To "LLC" or not to "LLC" ???

[Neverpanic1]

Thought on Limited Liability ? As an instructor, is this a good idea and any suggestions on who to go through ?

[wgoforth]

I'm checking on it myself.... no need to go through anyone, just fill out the forms for the state.

[Bullitt]

If you are looking for liability protection from a lawsuit, you won't get it with an LLC. You can be sued directly as the instructor.

[wgoforth]

If you are looking for liability protection from a lawsuit, you won't get it with an LLC. You can be sued directly as the instructor.

The point of an LLC is a LIMITED LIABILITY Co.... they separate your personal liability and assets from your business. In an LLC they can only go up to the value of your business, not the value of your personal assets... ie, your home.

[RoyGBiv]

I would never, Never, NEVER operate a business without the protection of incorporation.
The cost is minimal, the upkeep is minimal, the tax penalty is ZERO (as long as you're under $1M revenue).

Texas incorporation as an LLC is a DIY process. Check the Secretayr of State web site for all the forms. I believe you can apply online now.??
Do a Google search for "piercing the corporate veil", then do some reading about what NOT to do in order to maintain the separation between business and personal property.

I would never, Never, NEVER operate a business without the protection of incorporation.

YMMV

[JALLEN]

It's true that an LLC limits liability to the assets of the business, for liabilities of the business, but they offer really nothing for liabilities of the owner of the business who commits the tort, etc.

Here is an example. You have your business, "My Bakery, LLC." It has assets, few liabilities, decent capital, and is a successful business operation. One day, you are driving the delivery truck with a load of fresh rolls for the restaurant your good customer, and run a red light in your haste. The damages from the collision far exceed the liability limits of the insurance policy for the truck, and even the assets of the LLC. You were solely at fault for the result.

The insurer for the car will kick in a defense initially, eventually probably tender policy limits, and walk away. The Plaintiff will get judgment, against the LLC and you as the driver, for a huge amount, minus the credit for the liability policy. The Plaintiff will execute on the assets of the LLC and take that, liquidated into cash, leaving a balance of the judgment against you the remaining judgment debtor. Or, alternatively, since judgments are joint and several (at least in CA) the Plaintiff could execute against your property, which includes the LLC.

In Texas you have a terrific homestead law that protects your home from being seized to pay debts, no matter how valuable, limited by size, 200 acres outside the town, 10 acres inside a town, or something like that. Your home is off the table. In CA, the homestead limit was in the $100,000 range depending on exactly who was there, marital status of occupants, age etc. In Texas there are other various exemptions from execution, and a $60,000 personal property limit. Anything above that gets sold to pay the judgment.

Contrast this with the situation where, instead of you driving, it is one of your employees. Now you are not personally liable, since you weren't the cause of the accident and only the assets of the business would be at stake, plus any insurance proceeds of course. Assume in both situations the LLC is properly formed and conscientiously maintained, all the little requirements met, etc.

These are generalities, of course, because slight nuances in facts can change things markedly. Also, I am a lawyer but not a Texas lawyer, only CA, not qualified to advise on particular situations in Texas and not licensed, nor do I pretend, to do so in any event.

[wgoforth]

What sorts of arrangements would provide for what you would consider better protection?

[RoyGBiv]

What sorts of arrangements would provide for what you would consider better protection?

Incorporation (properly maintained)
Corporate insurance with appropriate coverage limits.
Personal insurance with appropriate coverage limits.
Personal umbrella liability policy with appropriate coverage limits.

Background (criminal and civil) checks and drug testing on all employee applicants.
Random drug testing going forward.
Documented and signed (by every employee) safety and code-of-conduct policy.
For starters.

[The Annoyed Man]

I eventually converted from a sole prop to an LLC on the advice of my CPA, with one real goal in mind.....making my exit strategy cleaner whenever I decide to really retire. Having the LLC behind the name makes the business easier to sell/transfer ownership, according to what he told me. The downside is that my tax picture has been more complicated....not so much from amount paid, but in the reporting requirements. Given that my business does not have that much value in terms of capital assets, size of bank accounts, or the size of my customer base, and given that neither my wife nor son have much interest in owning this business if I shuffle off this mortal coil, I am rethinking whether or not the change was worth it.

[wgoforth]

I eventually converted from a sole prop to an LLC on the advice of my CPA, with one real goal in mind.....making my exit strategy cleaner whenever I decide to really retire. Having the LLC behind the name makes the business easier to sell/transfer ownership, according to what he told me. The downside is that my tax picture has been more complicated....not so much from amount paid, but in the reporting requirements. Given that my business does not have that much value in terms of capital assets, size of bank accounts, or the size of my customer base, and given that neither my wife nor son have much interest in owning this business if I shuffle off this mortal coil, I am rethinking whether or not the change was worth it.

My understanding was the LLC did not change tax reporting as it is pass through to your personal taxes. Have you found this otherwise?

[wgoforth]

Any thoughts? State Dept said I cannot use it as there is a Castle Keep LLC, though I have "services" added to the name. Thing is, a Castle KEEP was the portion of a castle the royal family retreated to for defense. There was a book and movie by the name and is an architectural description. How can you reserve use of such generic wording? It would seem to be like saying no one else could use term Castle Wall?

