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Lawyer types: LLC or Corportation


SuzieQ
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LLC's are generally pass thru entities for tax purposes.  C corps are not.

S Corps are also pass thrus.  Are you planning on being the sole owner? If so, being incorporated may not benefit you.  You need to talk to a CPA and a lawyer to make sure you a) cover yourself legally and B) form the best entity for your business....you don't want to pay taxes twice on the earnings if you don't have to.

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LLC's are generally pass thru entities for tax purposes.  C corps are not.

S Corps are also pass thrus.  Are you planning on being the sole owner? If so, being incorporated may not benefit you.  You need to talk to a CPA and a lawyer to make sure you a) cover yourself legally and B) form the best entity for your business....you don't want to pay taxes twice on the earnings if you don't have to.

At the very least talk to someone at a Holiday Inn Express.  Serioulsy, Modo is right on.  The money you spend consulting with a CPA and lawyer will serve you well come tax time.

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I believe I heard my wife tell someone they should be an LLC and not a corp once do to tax issues, but she was talking tax law and I was figthing the urge to beat my head into a wall, so I might not be completely accurate on that.

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I believe I heard my wife tell someone they should be an LLC and not a corp once do to tax issues, but she was talking tax law and I was figthing the urge to beat my head into a wall, so I might not be completely accurate on that.

technically, an llc is a corp.......I'd beat my head against a wall too.

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I believe I heard my wife tell someone they should be an LLC and not a corp once do to tax issues, but she was talking tax law and I was figthing the urge to beat my head into a wall, so I might not be completely accurate on that.

can you ask her?

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I think you want to go with the LLC.  The LL stand for Limited Liability.  The limited liability helps you because your personal assets are not at risk if someone get hurt at your studio and sues. 

 

Disclosure -- I don't claim to be an expert on the subject.  I took two accounting and a couple business classes in college and got mostly 'B's.  The question I got wrong on the tests could have been related to LLC's.  I just don't remember.

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I think you want to go with the LLC.  The LL stand for Limited Liability.  The limited liability helps you because your personal assets are not at risk if someone get hurt at your studio and sues. 

 

 

 

Disclosure -- I don't claim to be an expert on the subject.  I took two accounting and a couple business classes in college and got mostly 'B's.  The question I got wrong on the tests could have been related to LLC's.  I just don't remember.

 

I believe you are correct, if WoIndy would stop ignoring me and reply to confirm.  Not sure what she is thinking trying to work at work.

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don't do either one. Just buy the studio and rock, rock on

 

Just take in all your fees in cash and then use the cash as collateral on a loan. Then you don't pay back the loan and the money is all yours while you deduct the interest on payments you don't even make and claim the whole thing as a capital loss ;)

 

you just try and get a big city lawyer to hook you up like that!

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So today was a kinda big day for me..... I had to sign my divorce papers that are to be submitted to court, I didn't want to go the a place like the bank (cold and impersonal) for a notary, so a friend suggested coming to her small office.... just her and a lawyer, she works for NY non-profit.  The lawyer guy was so nice and spent about 45 minutes with me, explaining the way I needed it explained.... I've contacted other lawyers and they treat me like I should already know all this stuff.  Anyway his suggestion was LLC, I'm meeting with an accountant tomorrow for a consultation, but her suggestion is corporation..... so I just thought I would run in by you well rounded folk.  Also, don't know if it makes a difference that I'm in NY.

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http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html

 

"

When Courts Will Pierce the Corporate Veil

Courts might pierce the corporate veil and impose personal liability on officers, directors, shareholders, or members when all of the following are true.

  • There is no real separation between the company and its owners. If the owners fail to maintain a formal legal separation between their business and their personal financial affairs, a court could find that the corporation or LLC is really just a sham (the owners' alter ego) and that the owners are personally operating the business as if the corporation or LLC didn't exist. For instance, if the owner pays personal bills from the business checking account or ignores the legal formalities that a corporation or LLC must follow (for example, by making important corporate or LLC decisions without recording them in minutes of a meeting), a court could decide that the owner isn't entitled to the limited liability that the corporate business structure would ordinarily provide.
  • The company's actions were wrongful or fraudulent. If the owner(s) recklessly borrowed and lost money, made business deals knowing the business couldn't pay the invoices, or otherwise acted recklessly or dishonestly, a court could find financial fraud was perpetrated and that the limited liability protection shouldn't apply.
  • The company's creditors suffered an unjust cost. If someone who did business with the company is left with unpaid bills or an unpaid court judgment and the above factors are present, a court will try to correct this unfairness by piercing the veil.
Factors Courts Consider in Piercing the Corporate Veil

The most common factors that courts consider in determining whether to pierce the corporate veil are:

  • whether the corporation or LLC engaged in fraudulent behavior
  • whether the corporation or LLC failed to follow corporate formalities
  • whether the corporation or LLC was inadequately capitalized (if the corporation never had enough funds to operate, it was not really a separate entity that could stand on its own), and
  • whether one person or a small group of closely related people were in complete control of the corporation or LLC."

