PDA

View Full Version : When to LLC or Inc.


muxx
11-30-2011, 08:38 AM
At what point do you decide to LLC or Incorporate? I have been in business for 20+ years with 4 employees and never did either. My brother recently bought out a fertilize business 2 years ago and we merged the 2 together and he wanted to LLC. We still only have the 4-6 employees. Are we paying out more than we need to in expenses for business? We have to raise most of our prices now to accomodate the extra expenditures, unemployment, workers comp, state and federal taxes etc... So much so we may end up losing quite a bit of work. He keeps saying if your not making a profit then raise them, which is true to a point. We were making a profit and now not so much. Still need to maintain a certain income to cover all the overages also. I am thinking of pulling the mowing back away from the LLC, I have signed nothing and don't intend to, to keep mowing with the LLC. If I want to pull away I can at any time. My life style has really changed, making things alot tighter on budget etc. Any info wold be great, thanks.

fireman gus
11-30-2011, 09:09 AM
I worked solo for 30 years before my son joined me. We have worked with a Joint Venture Agreement for the last 2 years. This year we decided to become an LLC (becomes effective Jan. 1, 2012). After talking to our accountant we decided an LLC was best for our situation. Look at your situation and decide if it is good for you. Remember always take care of #1.

mowerbrad
11-30-2011, 09:40 AM
Make an appointment to meet with yor accountant ir financial attorney, they will know what is best for your company. I work solo and am an LLC. For me it offered an added level of legal protection and didn't affect my taxes.

Only a professional will be abke to tell you what will be right for you, not us.
Posted via Mobile Device

JimLewis
11-30-2011, 10:35 AM
The biggest reason you want to incorporate or form an LLC is to separate your company from your own personal finances. With a sole proprietorship, you are wide open to lawsuits for any number of reasons. And if something happened at the company (e.g. worker hits a kid walking down the street, rock flies out of mower and shatters window next to where old lady is sitting, trucks breaks fail and you or a worker plow into the car in front of you, any number of things that could happen) that results in a lawsuit, then you are screwed. If you don't have a valid LLC, Corporation or something similar, they will come after your personal savings, 401K, house, kid's college fund, investments, your personal autos, anything of value that you have. Because when you are a Sole Prop. you're basically saying the company IS you. But when you form an LLC or Corporation, you are making a legal distinction. You're strictly identifying YOU as one entity and the COMPANY as a totally separate entity. And if you do that, and play by the rules of maintaining that entity properly, then they can't touch you personally, if anything bad ever did happen.

So your choice. If you're okay with the possibility of losing everything you have, then go ahead. Stick with a sole prop. But I doubt you're going to find any business attorney or good CPA that would agree with that decision. It would almost be tantamount to malpractice for one to do so these days. Totally against conventional wisdom in most cases.

dhardin53
11-30-2011, 10:50 AM
Guss and Brad petty much said it all, I agree.

If your getting bigger and you personally are feeling the squeeze financially then you need to take a closer look at your business structure. Its easy to do, you work and work and expand and grow and forget to reward yourself. Then one day you go to work and find your the lowest paid guy in the room. (hell your the boss)

So whats a guy to do? Raising your price use to be a no brainier and a sure way to get ahead. But as you have said that can be a sure way to cut your throat in todays depressed economy. I would walk through the shop, look closely at all your equipment and find what your not utilizing to it potential. Then do the same with all your help, Just who is not generating the income for the wages. Don't be a Scrooge about it, Just find a way to motivate the personnel and adventive the service that you do so you can use this expense equipment that is under producing. Offer incentive to your help if they bring in more work. There are many things along this line that you must try before your automatically raise your price.

Sounds simple but it ain't. It takes a real leader to turn this common problem into a cohesive productive machine. Its easy to walk around and find all kinds of fault and failure in others but You need to have the "kahunas" to guild not chock your way out of this potential cash flow disaster. I feel a LLC or Inc is something that you will know when its time. So now you have your brother is involved it may be time to check out your options.

If and when something happens between you and your brother or any of your employees a Inc. or LLC could keep you in a house and car to drive afterwords. But thats no guarantee. Keeping your mowing separate will not benefit you if there is a need to fall back on a LLC or Inc protection. No matter if its your brother fertilizer end or you mowing operation causing a drag on the bottom line.

I remember what My dad told me "there can only be one head to a horse" meaning 2 guys trying to run a business is a formula for disaster. Refine your business plan and get up everyday and work it over and over again.

JimLewis
11-30-2011, 10:51 AM
Put it this way. Let's say tomorrow one of your workers slams into a car with a child in it. Total accident. But the child is severely injured / disabled / impaired.

