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Old 16th February 2006, 12:42 PM   #1
zx2car
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Default Small Candle Company LLC or Sole Proprietorship?

I am starting a small candle company from home. Should I organize this as a LLC or sole proprietorship? As far as debts, I will not have any, but IN CASE of a lawsuit, would one be better than the other.

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Old 16th February 2006, 01:55 PM   #2
Paul Martin
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In my opinion, LLC's are the great thing since sliced bread. You basically get the legal protection of a corporation with the tax simplicity of a partnership or sole proprietorship.

I believe that some states do not allow single-person LLC's though, so you may want to check on that.

Also, it can cost a few hundred dollars (or more, depending on who you use) to form your LLC, so you may choose to put off the formation until you have your business up and running and are sure you want to move forward. If you're already sure though, I really do think LLC's are the way to go.

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Old 10th June 2006, 01:31 PM   #3
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Default Corporate Protection

Unfortunately even a corporation affords little help in hiding your personal assets from legal chalanges.

As an officer of the corporation you can be held personaly responsible and most courts will see a corportation owned by an individual as nothing more than attempt to hide from legal action.

The LLC is good for existing corporations that wish to hold other companies and not get the liability of that company. But as an individual, everything you do will need to be on your back.

Get a loan, it will be on your credit. You will always be the cosigner and always be liable.

On paper it looks great. But in practice you might as well just have a DBA or Tradename.

There are tax benefits of the corporation and much more so than the liability factor. Also, seperating personal income from business is good.

But if you go to court, as the president of the corporation, you are the one that is responsible.

In a case where many shareholders are in the mix, the protection is greater. But just signing some papers incorporating is not much legal protection at all.

But as I said, it does have benefits. Also as you grow, it makes it easier to divide and share the business.

Look at cost. There are anual filing fees and paperwork required to keep the corporation active. Also you need an EIN and will need to file employment taxes every month. Its alot more complicated than signing a paper that says you are protected.

I had 2 corporations and combined them into 1. It was just too much paperwork and upkeep. So unless you like doing more work, stick with a DBA or Tradename.

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Old 11th June 2006, 07:33 AM   #4
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I've thought about this decision for the last two months. I finally agreed to Sole Ownership. Just save your money and role with it. Too much paperwork and government red tape for such a small business. You can always form a LLC down the road.


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Old 11th June 2006, 07:40 AM   #5
Logan
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Good point, it is always possible to change in the future.

PageBuzz, I agree with you that a closely held corporation does not shield you from any liability. That's not the 101 they teach in college classes, but it is the case based on my experiences.

Quote:
There are tax benefits of the corporation and much more so than the liability factor.
I'm curious what tax benefits you are referring to. My understanding is that typically taxes are not considered one of the advantages of a corporation since it is an entity that is taxed in addition to the individual owners.

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Old 11th June 2006, 02:17 PM   #6
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Quote:
Originally Posted by Logan
Good point, it is always possible to change in the future.

PageBuzz, I agree with you that a closely held corporation does not shield you from any liability. That's not the 101 they teach in college classes, but it is the case based on my experiences.



I'm curious what tax benefits you are referring to. My understanding is that typically taxes are not considered one of the advantages of a corporation since it is an entity that is taxed in addition to the individual owners.

True. Good Point.

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Old 12th June 2006, 09:04 AM   #7
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C corps get double taxation. LLCs do not. In fact with an LLC you can pay a lot less taxes than a Sole proprietor because you are not paying self-employment tax. You can also pay yourself a smaller salary and then take "draws" out of the company profits to pay yourself extra. These draws are not subject to SS tax.

You also might look into incorporating (or LLCing) in another state such as Nevada, which has the best (or second best) personal protections of all 50 states.

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