 

Please make sure you talk it over with  a lawyer and a CPA.

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My thoughts are with you today, even if I don't have any advice re how to set up the studio.  I'm sure it's an emotional day, even if you know it's the right step.  Luckily, you have the studio as a clear sign of moving forward and doing some impressive things.

 

If a lawyer or acct makes you feel like they're too busy to answer basic questions, or that you shouldn't be asking them, they're not the right advisor for you. 

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LLC is the clear choice.

 

WoIndy's actualy answer

Apparent advantages of operating as an LLC instead of a C corporation are (1) the ability to pass through early stage losses to owners and (2) to make distributions to owners (during operations or in liquidation after a sale of the business) without a double level of tax.

The S corporation has often been the traditional entity of choice for operating a closely-held business, but the LLC possesses clear tax and non-tax advantages over the S corporation, whose use is severely hampered by an assortment of restrictions. The LLC, with its offer of more complete pass-through tax treatment and its greater operational flexibility, thus threatens to replace the S corporation as the entity of choice for the closely-held business.

 

She files corporate taxes in all 50 states, does Canadian returns and I believe some European ones.  She's a Tax Accountant, not a CPA.  She took the CPA exam once, but decided she didn't want the liability associated with it so basically she does everything and someone else signs it so they get in trouble if she screws up. 

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LLC is the clear choice.

 

WoIndy's actualy answer

Apparent advantages of operating as an LLC instead of a C corporation are (1) the ability to pass through early stage losses to owners and (2) to make distributions to owners (during operations or in liquidation after a sale of the business) without a double level of tax.

The S corporation has often been the traditional entity of choice for operating a closely-held business, but the LLC possesses clear tax and non-tax advantages over the S corporation, whose use is severely hampered by an assortment of restrictions. The LLC, with its offer of more complete pass-through tax treatment and its greater operational flexibility, thus threatens to replace the S corporation as the entity of choice for the closely-held business.

 

She files corporate taxes in all 50 states, does Canadian returns and I believe some European ones.  She's a Tax Accountant, not a CPA.  She took the CPA exam once, but decided she didn't want the liability associated with it so basically she does everything and someone else signs it so they get in trouble if she screws up. 

 

And I am a CPA......

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And I am a CPA......

Are you saying what my wife said is wrong?

 

Your text was basically addressing that you can still get screwed if you are purposefully doing things wrong, and you should if you are just doing it to screw the system.

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Are you saying what my wife said is wrong?

 

Your text was basically addressing that you can still get screwed if you are purposefully doing things wrong, and you should if you are just doing it to screw the system.

nope...but Suzie needs to talk to a lawyer as well....there are times when an LLC is very valuable, other times, it's nothing more than a wasted effort.  A good lawyer will be able to guide her through all the decisions.   As the post I made earlier indicates, if she is going this alone, and LLC will not help her.  She will still be exposed to all the liability she would have as a sole proprietor.

 

In other words, tax advatntage corporate structures are great, if they work for you, but they aren't applicable to all situations. 

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My thoughts are with you today, even if I don't have any advice re how to set up the studio.  I'm sure it's an emotional day, even if you know it's the right step.  Luckily, you have the studio as a clear sign of moving forward and doing some impressive things.

 

If a lawyer or acct makes you feel like they're too busy to answer basic questions, or that you shouldn't be asking them, they're not the right advisor for you. 

Thank you Kirby.  I have spent a couple of weeks now wrestling with the fact I had to end my marriage, which to me felt like ending a life.  I talked to my husband to let him know how hard it was even though I knew it had to happen.  He felt the same way, and said he believed that we would be closer friends once all this was over, and that we would always be a family..... that made me feel so much better about it, because even though my children are adults, I felt very guilty and felt like I was destroying a family.  

And yes, having these two big life decisions happening at the same time has been a lot of food for thought.... as I close one door, another has opened. I feel like there is light at the end of the tunnel and prospect of a future..... I hope I can make this work.

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LLC is the clear choice.

 

WoIndy's actualy answer

Apparent advantages of operating as an LLC instead of a C corporation are (1) the ability to pass through early stage losses to owners and (2) to make distributions to owners (during operations or in liquidation after a sale of the business) without a double level of tax.

The S corporation has often been the traditional entity of choice for operating a closely-held business, but the LLC possesses clear tax and non-tax advantages over the S corporation, whose use is severely hampered by an assortment of restrictions. The LLC, with its offer of more complete pass-through tax treatment and its greater operational flexibility, thus threatens to replace the S corporation as the entity of choice for the closely-held business.

 

She files corporate taxes in all 50 states, does Canadian returns and I believe some European ones.  She's a Tax Accountant, not a CPA.  She took the CPA exam once, but decided she didn't want the liability associated with it so basically she does everything and someone else signs it so they get in trouble if she screws up. 

Thank you, and thank WoIndy!  This is basically what the lawyer today was explaining.

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nope...but Suzie needs to talk to a lawyer as well....there are times when an LLC is very valuable, other times, it's nothing more than a wasted effort.  A good lawyer will be able to guide her through all the decisions.   As the post I made earlier indicates, if she is going this alone, and LLC will not help her.  She will still be exposed to all the liability she would have as a sole proprietor.

