View Full Version : Differences when forming your biz
08-29-2000, 02:13 PM
Hey guys, as others have said, not to many people in the industry are very educated on the business side, which in most places today is just as important as the trade side. Lets try to find the advantages and disadvantages of the common types of business set-ups available. I think we can all learn something from this, and give the new guys some guidenance when they decide to jump into the industry.
The following is what I THINK I know, but I'm not 100% sure, so lets pick brains. Hopefully this won't turn into a shouting match again!!
ADVANTAGES- YOU get to retain all profits (no partners or investors)
Easily formed and dissolved with little or no legal fees
Flexibiblity - no arguing with partners or investors
DISADVANTAGES - UNLIMITED financial liabily including personal assets
ADVANTAGES: Easily formed
More finance posibility ( 2 investors rather than one)
NOT SURE IF THIS ONE IS TRUE BUT... I understand that each partner is only liable for what he or she put into the business in case of a lawsuit or claim. Its harder to tap into their personal assets. Thats why you see a lot of sielent partners ( a wife or child or parent usually).
DISADVANTAGES: Still have some financial liability personally
inter-biz conflicts with partner
hard to disolve biz
harder to manage and agree on ideas
CORPORATION ( don't know much about this at all, but heresd what I THINK i know!) :)
ADAVANTAGES: Very limited financial liability
expanded financial capicity ( you can have investors)
Necessary for many gov't contracts now
difficult and expensive to set up and disolve
legal restrictions are very costly!!
Hope this helps, lets get this going guys!!
08-29-2000, 03:09 PM
You left out L.L.C.. Also, there is more than one way to incorporate.
08-29-2000, 03:20 PM
I didn't say I was going to teach a class on it, I told you what I know, if its even all correct? I was hoping people like you that know different or more ways can share your knowledge with others!! I've seen LLC a lot but don't have a clue really.
Guys please add all the info you can here so we can see the pro's and con's of all of them.
Thanks in Advance
08-29-2000, 03:48 PM
There's also an LLP (Limited Liability Partnership). Supposedly limits a partners liability. Not a lawyer, so I don't know what else it's good for. :)
Guido...Instead of posting here so much why not read up on this and report back with a full report. I'll give you 2 weeks. :) Maybe you can give Nilsson a run for his money when you get back or better yet go to law school and then you can represent all of us on corporate matters. :) Kidding!
08-29-2000, 05:45 PM
Just for you!! :)
I did a little more researching and heres some more info for ya'll.
LLC ( Limited Liability Company)
*Allowed in 47 states
*It allows for the corporation advantage of limited personal liabilty while avoiding the double taxation of a corporation
* It resembles a partnership agreement, except that it greatly reduces each partners liabilty for the actions of the other owner(s)
"C" or Regular Corporation
*make profits which go to pay owners, reivesting in comapany, and pay corporate income tax. Then the owner (who got paid from the corporation) has to pay personal income tax. (looks like you take a screwin!!) This is what they meant in LLC where you get double-taxed.
"S" or subchapter corporations
* can pay taxes like a partnership, (only once) while being able to keep the limited personal liability limitations like a regular corporation
Most american and Canadian business use "Inc." to show they're incorporated, but (as perferd by European businesses) you can use "Ltd." to show limited liabilty by being incorporated.
Okay, go ahead, throw another one at me!! :)
I hope this helps someone, and I'm hoping to learn more out of this in the end to when others start to contribute. Lets hear the pro's and con's on these setups.
Scraper, your right, we need to invite a lawyer here for some question and answer sessions!
I'll see what I can do! :)
Do a search! There was a good thread on this subject not too long ago.
08-30-2000, 11:03 AM
Come on guys......nobody has a business out of 1300 of you on here? Lets try to debate the differences on this subject.
BRL I know there was a post on this a while back, but it was just an argument.
Well, can't say I didn't try!!
Guido I have tried posts on this subjuct because I will be the first to admit I can learn from more buisness skills. Nobody here seems to want to post on this subject...I am thinking to Inc next year but I am not sure....Now I use equity in the home as nmy buisness capitol...thats kinda scary when you think about it. I want to have my buisness completly seperate from me. Write myself a weekly paycheck etc.
08-30-2000, 06:09 PM
Spend $50 bucks and talk to a lawyer. Most people think that forming a corporation will protect your personal ***ets. That is true where it concerns the actions of your employees. No form of business will protect you and your personal ***ets from the things that YOU personally do. Not much benefit in being Inc. until you have a few guys working for you. Check it out with an attorney and possibly a CPA.
