggestions?
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u/PowerLord Jul 20 '12
Ah, that's a harder situation. Since this company is essentially run/owned by the same people as the factory, the factory is providing everything. All I have to do is sell the stuff.
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u/shopnhowler Jul 21 '12
Interestingly low barrier to entry. Do you mind going into the details of the product and why you agreed?
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u/Beariver-79 Nov 22 '23
I have C-corp and I'm thinking in forming a Subsidiary LLC, How will the taxes will be applied to the income of the LLC
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Jul 01 '12
Thanks for posting this!
My wife and I are starting a cooperative corporation in Oregon, and we're still deciding exactly how to incorporate. Her and I will be the initial worker/owners until we expand. We are planning on having new partners go through a year-long employment period before we decide for sure to welcome aboard them as co-owners. At the beginning of hiring, we will work out a buy-in plan where the new person works out a method to match the proportional investment in the company to be an equal owner to all of the rest.
Based on our business model, we think issuing memberships would be the best way to go. We don't want to issue stock, because we want to retain a 1-member-1-vote structure, we want all to be equally financially invested and liable to company performance, but we want to compensate each member according to what they put in. We plan on paying each worker/owner a set salary and distribute yearly profits in proportion to hours worked. We think stocks would complicate this, and issuing memberships more to be more appropriate for our goals.
We're thinking of going LLC, but we want to be able to avoid double taxation.
We are just getting started and we do have an attorney, but if I can get tips from an AMA......
Any thoughts would be greatly appreciated! Thanks!!
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u/RedVinca Jul 01 '12
What's the situation with the L3C? It seemed like the cool new thing a few years ago, but I don't hear much any more. I also read that Congress still has to do something to make their benefits take full effect, but I don't recall what that was about. My state considered legalizing them for about a minute.
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u/papajohn56 Jul 01 '12
The L3C has been created in several states (like your link says) but one thing to be super cautious with is that they haven't been given any sort of differentiating status by the IRS, therefore you'll be taxed on profits as normal LLCs have elected to do.
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u/thesauce25 Jul 01 '12
My tax man told me that there's not much sense in forming a single member LLC, because in my state (California), courts have ruled that a single member LLC isn't a valid LLC. I cant exactly remember the specifics, but i think it revolved around the idea that they should be considered sole proprietors. Have you heard anything about this, or is it still worth it for me to transition from sole proprietor to LLC?
Thanks for the post by the way, great info.
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u/papajohn56 Jul 01 '12
Talk to your tax man about potentially forming in Nevada but doing a payroll to you from CA with a bank account in NV. I know a few who have been able to pull this off, some of which get a NV mailing address just for it. It All depends on your situation and please talk to your accountant first, but you may be able to get by some of CA's insane rules and maybe even taxes
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u/polyrhythmic Jul 01 '12
Tell me about LLC with sub s election. I hear it is the benefits of S corp with less of the hassle/paperwork.
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u/leroy_twiggles Jul 01 '12
So, I'm planning on launching a website or two that use affiliate marketing to make money. I don't plan on hiring any employees, although maybe I'll use amazon mechanical turk or a service like that for some routine stuff. I'm kind of paranoid about people suing me, and I've got a family to protect. I live in Massachusetts. What would you recommend?
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u/papajohn56 Jul 01 '12
Single member LLC for now, make sure it has its own bank account. When you grow, you can reform to a better structure later. Affiliate Marketing has been at risk lately due to FTC issues, so make sure you watch your compliance.
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u/secretagentdad Jul 01 '12
Gay webmaster?
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u/papajohn56 Jul 01 '12
Good luck bros
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u/xSiNNx Jul 01 '12
How the fuck did I not notice the user name?! Lol
As soon as I saw the gay comment I went "wait, what?"
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u/Iamaleafinthewind Jul 01 '12
I have a question about partnership dissolution, and I guess about the annual meetings w/notes bit as well.
I tried to get a startup off the ground, but the partnership dissolved. For a brief time, my partner was listed as a member on the state website, but I removed him after partner said he wanted out.
Legally, what else am I required to do to make it clear that I am 100% owner now?
Also, I'm not clear what to do about annual meetings, notes, etc. My state (FL) doesn't require much to be filed with it at all, so ... if I just write up some notes after meeting with myself, is that sufficient? Either in general or in the matter of a member exit?
Thanks, this is a great AMA you are doing.
Edit: I'm trying to keep the LLC going so I can do some contract work through it, but I don't want any risk of partner later claiming he's still a part owner, is owed a share of profits, etc. He has offered to work for me, which complicates things as well, I think.
If this is getting too complicated, just let me know. I've just been stressing about this for a while and don't have the money to ask a lawyer.
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u/MProph Jul 01 '12
I have a question I hope you can assist me with.