Fast forward 18 months to after the trial. You've been found guilty and they've come for everything. You've lost your home; your company is gone; your source of income is gone; all of your personal vehicles are gone; you have no money in the bank; your credit is totally ruined and you have no credit cards or loans to use; all your investments are gone; you're living in a small apartment you can barely afford; your only income is unemployment, which is about to run out; you still have $60,000 in legal bills from the attorneys who represented you and they have been getting really good at garnishing the money they are owed every time you are able to come up with any; AND - to top this all off - you still owe $1.5Mil to the child's family because of the court judgement against you. And they, too, are just chomping at the bit to garnish any and all money you will ever make until it's paid.

At this point, how wise of a decision do you think it was to go back to a Sole Prop. a few years before?

At least if you had a company, the most you would have lost was the company. You'd still have your home. Still have your money and investments. Still have your cars. Still have your good credit. And you could easily start another company and have another go at it! Or if you didn't want to start a company again, at least you'd have resources and time now to get another job. And you wouldn't have to worry about the all the money you make from the new company or job being garnished as quickly as you made it.

IS500Z
11-30-2011, 10:54 AM
But when you form an LLC or Corporation, you are making a legal distinction. You're strictly identifying YOU as one entity and the COMPANY as a totally separate entity. And if you do that, and play by the rules of maintaining that entity properly, then they can't touch you personally, if anything bad ever did happen.



The part about obeying the rules is key. You have to treat the company finances and your personal finances as separate. If you co-mingle them in any way, e.g., borrowing against your home to finance a mower, the protection of the LLC for that asset is gone. Any lawyer worth their fee will be looking for those loopholes and you would be surprised how many business have made these types of decisions.

JimLewis
11-30-2011, 11:59 AM
So whats a guy to do? Raising your price use to be a no brainier and a sure way to get ahead. But as you have said that can be a sure way to cut your throat in todays depressed economy.

Right. This is the situation a lot of LCOs and Landscapers find themselves in these days.

IMO, the only solution is to raise prices. But how can you do that in a depressed economy where people are more price conscious than ever? You have to change the way you've been doing things. If you're going to be charging more than the rest, you need to be able to JUSTIFY why your company is worth more. And I don't mean just saying, "Well, we've been around a long time and we do good work." That alone isn't going to convince people to pay more. You need to work on the bigger picture. You need to focus on making your company BE like a company that people would see as being worth more. That has to do with reputation, how recognizable your company is to those in the community, and how dominant you are in the market place. in addition, you really got to re-think your marketing efforts. If you've always done pretty well off word of mouth and just a little advertising, time to totally re-think that! You got to jump into the 21st century and get on board with current marketing techniques. Amp up your marketing efforts and your marketing budget. Make your company so appealing to customers that they WANT to hire you. So they don't just look at you as one of the company's they're looking at. They're looking at you as the company they WANT to hire.

I'm not just speaking out of my A** here. It's exactly what I've done to turn around our company. In 2009 we saw revenues decrease for the first time ever. That same year, I also realized we really weren't making the profit that we should be. So I was faced with a really tough situation. We had to raise prices significantly AND the economy was in recession. I decided if I was going to charge more, I had to really start to focus on our image around town and our marketing. Before, I had been doing just fine with very little marketing and with trucks and trailers that didn't really look very impressive or stand out at all. I changed all that over the next year and amped up our marketing like crazy. As a result, we've not only grown like crazy (45% growth in 2010 and 40% growth again this year) but we've raised prices 3 times over the last 2 years. And despite the price increases, demand for our work is still usually more than we can handle for most of the year. We plan to do another small price increase in the spring.

Even if you're not as ambitious as me and don't want to grow. That's fine. You may just want to stay the same size. Totally understandable. But if you want to raise prices, then at the very least you need to work on your company image and presentation. Design a presentation process that just blows away what your competition is doing. Offer a better warranty. Better customer service. More references. Show value. Show your potential customer why you are better in every possible area and you will find that people are willing to pay a little more for your services.

JimLewis
11-30-2011, 12:01 PM
The part about obeying the rules is key. You have to treat the company finances and your personal finances as separate. If you co-mingle them in any way, e.g., borrowing against your home to finance a mower, the protection of the LLC for that asset is gone. Any lawyer worth their fee will be looking for those loopholes and you would be surprised how many business have made these types of decisions.

Very true. And that's why I mentioned it. "Piercing the corporate veil". That's what they call it. But if you keep company money separate from your own funds and keep the appropriate records, it's not that difficult.

