S Corp Vs. LLC ??

[TXINSURANCE]

I am not an attorney and this is not legal advice, but why anyone would go S corp is beyond me.

LLC is easy enough you can file with your personal taxes and have full corporate protections. LLC might be a problem down the road such as if you want to franchise or go public , but that is likely not happening anyhow - or if it did happen you will be rolling in the dough to correct the corporate resolution anyhow.

LLP could have other tax reasons varies by state, which might be worth exploring.

For me - if you are running a business it should be it's own legal entity and stand on it's own merit.

You can start as an individual, pick up some E&O and incorporate LLC or INC down the road. Remember when you form a "company" the company needs to be licensed, and you need to get appointments setup again (i.e. time consuming, fees, and PITA).

The decision really boils down to what you are trying to accomplish - which is usually two items PROTECTION OF PERSONAL ASSETS or TAX REASONS.

Short answer - go sit down with a CPA. If you can not afford one setup a meeting with SCORE , which is under the SBA and is FREE retired executives that help. You can pull it off the SBA website.

 

[Crabcake Johnny]

I did indeed sit down with a CPA a few years back. For my business model, which is just selling insurance from home he did not recommend that I go S-corp. I'm a sole prop with E&O.

Unlike TX I don't have any employees or an office - I'm simply here at home.

Also, unlike most businesses I don't have the same potential liabilities. "Can" I be sued by a client? Anyone can be sued.

However, I reduce that exposure by only selling top tier plans and meticulously going over the benefits. If a prospect does not have time for me to cover the benefits in detail they will not become my client.

When I'm doing an app my main concern is the potential for a claims review - this is discussed in detail before I fill out the app and it draws far more detailed information thereby greatly reducing the odds of having a policy yanked.

 

[Newby]

I don't fully understand all the hows and whys but my wife is a CPA AND we paid a very experienced attorney to advise us here is what we did:

Our agency is set up as an s-corp (for the reasons that XRAC stated earlier as well as protection from our personal assets.)

Our commercial real estate is set up as an LLC.

We are in Indiana.

 

[Crabcake Johnny]

I think one of the allures to me, even now about going S-corp is I can pay myself a salary and stop it with this paying quarterly estimated taxes junk...which I hate.

 

[xrac]

Here is a reason to incorporate (LLC or S corp/my CPA says S corp). Say you sign a 5 year lease on space and are in health insurance sales. The government goes to universal care and destroys your practice. You can't afford the lease anymore. If a sole proprietor you are personally responsible for the lease. If incorporated and the lease is to the corporation the corporation only is liable. Same thing applies if you are the State Farm agent. You sign a 5 year lease and two years in you don't make it with SF. There are a lot of other scenarios.

It just makes sense to me but I have been in business (none insurance) for over 15 years and have been in plenty of legal situations. Incorporation probably provides little protection as far as practice issues that's why we have E&O but it is in the business issues where it provides protection and tax advantages.

 

[moonlightandmargaritas]

Here is a reason to incorporate (LLC or S corp/my CPA says S corp). Say you sign a 5 year lease on space and are in health insurance sales. The government goes to universal care and destroys your practice. You can't afford the lease anymore. If a sole proprietor you are personally responsible for the lease. If incorporated and the lease is to the corporation the corporation only is liable.

On the face of it, this sounds good, but here's the practical reality:

Very few landlords will rent to a small business person without a personal guarantee on the lease.

 

[Crabcake Johnny]

I not only agree with Paul, but know he's right. When I was regional manager I opened 6 offices in 5 different states - part of my job was to find office space.

The company was Energy Marketing and although they signed corporate leases, in every case the owner had to sign to guarantee the lease.

Must like getting a corporate credit card - "the company" can get a card but someone's gonna have to sign behind it.

Also, in XRAC's example, your company can no longer afford the lease so the company goes BK - fine, you're personally not on the hook - however good luck starting any other company and getting any line or credit or a lease.

 

[xrac]

On the face of it, this sounds good, but here's the practical reality: Very few landlords will rent to a small business person without a personal guarantee on the lease.

That is true but you can always negotiate. It all depends upon the landlord, what the real estate market is like, and how bad he wants to rent. You can negotiate a lot of provisions in contracts especially with other small businesses. I do business with many vendors in my automotive business and unless it is something really unique we won't do business if they require a personal guarantee. The credit apps go in with the personal guarantee unsigned. If they balk we just use a vendor that doesn't require it.

Most of the time a personal guarantee only applies to a lease or bank loan. What if business goes south or you get sick. You are protected from any other creditor who doesn't have a personal guarantee.

 

[Crabcake Johnny]

A lot of that is determined by how long the company has been in business. If you just started the company - generally under 3 years it can be near impossible to gain a line of credit or a lease without a personal guarantee.

However, you're right and desperate landlords can do anything. If the space has not been leased for quite some time the mentality can be "heck, I'll lease it - I'm getting nothing now."

 

[xrac]

.....Also, in XRAC's example, your company can no longer afford the lease so the company goes BK - fine, you're personally not on the hook - however good luck starting any other company and getting any line or credit or a lease.

Not nearly as hard as you think! Three of the best business guys that I know and trust have had bankruptcies of businesses they had interest in. The BK's occurred not because of their own actions but because of those of a partner. They are all back or still in business. One of them is a MDRT qualifier and CPA. Based upon my experience I think that incorporation is smart.
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I don't fully understand all the hows and whys but my wife is a CPA AND we paid a very experienced attorney to advise us here is what we did:

Our agency is set up as an s-corp (for the reasons that XRAC stated earlier as well as protection from our personal assets.)

Our commercial real estate is set up as an LLC.

We are in Indiana.

Newby,

That is exactly the way my CPA said it should be organized.