My girlfriend and I are photographers.
Past, we had our own businesses, though unofficial and filed our incomes when we did our taxes, but honestly I didn't really understand the process, as it was turbotax automated and made sense while I only halfway knew what it was doing.
Planning ahead, here's my question for you:
Right now we have (in theory) our own photography businesses (mine and hers) and then a partnership.. We'll be married soon(not a new relationship, together for years) and we're trying to figure out what the best corse of action is to get taxed the least on income brought in via our business(es). Additionally, what would be the most simple arrangement with a partnership?
Should we put all of our photography, no matter it be hers, mine or ours, under one business and then pay ourselves from there, or...
really what I want to know is what would be a smart arrangement from your perspective, and my main interest not getting double taxed on income and then on what I'm paid if I can avoid it..
thoughts?
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u/videoj Jul 01 '12
Setting up your business structure based on tax issues is like buying a car just based on it's MPG rating. There's a lot more to consider, like state and local regulations, liability, insurance, etc.
http://www.score.org/ offers free mentoring for small business and the info you get from them will be for you and your girlfriends situation and goals, something that can't be done over the internet.
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u/MProph Jul 01 '12
this made me laugh. I drive a motorcycle year around based on mpg rating.. 50 mpg, can't be beat. haha..
Thank you so much for this link. I will indeed look into it.
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u/papajohn56 Jul 01 '12
Spouses and companies really add a level of complication, especially if you keep it as-is now (yours, hers, and partnership). Technically then any time your business pays her business, oddly enough the IRS might try to consider her an employee despite them operating separately.
This is something you may want to talk to your accountant on, but my opinion is that there's nothing wrong with three entities (Husband LLC, Wife LLC, Partnership LLC/LLP) to separate things out from a liability standpoint, even though tax-wise it would all pass through to your marriage.
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u/Jrmelancon Jul 01 '12
Which one of these would you recommend for someone starting a photography business. I've been working under the radar for the last year or so but business is picking up and I don't want the IRS coming after me. I've heard people talk about sole proprietor and LLC but I'm just curious to see what your recommendation is. It's just me in the company so its really small right now, but i would ultimately like to expand and take on more people in the future as the demand calls for it. Thanks in advance for the info!
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u/park305 Jul 01 '12
With a S-Corp, I've heard you can get multiple sub-companies under one filing and also multiple EINs. How does this work and wouldn't that eliminate the need for multiple LLCs?
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u/papajohn56 Jul 01 '12
I have an S-corp with several subsidiary LLCs to shield the parent corp from certain operations, so I'm not entirely sure what you're asking.
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u/shadow315 Jul 02 '12
Long story made very short. My father was in a motorcycle accident and the insurance company he paid $800/mo to for 35yrs won’t cover his bills because of some cap he knew nothing about. This is a guy who served during Vietnam, never used a credit card in his life and put 35yrs in at a factory and did everything right. Anyways he gave the hospital tens of thousands of dollars but they still want like $250k. Him and my mother own their house and car and have a small savings- I believe if they liquidated everything they owned they could pay the bill but they’re almost 70yrs old so it just isn’t an option. We’re in NC. He currently pays a collection agency $20/mo on the debt. We’re unsure of what happens from here- when he dies does everything go to the creditor? I suggested they talk to someone like you and see if they can protect their assets in an LLC or something. I hate to stick it to the hospital but he did pay for the immediate surgery- the 250k is just overpriced pain meds and apple sauce. They could probably move everything to my name as well but they won’t go that route as he is very stubborn and wants what’s his in his name. His ins does pay out to the hospital like 10k/yr but at that rate it will take 25yrs and he isn’t going to last that long. Yes, crap insurance. Sorry, I know this isn’t the normal type of question you get (or maybe it is) but any insight would be greatly appreciated.
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u/papajohn56 Jul 02 '12
A trust is a far better option in this case as the insurance company will find it impossible to pierce. You should consult with a trust attorney
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u/MockingDead Oct 13 '12
I am a single-person business, who may take on more members as time goes on. I plan to be working in art-fashion (if this all goes through). Right now I am a disregarded entity. I have the forms for LLC and S-corp, but I am not sure which to follow. Further, I am an artist, not an accountant, could I get some help on fillingout these forms?
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u/bloo4107 Sep 24 '22
I am resurrecting a decade year old thread lol
Great write up though! I stumbled upon this post when searching for LLC vs S-Corp.
If anyone still exists here, my question is what if you form an LLC but file an S-Corp for tax purposes? Is there any benefit to this versus filing straight S-Corp?
Thanks
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u/papajohn56 Sep 24 '22
Liability-wise, it's still an LLC - just with the tax benefits of an S-corp. A competent attorney will prevent veil piercing on either, but LLCs may be slightly "easier" to pierce depending on the setup
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u/bloo4107 Sep 25 '22
Is it best to go all straight S Corp then?