DA Quality Lawn & YS
11-30-2011, 01:59 PM
I agree with above. Keep in mind as a sole prop, you can insure away a fair amount of risk with GL coverage. IMO, you would move to an LLC if you are no longer comfortable with the level of risk you are taking on, and cannot insure it away with GL coverage. I am sole now, have 1 mil covg, could add an umbrella, and am comfortable with that level of coverage for now. Gradually businesses outgrow the protection they can get from GL alone.

ralph02813
11-30-2011, 02:52 PM
At what point do you decide to LLC or Incorporate? I have been in business for 20+ years with 4 employees and never did either. My brother recently bought out a fertilize business 2 years ago and we merged the 2 together and he wanted to LLC. We still only have the 4-6 employees. Are we paying out more than we need to in expenses for business? We have to raise most of our prices now to accomodate the extra expenditures, unemployment, workers comp, state and federal taxes etc... So much so we may end up losing quite a bit of work. He keeps saying if your not making a profit then raise them, which is true to a point. We were making a profit and now not so much. Still need to maintain a certain income to cover all the overages also. I am thinking of pulling the mowing back away from the LLC, I have signed nothing and don't intend to, to keep mowing with the LLC. If I want to pull away I can at any time. My life style has really changed, making things alot tighter on budget etc. Any info wold be great, thanks.

Keep in mind that there are some tax advantages, you can establish a retirement fund that is pre tax dollars. I would print out everything that has been said, and build a list of questions to present to your account.

dhardin53
11-30-2011, 03:47 PM
A lot of good advice here. One thing you did not mention in your short list of expenses(I am sure you have it) is general liability (GL). GL and business truck/trailer issuance should in most cases keep a guy from loosing everything. Most all policy toady are 2 million and this in most cases will protect you from disaster.

BUT GL and a good layer will cover a accident. But not many guys go under because of a accident there so few. What happens to medium to large LOC go under by being over extended and own money all over town, not pay your taxes, or someone steels money from you, or any series of events that cause you to become over extended. many times today its more likely to be some kind of major health issue to keep you form making your commitments. GL will not help you in these situations. LLC and Inc in most cases help.

This dose not say your business will have to take bankrupts, but COULD protect you from total financial ruin.

thunderthud
11-30-2011, 04:40 PM
Mr. Lewis made a good point above using the employee having an accident and the company losing everything.

At any size, the vehicles and equipment should be in a separate LLC and lease the equipment back to the primary company. Mr. Lewis' argument for protecting your personal assets is a perfect example.

My example is a perfect example for protecting the companies assets. If the same situation above arose, the judgement would be against the leasing company and the primary corporation would have liability, but the bulk of the judgement would be against the equipment company.

A corporation or LLC, whatever the structure is like giving birth to another human being. For all intent and purpose in the eyes of the law a corporation is a person.

Again, speak to an attorney and get the facts for your jurisdiction and protect your assets. There are so many legal ways to protect yourself from the unexpected if you plan for it early.

ncknaklawns
12-01-2011, 12:30 AM
Piercing also at risk for Single Owner LLC. So make sure your getting what you want and not being sold something that will not provide you with much when you need it most.

muxx
12-01-2011, 07:25 AM
Thanks for the great advice, like the someone said look out for #1. With us having LLC the company and being with my brother, which I trust, He is listed as sole owner of business. We had to put him at least 51% for government work, which he is considered a disabled vet and I am just a vet. Alot of set asides for DAV. So to make things a little easier financially I chose to let him be owner and I would draw a salary and unemployment in winter. We are supposed to be going to our lawyer and having papers drawn up that we are in partenership 50/50 with some stipulations, but will it hold water in court if something happens with LLC? I mainly want the stipulations, because if have been in this business for 22 years and he has only been in 2 years with the purchased existing business for fertilizing. Just want to ultimately cover my behind in the process.
Or, should I have him restructure and add both of us as owners 51/49? I want to keep LLC but as long as we both have equal say. Thanks for the advice has been great so far.

douglee25
12-01-2011, 09:04 AM
The biggest reason you want to incorporate or form an LLC is to separate your company from your own personal finances. With a sole proprietorship, you are wide open to lawsuits for any number of reasons. And if something happened at the company (e.g. worker hits a kid walking down the street, rock flies out of mower and shatters window next to where old lady is sitting, trucks breaks fail and you or a worker plow into the car in front of you, any number of things that could happen) that results in a lawsuit, then you are screwed. If you don't have a valid LLC, Corporation or something similar, they will come after your personal savings, 401K, house, kid's college fund, investments, your personal autos, anything of value that you have. Because when you are a Sole Prop. you're basically saying the company IS you. But when you form an LLC or Corporation, you are making a legal distinction. You're strictly identifying YOU as one entity and the COMPANY as a totally separate entity. And if you do that, and play by the rules of maintaining that entity properly, then they can't touch you personally, if anything bad ever did happen.

So your choice. If you're okay with the possibility of losing everything you have, then go ahead. Stick with a sole prop. But I doubt you're going to find any business attorney or good CPA that would agree with that decision. It would almost be tantamount to malpractice for one to do so these days. Totally against conventional wisdom in most cases.

