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19 Replies Last post: Jun 28, 2009 7:57 AM by Kulit629

LLC vs. Incorporated???

Nov 20, 2008 1:08 AM

photofuture 3 posts since
Nov 20, 2008

I am in the process of starting a small business which will be an agency representing freelance artists. I have had mixed messages about how I should register my company. Any advice??

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Lighthouse24 2,396 posts since
Oct 10, 2007

1. Re: LLC vs. Incorporated??? Nov 20, 2008 1:41 AM

Welcome to the community. Unfortunately, you'll get "mixed messages" on that question here, too! There are several other threads in these forums that asked that same question -- so if you haven't already, you might review a few of those to get a feel for the differences in opinion that various members have had (and why).

To offer more specific suggestions to you, we'd need to know where your business is located, whether you are the sole owner or have partners, if you'll have employees, if your plans involve seeking outside investors at some point, if there are any tax issues you may be concerned about, etc. In other words, there are a lot of factors to consider -- so if you want the best advice for your business and personal situation, consult an attorney. Otherwise, try to provide as complete a description of your proposed business and operation as you can (either here or in your profile).

Best wishes.

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photofuture 3 posts since
Nov 20, 2008

2. Re: LLC vs. Incorporated??? Nov 20, 2008 10:23 AM

in response to: Lighthouse24

Thank you so much for your advice. Well, I live in California and will be working alone and the sole owner. At some point, I would like to have employees, however, I will not have investors or a business partner.
The artists I will represent are freelance so I will be invoicing clients for their work and taking a percentage of their check as my fee.
I would like to have protection in the sense that if anything were to go wrong, no one could claim any of my personal possessions as collateral.
And if a business that I am invoicing goes under, I am still protected.

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kevhan 29 posts since
Oct 22, 2008

3. Re: LLC vs. Incorporated??? Nov 20, 2008 10:56 AM

I would incorporate for liability protection and elect to be treated as an S-Corp for tax benefits. Don't worry so much more about this since the bigger problem is getting sales and making a profit. S-corp is a excellent way to go for your business. If you need more info or help with setting up your accounting records and keeping good tax records see
bookkeeperworld.com

Good Luck

Kevin - CPA

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b2btech 29 posts since
Oct 17, 2007

4. Re: LLC vs. Incorporated??? Nov 20, 2008 11:07 AM

I attended a small business seminar and they talked about this issue. And the instructor said it basically comes down to how you want to be "TAXED" and how you want to be "SUED". The type of legal structure you choose has a major factor on those two items. I chose an S-corp because I wanted total separation between my business and personal assets. So if my business is sued my personal assets are relatively safe. Likewise a corporation gave me the better tax advantage. So it just depends on how you want to be taxed by the government and how you wanted to be sued if that ever happens.

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Lighthouse24 2,396 posts since
Oct 10, 2007

5. Re: LLC vs. Incorporated??? Nov 20, 2008 11:18 AM

in response to: photofuture

I indicated that you'd get a range of opinions here, but not yet -- mine is the same as the two posts above.

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photofuture 3 posts since
Nov 20, 2008

6. Re: LLC vs. Incorporated??? Nov 21, 2008 12:52 AM

in response to: kevhan

Thank you so much for all of your help!

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intechspecial 1,455 posts since
Jan 6, 2008

7. Re: LLC vs. Incorporated??? Nov 21, 2008 7:38 AM

This community can offer some decent advice.

It might be better for you though if you were to contact your local SCORE or SBA office. They both offer advice for free, and well be able to take an in depth look at what you are doing.

I have utilized both in my business, and SCORE is direct and to the point, although they are accurate in what they say. SBA is more leanent in there response but have many resources to get you at the level you need.

Both are great in helping you get started.

Welcome to the community.