 

In other words, tax advatntage corporate structures are great, if they work for you, but they aren't applicable to all situations. 

So maybe I should ask this lawyer if he would do if for me rather than just go with an accountant?

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nope...but Suzie needs to talk to a lawyer as well....there are times when an LLC is very valuable, other times, it's nothing more than a wasted effort.  A good lawyer will be able to guide her through all the decisions.   As the post I made earlier indicates, if she is going this alone, and LLC will not help her.  She will still be exposed to all the liability she would have as a sole proprietor.

 

In other words, tax advatntage corporate structures are great, if they work for you, but they aren't applicable to all situations. 

 

Got it, wasn't sure exactly where you were going, and my wife would agree you need to talk to other people and make sure.

 

I've never understood the poeple who setup a LLC for the sole purpose of working a contract job and then having basically their real employer pay the LLC, I know they are doing it to take advantage of some tax loop holes, but never understood how that could possibly be legal since they aren't really a company, they are just a normal person working a normal job with a screwed up pay system.

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I think Modo's point was that even if you set up the right vehicle, you can lose some of the protections if you don't comply with the formality of the structure and do things to blur the separate entity (such as commingling bank accounts, signing documents in an individual capacity, try to use the structure to commit fraud,  etc.)  So even if you know the right structure, it's a good idea to talk to a lawyer to make sure you know what else you need to do to maximize the chances that the entity will be upheld and the protections applied. 

 

But of course, I'm just a frog.

 

I'm sure you'll do great with this Suzie!  I'm still waiting for your first Yoga for dummies and klutzes weekend seminar!

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Got it, wasn't sure exactly where you were going, and my wife would agree you need to talk to other people and make sure.

 

I've never understood the poeple who setup a LLC for the sole purpose of working a contract job and then having basically their real employer pay the LLC, I know they are doing it to take advantage of some tax loop holes, but never understood how that could possibly be legal since they aren't really a company, they are just a normal person working a normal job with a screwed up pay system.

I do that with a DBA.  I had an accountant tell me I could run the studio with my DBA... when I asked about law suits, she said they generally just go for what you're ensured for :rolleyes:

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I think Modo's point was that even if you set up the right vehicle, you can lose some of the protections if you don't comply with the formality of the structure and do things to blur the separate entity (such as commingling bank accounts, signing documents in an individual capacity, try to use the structure to commit fraud,  etc.)  So even if you know the right structure, it's a good idea to talk to a lawyer to make sure you know what else you need to do to maximize the chances that the entity will be upheld and the protections applied. 

 

But of course, I'm just a frog.

 

I'm sure you'll do great with this Suzie!  I'm still waiting for your first Yoga for dummies and klutzes weekend seminar!

You're pretty smart for a just being a frog Kirby :)   I understand, and of course being a good yogi I would never purposefully commit fraud, but not being that smart with business I guess I could do things wrong without realizing, but would hope that what ever accountant I chose to do my taxes etc would make sure everything was on the up and up

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LLC is the clear choice.

 

WoIndy's actualy answer

Apparent advantages of operating as an LLC instead of a C corporation are (1) the ability to pass through early stage losses to owners and (2) to make distributions to owners (during operations or in liquidation after a sale of the business) without a double level of tax.

The S corporation has often been the traditional entity of choice for operating a closely-held business, but the LLC possesses clear tax and non-tax advantages over the S corporation, whose use is severely hampered by an assortment of restrictions. The LLC, with its offer of more complete pass-through tax treatment and its greater operational flexibility, thus threatens to replace the S corporation as the entity of choice for the closely-held business.

 

She files corporate taxes in all 50 states, does Canadian returns and I believe some European ones.  She's a Tax Accountant, not a CPA.  She took the CPA exam once, but decided she didn't want the liability associated with it so basically she does everything and someone else signs it so they get in trouble if she screws up. 

 

Interesting that your wife didn't mention the advantage of spelling LLC instead of corportation.

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I do that with a DBA.  I had an accountant tell me I could run the studio with my DBA... when I asked about law suits, she said they generally just go for what you're ensured for :rolleyes:

 

But if you are working for someone else, they would have the insurance as you are being employed by them through your LLC.

 

The person I know is a software engineer, so not really an issue with need to be ensured.

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Interesting that your wife didn't mention the advantage of spelling LLC instead of corportation.

Well, if you actually spell it out, Limited Liability Company, loses it's spelling advantage, but a longer name does sound more impessive.

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My thoughts are with you today, even if I don't have any advice re how to set up the studio.  I'm sure it's an emotional day, even if you know it's the right step.  Luckily, you have the studio as a clear sign of moving forward and doing some impressive things.

 

If a lawyer or acct makes you feel like they're too busy to answer basic questions, or that you shouldn't be asking them, they're not the right advisor for you. 

The frog is right!  Just like a doctor, pick a lawyer/accountant that you can talk to comfortably. 

 

And kudos to you for being bold, Suzie! 

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