Thanks for the great advice, like the someone said look out for #1. With us having LLC the company and being with my brother, which I trust, He is listed as sole owner of business. We had to put him at least 51% for government work, which he is considered a disabled vet and I am just a vet. Alot of set asides for DAV. So to make things a little easier financially I chose to let him be owner and I would draw a salary and unemployment in winter. We are supposed to be going to our lawyer and having papers drawn up that we are in partenership 50/50 with some stipulations, but will it hold water in court if something happens with LLC? I mainly want the stipulations, because if have been in this business for 22 years and he has only been in 2 years with the purchased existing business for fertilizing. Just want to ultimately cover my behind in the process.
Or, should I have him restructure and add both of us as owners 51/49? I want to keep LLC but as long as we both have equal say. Thanks for the advice has been great so far.


Jim's post above is key! It's probably the best in this thread. I will add one more point, some people feel like it's a burden or not worth the time/energy to become an LLC or Inc. The beauty of an LLC is that it's a 'pass through' tax avenue. So in other words, you're only taxed on what your profits/losses are as members/partners in the business. So if you make $100k/year and you and your brother are the members, you and your brother only pay taxes on $50k each. Unlike a corporation that is double taxed... taxed on the company profits and then taxed again on the salary that the employees (you and your brother) are drawing from the sales. As an LLC, taxes are completed on the same 1040 form that one normally does comes tax time. LLC's can also be taxed like an S-corp or C-corp if you choose.

In regards to your specific question on ownership/profit sharing above, when you're forming an LLC, a 'best practice' is to form an operating agreement. In this agreement you can spell out different profit sharing percentages, ownership percentages, mangerial structures, what happens if someone decides to leave, etc. It's really that simple and it heads off any issues down the line if you have a record breaking year or your brother decides to leave the business.

Doug

muxx
12-05-2011, 09:43 AM
Can you spell out ownership percentages in agreement without changing sole ownership LLC to an LLP?

Kelly's Landscaping
12-05-2011, 08:06 PM
Put it this way. Let's say tomorrow one of your workers slams into a car with a child in it. Total accident. But the child is severely injured / disabled / impaired.

Fast forward 18 months to after the trial. You've been found guilty and they've come for everything. You've lost your home; your company is gone; your source of income is gone; all of your personal vehicles are gone; you have no money in the bank; your credit is totally ruined and you have no credit cards or loans to use; all your investments are gone; you're living in a small apartment you can barely afford; your only income is unemployment, which is about to run out; you still have $60,000 in legal bills from the attorneys who represented you and they have been getting really good at garnishing the money they are owed every time you are able to come up with any; AND - to top this all off - you still owe $1.5Mil to the child's family because of the court judgement against you. And they, too, are just chomping at the bit to garnish any and all money you will ever make until it's paid.

At this point, how wise of a decision do you think it was to go back to a Sole Prop. a few years before?

At least if you had a company, the most you would have lost was the company. You'd still have your home. Still have your money and investments. Still have your cars. Still have your good credit. And you could easily start another company and have another go at it! Or if you didn't want to start a company again, at least you'd have resources and time now to get another job. And you wouldn't have to worry about the all the money you make from the new company or job being garnished as quickly as you made it.

Wow you really can write a nightmare when you try to Jim at that point there you either can run you can kill yourself or the option id pick take every one else out. But either way life as you knew it is over because you didn't protect yourself.

AlohaMowing
12-07-2011, 08:43 PM
Can you spell out ownership percentages in agreement without changing sole ownership LLC to an LLP?

It will depend on your state law. Here, in Hawaii, if there are multiple members of the LLC they can have an operating agreement that deals with ownership percentages among other issues.

ralph02813
12-08-2011, 05:54 AM
Can you spell out ownership percentages in agreement without changing sole ownership LLC to an LLP?

i am pretty sure that that almost all states require some kind of bylaws, or operational rules - "things you have to do" to keep your corporation regestered and legal under state laws this includes who owns what to change them, you do so at your annual meeting and submit the changes with your annual filling - check with the agency you had to file with to incorporate - generally the secretary of state

NEW CITY LAWN CARE LLC
12-29-2011, 12:09 AM
http://money.cnn.com/2008/01/10/smbusiness/s-corp_or_llc.fsb/index.htm

Snyder's Lawn Inc
12-29-2011, 01:04 AM
Im Inc been that way since 1981 Went that way so come off season draw employment

Never look into LLC can a person draw employment Being LLC

ralph02813
12-29-2011, 05:40 AM
Im Inc been that way since 1981 Went that way so come off season draw employment

Never look into LLC can a person draw employment Being LLC

yes of course

clayslandscape
12-29-2011, 07:40 AM
Im Inc been that way since 1981 Went that way so come off season draw employment

Never look into LLC can a person draw employment Being LLC

What do you mean draw employment? What are you receiving?

To start an LLC, what are the average costs?