S corp or LLC

Discussion in 'Business Operations' started by The landscaper, Mar 16, 2006.

  1. The landscaper

    The landscaper LawnSite Senior Member
    Messages: 845

    I know more about the LLC but just curious on everybodies opinions. Seems like the LLC is the new kid on the block and not known as well. The S corp probably has more understood lawas surronding it.

    Just looking for opinions on which way to go and this will be set up with a partnership.
  2. jsf343

    jsf343 LawnSite Bronze Member
    Messages: 1,786

    Do a search on this topic, there is a ton of threads from just a few months ago. good luck!
  3. Livingreen

    Livingreen LawnSite Member
    Messages: 24

    I'm set up as an S corp, but I had a lawyer draw up all the papers. Why do you want a partner. I had one and he hosed me for $75,000+:cry: . Live and learn and try to help others.:drinkup:
  4. gqnine44

    gqnine44 LawnSite Senior Member
    Messages: 502

    My lawncare biz is an LLC. I have another corp. with a partner that is an S. I think S is better, you can avoid more taxes that way. Talk to a good accountant.
  5. The landscaper

    The landscaper LawnSite Senior Member
    Messages: 845

    I was talking to an accountant today and it sounded like the S corp did get around more taxes and worked out well for having a partner since you can break it up in shares.
  6. HK45Mark23

    HK45Mark23 LawnSite Member
    Messages: 200

    Maybe I am wrong but I think some of you are confusing a LLC with a LLP. This is referring to limited Liability Corporation and Limited Liability Partnership.

    I preferred an S corp., but any one forming a corporation, don’t forget to fill out the form electing to be an S corp. I have an acquaintance who thought they were an S corp. whom in fact had failed to elect to be an S corp. status by performing that one extra piece of paper work.

    She had some real tough days getting it straitened out, um 3 years later.

    Also I just down loaded the form off of the Secretary of State web site. It took me all of 5 minuets to fill out and print. It cost only $90.00 to become a corporation in Indiana.

    I would not consider using a lawyer to form the corporation.

    I am not saying a lawyer is not needed in helping you run your business, nor am I giving legal advice. But you should know they will charge hundreds and maybe even thousands of dollars.

    In reality even with postage it should not cost more than 5 minutes of your time and (in Indiana) only $90.00.

    The only reason you need a lawyer is maybe for free advice. Once you have performed due diligence performing research at your library and once discussion with your accountant concerning the accounting and tax implications of your business model then and only then should you make your move and perform the act of creating a new entity.

    I think you will find that being an S corporation, LLC, LLP, Partnership or Sole Proprietor is very similar concerning their tax consequences.

    So what you are actually looking for is actually asset protection. You are looking to insulate your self from liability, hence the term limited liability. This is why the LL’s and sub chapter S was formed. They are offered in order to give a smaller business the same or similar protection that a C corporation gives to the stock holders of a larger corporation but without the negative tax consequences.
  7. Eclipse

    Eclipse LawnSite Bronze Member
    Messages: 1,149

    LLC is Liminited Liability Company not Limited Liability Corporation. Not a huge deal as many make this mistake but it maybe does help explain why in another area you touched on you info is incorrect.

    As far as taxe consequences are concered, LLC's and Sole Proprieterships are very similar but an S-Corp is certainly different from them.

    As far as not needing a lawyer, most people are better off with one. I will try to brienfly explain why. Simply filing the appropriate paperwork of the state will most likely not accomplish the assest shielding that one seeks when setting up a separate business entity. There are things that are important and necessary when forming a corporation if you truely want to have yourself shielded from liability. I'm not saying these things are difficult to create but most overlook them and/or forget to do them. If the LLC or INC is not setup properly, should you ever have a day in court a good prosecuting attorney, and their staff, will certainly perform the necessary work and ask the necessary questions, to make sure you are truely operating as an LLC/INC or you just filed a couple papers with the state that said you were one.

    This is known as piercing the corporate veil and has been brought up several times lately in these discussions.
  8. Trinity Lawn Care  LLC

    Trinity Lawn Care LLC LawnSite Senior Member
    from NJ
    Messages: 946

    Exactly. This is the very reason that when someone asks this question I recommend that they contact their attorney. In most cases to have everything completed it will only be a few hundred bucks. It is a write off, and it will ensure that your entity is set up properly. Very good point you hit on.
  9. The landscaper

    The landscaper LawnSite Senior Member
    Messages: 845

    From what I have learned from my law classes, you need to be pretty careful and do things the right way to not have the corporate veil peirced. The LLC, is basically a sole prop or partnership (however you want to set up the taxes) but it gives you the limited liability.
  10. HK45Mark23

    HK45Mark23 LawnSite Member
    Messages: 200

    Yeah I did mean company, sorry. And you are absolutely correct concerning the corporate veil.

    I’ve had lengthy conversations concerning that very concept in the past. It is good that some one has brought that up.

    As you said, it is not hard to do on your own, and it is only a little bit of paper work. This is why I stated that performing due diligence at your local library and consulting with a lawyer and account was of the utmost importance.

    Although after gathering the appropriate information, there really still is no reason to pay out the money.

    Don’t be struck with $ signs every time some one says tax deductible. Remember that tax deductible does not mean they give you the total price of the expense back, only that they did not tax you for that portion of your income.

    Just because you pay $200.00 for a deductible expense at a tax rate of say 19% percent you are only reducing your tax consequences by $38.00 so the government has only discounted your $200.00 expense by $38.00 dollars, you still spent $162.00. You can think of it like when you see the commercial for the $1,000.00 computer rebated to $650.00. You still have to spend the $1,000.00 and send in the rebate card and wait for the $350.00 rebate to come in the mail. But in the case of tax, the rebate comes in the form of not being taxed for that $1,000.00 of income.

    Also a tax credit is dollar for dollar while a deduction is only applied to the tax consequence of the expenditure at your aplicable tax rate. This means no matter what tax bracket you are in you are only saving the taxes paid for that portion of your income. Like this, If you make $100,000.00 this year and have $90,000.00 in deductions and your tax rate was 35% you are only taxed for the remaining $10,000.00 as a profit, so your tax bill would be $3,500.00 and your tax savings would be $31,500.00 all though I don’t think you would be taxed at 35% if your profit was only $10,000.00

    Contrast this with a credit, if you have a $5,000.00 credit then it does not matter what income you have the $5,000.00 comes off the top of your tax bill because it is dollar for dollar.

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