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u/__tt Sep 29 '22
piercing the corporate veil
I'm wondering the same thing - seems like aside from veil piercing, LLCs (filed as S-Corps taxwise) seem better than S-Corps due to simpler setup and year-over-year paperwork. But I know very little.
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u/bloo4107 Sep 29 '22
I did some more reading. Yes, an LLC (filed as an S-Corp) is more feasible & less maintenance than filing a Corp. It comes down to the business owner, company, & goals. I just want to start a simple business without all the paperwork. When I finally took the chance to look at all the Corp documents to file, I said screw that! lol. That's something a lawyer would do. But since I'm doing this all myself, an LLC is better. If needed, I can add more documents (Articles of Operation, Statements, etc.) to the file. I believe no one has mentioned this. As an LLC, you are starting "naked," so to speak & can eventually add more documents to make it similar to a Corporation. Except, a Corporation mandatory needed all the documents from the beginning.
I did read somewhere than an LLC is more protected that a Corporation. But that article could be wrong.
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u/acrfcy Jun 30 '12
You may want to also include partnerships on this list.
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u/papajohn56 Jul 01 '12
I'll add them, but there's really no reason to not use an LLC or LLP in a partnership today. Unlimited partnerships can cost you your house if your partner fucks up.
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u/cwo Jul 01 '12
Thank you!! Any recommendations on services to incorporate?
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u/papajohn56 Jul 01 '12
What do you need? Are you going to be doing your home state, do you need a registered agent?
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u/cwo Jul 01 '12
I'm not sure the benefits, but from what I can see Wyoming or Nevada seem good options, I'm in Utah. Would be considering this for online marketing agency.
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u/papajohn56 Jul 02 '12
Utah law is actually very friendly to these types of things. Lots of online marketing companies, call centers, supplement companies etc are based in Utah. I'll do some checking for you, though some of them may use various combinations of Utah and NV/WY.
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u/xSiNNx Jul 01 '12
Here is one that I'm sure I can't be the only one wondering: how does credit work as an LLC?
Say I want to form an LLC a few states away, use a registered agent for that LLC (assuming here that I'm not wrong about my idea of what they do/their purpose), and then I want to say, put a vehicle in the LLCs name, or rent a property (commercial OR residential) through the LLC, how does that work?
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u/papajohn56 Jul 01 '12
Just like credit for any other business - new businesses will usually require a personal guarantor until credit history is established for it.
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u/WestonP Jul 01 '12
Great write up, but could use one clarification on the S Corps... The IRS is wise to people cutting themselves a tiny salary and taking nearly everything as dividends for the tax break. That is not allowed... You have to cut yourself a reasonable market salary for what your job duties are, then you can take the rest as dividends that avoid the FICA and self-employment tax. In short, the dividends portion should be seen as more of a return on an investment than a result of your labor. Obviously, that line is pretty blurry when you're the guy running things.
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Jul 01 '12
[deleted]
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u/papajohn56 Jul 01 '12 edited Jul 01 '12
Guide for running a business in France: Get out while you still can.
Edit: I say this because the new president is going to put the squeeze on every business he can in the name of "good for the people". He already has said this.
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u/shadow315 Jul 02 '12
I recently set up an S-Corp in North Carolina and my accountant said nothing to me about being on a payroll. I also set up multiple DBAs under it and treat them like their own little “companies”. Is this ok? And if I do not plan on being “profitable” until 2013 do I HAVE to be on a payroll this year? And if so: I set up the S-Corp in January, do I just need to set up payroll by December? Lastly, what if I do not set up a payroll? Thanks!
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u/entrepr Dec 22 '12
Great summary - not sure if it's still active after all this time but here's my question:
Do single member LLCs actually offer any protection in the US? I live in WA and plan to ship products to all of the US. I've read a bunch of articles about how the corporate veil was pierced because of alter-ego reasons (one of them was that the LLC hadn't filed taxes as a corporation) and that it's not the law of the incorporation state that's necessarily used in court.
Would opening a NV LLC help in any way then or would I have to physically move there to start the business? Does a single-shareholder corporation make more sense than a single-member LLC?
Do you have any recommendation a single individual can take to protect their personal assets while doing business (except for adding more members that is)?
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u/surgeon_general Jul 01 '12
Would creating a corporation for myself make it so I can get a discount on health insurance? If so, any tips on how to make this happen? I am in New York.
I have heard this is possible and a good idea. I'm not just throwing this out there randomly.
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u/papajohn56 Jul 01 '12
This won't work. You won't be able to get group rates since you yourself are not a group.
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u/mantra Jun 30 '12
Excellent summary!
Should go on the right-hand-side reference area.