[The Annoyed Man]

I eventually converted from a sole prop to an LLC on the advice of my CPA, with one real goal in mind.....making my exit strategy cleaner whenever I decide to really retire. Having the LLC behind the name makes the business easier to sell/transfer ownership, according to what he told me. The downside is that my tax picture has been more complicated....not so much from amount paid, but in the reporting requirements. Given that my business does not have that much value in terms of capital assets, size of bank accounts, or the size of my customer base, and given that neither my wife nor son have much interest in owning this business if I shuffle off this mortal coil, I am rethinking whether or not the change was worth it.

My understanding was the LLC did not change tax reporting as it is pass through to your personal taxes. Have you found this otherwise?

There is reporting necessary to the state.......I forget if it's the Sec State office, or the Franchise tax board. Also, LLC places a greater requirement to not commingle funds......at least this is what I have been advised. But understand, I'm not an expert. I'm only telling you what my experience has been, and what advice I was given. I have to rely on the wisdom of others in this area.

[wgoforth]

I eventually converted from a sole prop to an LLC on the advice of my CPA, with one real goal in mind.....making my exit strategy cleaner whenever I decide to really retire. Having the LLC behind the name makes the business easier to sell/transfer ownership, according to what he told me. The downside is that my tax picture has been more complicated....not so much from amount paid, but in the reporting requirements. Given that my business does not have that much value in terms of capital assets, size of bank accounts, or the size of my customer base, and given that neither my wife nor son have much interest in owning this business if I shuffle off this mortal coil, I am rethinking whether or not the change was worth it.

My understanding was the LLC did not change tax reporting as it is pass through to your personal taxes. Have you found this otherwise?

There is reporting necessary to the state.......I forget if it's the Sec State office, or the Franchise tax board. Also, LLC places a greater requirement to not commingle funds......at least this is what I have been advised. But understand, I'm not an expert. I'm only telling you what my experience has been, and what advice I was given. I have to rely on the wisdom of others in this area.

There is no state tax if the service is instruction only, as in the case of CHL instructors. I'm not an expert either, but as I searched all material I read stated the LLC is the simplest tax wise, as it passes through to your personal returns. Can any one can clarify this?

[JALLEN]

I eventually converted from a sole prop to an LLC on the advice of my CPA, with one real goal in mind.....making my exit strategy cleaner whenever I decide to really retire. Having the LLC behind the name makes the business easier to sell/transfer ownership, according to what he told me. The downside is that my tax picture has been more complicated....not so much from amount paid, but in the reporting requirements. Given that my business does not have that much value in terms of capital assets, size of bank accounts, or the size of my customer base, and given that neither my wife nor son have much interest in owning this business if I shuffle off this mortal coil, I am rethinking whether or not the change was worth it.

My understanding was the LLC did not change tax reporting as it is pass through to your personal taxes. Have you found this otherwise?

There is reporting necessary to the state.......I forget if it's the Sec State office, or the Franchise tax board. Also, LLC places a greater requirement to not commingle funds......at least this is what I have been advised. But understand, I'm not an expert. I'm only telling you what my experience has been, and what advice I was given. I have to rely on the wisdom of others in this area.

There is no state tax if the service is instruction only, as in the case of CHL instructors. I'm not an expert either, but as I searched all material I read stated the LLC is the simplest tax wise, as it passes through to your personal returns. Can any one can clarify this?

The LLC prepares and files information returns with IRS, I believe. No taxes as the tax is paid by the owners personally on their returns. As far as formalities go, there is the operating agreement, even in a single member LLC, the need to keep separate bank accounts, books, etc, and don't fudge on this. Of course, in CA, the LLC has to pay state income taxes, minimum $800 a year whether you made any money or not, or even did any business. Thankfully Texas doesn't have that dampening requirement.

[RoyGBiv]

I eventually converted from a sole prop to an LLC on the advice of my CPA, with one real goal in mind.....making my exit strategy cleaner whenever I decide to really retire. Having the LLC behind the name makes the business easier to sell/transfer ownership, according to what he told me. The downside is that my tax picture has been more complicated....not so much from amount paid, but in the reporting requirements. Given that my business does not have that much value in terms of capital assets, size of bank accounts, or the size of my customer base, and given that neither my wife nor son have much interest in owning this business if I shuffle off this mortal coil, I am rethinking whether or not the change was worth it.

My understanding was the LLC did not change tax reporting as it is pass through to your personal taxes. Have you found this otherwise?

There is reporting necessary to the state.......I forget if it's the Sec State office, or the Franchise tax board. Also, LLC places a greater requirement to not commingle funds......at least this is what I have been advised. But understand, I'm not an expert. I'm only telling you what my experience has been, and what advice I was given. I have to rely on the wisdom of others in this area.

There are three reports to be filed each year...

1. Sales tax: If you don't collect sales tax (I run a wholesale business), you might be able to file for a permanent exemption, but if one doesn't exist, it takes less than 5 minutes to file online once per year. Most of that time is spent looking up my login and password for the SoS site. The SoS sends out very nice and timely email reminders when it's time to file.

2 and 3. Franchise tax and PIR. These are filed together, also electronically. If your business has less than $1M in gross receipts, you click that button, enter a few simple numbers (gross sales, PIC code, etc.) and hit send... Also a 5 minute online process (if less than $1M sales). The PIR (Public Information Report) just confirms who owns the company and whether it has any subsidiary or parent company links. It's filed together with the franchise tax report in the same online session. Adds 5 minutes/year...