08-30-2000, 06:37 PM
A lawyer or CPA is going to tell you want you want to here. You guys are going to have to do your own research on which enty is best for you. Read between the lines because the law is gray and many standards of accounting are not writen in stone. I simplize with guido, who started with this thread, because I tried many times to get quaility discussion on this topic. I guess, no lawyer or accountant wants to give some simple free advise. Whats wrong with double taxation? Run the calcutations, Who pays more in tax, the Individuals or the Coporations? Its the Individuals, Dillweed!
08-31-2000, 01:07 AM
I was a paralegal for 11 years until I did this. Basically, and no, I don't know what a lawyer knows, but...incorporating does shelter you somewhat from lawsuits from customers, i.e. in case of injury and such. But a good liability policy should protect you in such cases. But, even if you incorporate, you still need credit from your vendors. You will still need to sign a personal guarantee on any credit your company extends. If you default, you will be sued along with your company. And if the Court finds that you defaulted and owe the money, you and your company will get a judgment against you. If you incorporate or don't incorporate and one of your employees majorly screws up, you are responsible for them and their actions and thus can be sued personally along with your business. As far as taxes are concerned, if you're incorporated, you must pay yourself a salary and you will be taxed. If your company makes a profit, the company must pay taxes on the profit money. So...What's the difference in being self-employed? I myself am self-employed. I don't pay myself a paycheck but I do pay self-employment taxes and pay taxes on my profit. so what is the difference? 1/2 dozen or 6 of another I say.
Have been all three, Sole Propriter, A Partner and a Corporation. No single one is perfect, all have advantages and disadvantages. Sole Propriter easier to do taxes easier to sue, partnerships probably the hardest to run and workout tax wise and business wise, corporations hard taxes filling and more reports to fill out, easier for you to make out your taxes. As for being sued not so much the cost for claims but cost of defence from claim, see a corporation can pay for stock holders defence or an officers defence, for a officer to be sued plantiff must show reason for suit and cost is big dollars that he must pay limits problems of smaller suits.
Question I have is how many here think that a lawsuit is going to be their biggest problem?
09-02-2000, 12:53 AM
Lawyers and CPA's are bound by law to tell you the truth. Of course, not everyone scrupulously observes the law. BTW, do you cut lawns free? Why would a lawyer give "free" advice?
Noone can answer all your ?? here. Things will vary a great deal from state to state. I know for a fact that Inc. will not protect you from lawsuits. I know a plumber who left his keys in his truck. It was stolen and wrecked. The victim sued his business and him personally and won a huge settlement. He assumed he ws protected by incorporations. Remember this: when people sue, they sue where the pockets are the deapest.
09-02-2000, 02:30 AM
Over here in Oz we have:
Sole trader: (me)
Partnership: up to 50 partners.All partners equally liable for debts.
Proprietary Limited Companies: These may be listed on the stock exchange or unlisted.They are run by a board of directors.The board of directors is liable personally for
debts.If the company goes into liquidation the Australian
Securities Commission can hang them out to dry.
We don't have Inc companies here.
09-02-2000, 12:10 PM
The administrator should edit posts that are blantantly false or wrong.
This sites getting bigger - great - but the amount of BS diminishes it's credibility.
09-02-2000, 02:40 PM
With all due respect, Lazer, your opinion isnt the only correct one. I will say, this thread is all over the place, and the different replies is surely incentive for one to do their own investigating.
Dont forget, also, rules for SP/LLC/LLP/etc vary from state to state. What works in CA may not cut it in CT.
09-02-2000, 04:22 PM
My biggest reason in organizing an S-corp is the liability issue. As my personal assets increase, and our biz adds more employees, our chances of lawsuits increase as well. We carry liability insurance on the biz, of course, but the S-Corp protects us from anything above that. Suppose, God forbid, one of our employees plows into a schoolbus full of kids. After the insurance runs out, then who do the parents sue? The $8/hr employee, or the biz owner? Exactly. An S-Corp limits my liability to what I have in the biz, and nothing more.
Other benefits are of tax issues. If you have a good accountant, and play your cards right, then the S-Corp is THE way to go in the tax arena also. You have much more control over your tax life as a corp.
That's my two cents on the issue.
09-02-2000, 05:37 PM
This has nothing to do with opinion. The laws are the laws. Of course they vary from state to state, but your opinion of them doesn't change them.
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