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FacMan 2 posts since
Nov 21, 2008

8. Re: LLC vs. Incorporated??? Nov 21, 2008 8:41 AM

I think you and I are in the same boat - small one man company. I chose LLC. As a single member LLC, you do not have to file business taxes - your income and expenses are handled on your personal Schedule C. If you are incorporated the INC has to file taxes. Though you still need a separae tax id no for the LLC.

The LLC provides you the liability separation, it is easier to set up and maintain.

If you have more LLC members, you can always add, which then may require you to file taxes for the LLC.

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JDVTaxes 7 posts since
Nov 20, 2008

9. Re: LLC vs. Incorporated??? Nov 21, 2008 11:55 AM

in response to: kevhan

kevhan - great response here...

Would you clarify something for me please - as I understand it, an LLC can be a corporation, so can an LLC elect to be treated as an S-Corp?

If so, I would imagine that this would be a great scenario for a very small business - better tax rates because an S-Corp is taxed at a personal rate versus a corporate rate, and better legal liability...

Does this make sense? Is this correct?

Thanks for your help...

JDV

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kevhan 29 posts since
Oct 22, 2008

10. Re: LLC vs. Incorporated??? Nov 21, 2008 12:41 PM

in response to: JDVTaxes

THANK YOU

An LLC under various rules can be either a partnership,corporation or a single member LLC. A LLC corporation could elect to be a sub S but really why would you do it.

If some one chose to be a sub S then I would just set up a C-Corp and elect S status. A corp is less expensive to set up and (as far as NYS is concerned) does not require you to publish the fact that you have become an LLC. So you have less cost and work avoiding the LLC. LLC 's offer many benefits but unless you really need them I would stay with a Sub S or a C-corp. A C-corp depending on the projected income can be managed effectively to reduce the possiblilty of dbl tax and also to help build working capital at a lower marginal tax rate then the personal rates. This gets involved with the planning but depending on the client it would be worth the cost. LLC partnerships are a great tool when you need to have disproportionate allocations and distributions which you cannot do in a Sub S Corp. They also allow distirbution of appreciated property to members without recognition of gains

Hope this helps

by the way do you do bookkeeping for your clients?

Kevin

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kevhan 29 posts since
Oct 22, 2008

11. Re: LLC vs. Incorporated??? Nov 21, 2008 12:55 PM

in response to: FacMan

There are many disadvantages to filing a schedule C - some items cannot be deducted on the sch C that can be deducted on the Corp return - such as your health insurance and pension contribution. Thus the individual in effect will pay Medicare and maybe social security taxes on these amts since they do not reduce the sch C profit. In addition you cannot take a salary as the owner you take a draw. Having some separation of the business from your personal return has other advantages that are not all tax related.

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FacMan 2 posts since
Nov 21, 2008

12. Re: LLC vs. Incorporated??? Nov 21, 2008 1:16 PM

in response to: kevhan

I am able to deduct the insurance premiums and pension contributons on my personal return, so I get them one way or the other. My income is such that the med and ss payments aren't affected in any event. The big plus for me - I don't have to file two tax returns. I hate paperwork.

For myself and the others here, as a small business, what other benefits are there to S- or C-Corp over LLC?

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JDVTaxes 7 posts since
Nov 20, 2008

13. Re: LLC vs. Incorporated??? Nov 21, 2008 1:29 PM

in response to: kevhan

...wow...so much to consider here. This is great information...

So what do you think the best structure would be for a small personal income tax practice -
- One owner

- Eventually a handful of people working for me (employees vs. contractors?)

- Low overhead
- Expected taxable net profit

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kevhan 29 posts since
Oct 22, 2008

14. Re: LLC vs. Incorporated??? Nov 21, 2008 3:53 PM

in response to: JDVTaxes

I would use a Sub S since you are a service company and would not have a great capital requirement. Take a market salary and the rest would be a dividend taxed at the lower rates for now anyway.

Pick a good name for your company and build goodwill because a tax practice will hold good value and you could get a 1-1.5 times billings for it when the day comes to retire and sell the business.

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