[OT] LLC and contract business

[Brian O'Connor-3]

Hey guys, I hope this isn't too off-topic, as I'm sure there's a few people here who are in the self-employment arena that can shed some advice.

 

As a prefix, I'm going to assume no one is a lawyer and such won't hold you accountable (unless you otherwise say I can).

 

I've been doing some side web development over the past 6 months with a designer and things are going great, and we seem to be getting clients at a great pace.  Obviously, the question is arising as to whether or not we should LLC our "group" and make things official and to prevent losing everything we own, and to look more professional.  However, I've heard conflicting things about what to do. 

 

I was always under the impression that LLC was the way to go, but now I might not be so sure.  What are the rules to getting an LLC?  Do I need an address in the state I registered the LLC in for it to work?  Does the LLC need an official bank account in order for the checks to be cashed / money to be transferred?

How do the taxes work if there's 2 members of the LLC?

 

I'm very curious about how this all works!

 

Thanks in advance,

Brian O'Connor
--
Brian O'Connor

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[Kristina Anderson]

>
> Hey guys, I hope this isn't too off-topic, as I'm sure there's a few
people
> here who are in the self-employment arena that can shed some advice.
>
> As a prefix, I'm going to assume no one is a lawyer and such won't
hold you
> accountable (unless you otherwise say I can).
>
> I've been doing some side web development over the past 6 months with
a
> designer and things are going great, and we seem to be getting
clients at a
> great pace.  Obviously, the question is arising as to whether or not
we
> should LLC our "group" and make things official and to prevent losing
> everything we own, and to look more professional.  However, I've heard
> conflicting things about what to do.
>
> I was always under the impression that LLC was the way to go, but now
I
> might not be so sure.  What are the rules to getting an LLC?  Do I
need an
> address in the state I registered the LLC in for it to work?  Does
the LLC
> need an official bank account in order for the checks to be cashed /
money

> to be transferred?
>  How do the taxes work if there's 2 members of the LLC?
>
> I'm very curious about how this all works!
>
> Thanks in advance,
> Brian O'Connor
> --
> Brian O'Connor
>
>

Hi Brian --

As Tedd would say -- "Oh no, there's two of you".

Yes, you do need a company bank account (and to let the bank know who
has permission to sign checks), and also need to file all the paperwork
with the state of formation the same way as for an "Inc." Corporation,
first.  To open the account you will possibly need a letter from the
attorney who assisted you in creating the entity, as to its legal
existence and proper formation.

Taxes vary according to the type of entity.  Also, after expenses,
partners would be drawing income out of the entity and that would then
be taxable as personal income.  Salaries to partners or employees is of
course a business expense of the entity.

About the arcane legal differences between a Limited Partnership (LP),
a Limited Liability Company (LLC), and a Corporation...I doubt anyone
BUT a lawyer could answer that.  I was a paralegal for 5 years and I
can't even recall this.   I know that it has more to do with the
partners' obligations towards EACH OTHER .... all three shield you from
personal liability if someone sues your entity, I believe.

Kristina

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[Eric Gewirtz]

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Hi Brian,

 

It is not hard to set up an LLC, but if you decide to do so I highly recommend that at the very least you talk to a good CPA. Here is a link (http://www.dos.state.ny.us/corp/faq.html ) to NY states website on faq;s for setting up an LLC. It really is a easy as picking a name and filling out the application to reserve the name and then filling out and filing the Articles of Organization but as you indicate in your questions there are tax implications to becoming an LLC vs corp vs partnerships and an accountant can better help you assess what is best for you.

 

The website is very good and you can get all the forms you need to do it yourself. The smarter you are about the process the less it will cost you to set up the LLC because there are a lot of people out there that charge lot of money to help set you up making it seem like it is complicated. As I mentioned before, definitely talk to a good CPA.

 

Good Luck

 

Eric

 

SolutionOne

Eric Gewirtz

162 Turk Hill Road

Brewster NY, 10509

Phone: [phone]

FAX:    [phone]

 

-----Original Message-----
From: talk-bounces@... [mailto:talk-bounces@...] On Behalf Of Brian O'Connor
Sent: Tuesday, October 13, 2009 1:26 PM
To: NYPHP Talk
Subject: [nyphp-talk] [OT] LLC and contract business

 

Hey guys, I hope this isn't too off-topic, as I'm sure there's a few people here who are in the self-employment arena that can shed some advice.

 

As a prefix, I'm going to assume no one is a lawyer and such won't hold you accountable (unless you otherwise say I can).

 

I've been doing some side web development over the past 6 months with a designer and things are going great, and we seem to be getting clients at a great pace.  Obviously, the question is arising as to whether or not we should LLC our "group" and make things official and to prevent losing everything we own, and to look more professional.  However, I've heard conflicting things about what to do. 

 

I was always under the impression that LLC was the way to go, but now I might not be so sure.  What are the rules to getting an LLC?  Do I need an address in the state I registered the LLC in for it to work?  Does the LLC need an official bank account in order for the checks to be cashed / money to be transferred?

How do the taxes work if there's 2 members of the LLC?

 

I'm very curious about how this all works!

 

Thanks in advance,

Brian O'Connor
--
Brian O'Connor

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[Tedd-3]

Brian:

I recommend seeking the advise of an attorney and having him/her draw
up the articles of incorporation. You can discuss with the attorney
what the advantages and disadvantages are of the different types of
incorporation (e.g., S, C, LLC). Each has it's own tax structure.

If the corporation is drawn up correctly and the rules of the
corporation are followed, then you will protect yourself from
personal liability in the event that something bad happens, like
accidentally dropping a client's customer table while working with
his database when there was no backup.

You should also think about getting an "errors and omissions" policy
for that exact same reason. While having a corporate umbrella does
protect you from being personally libel, losing a corporation is not
the best thing that can happen to you either -- so protect the
corporation as well.

Also, being in a corporation does come with some liability. For
example, if you are the secretary treasurer, then that makes you
personally responsible for state and federal withholding taxes for
employees. So don't think you're totally safe just because you're in
a corporation.

For example, I was a partner and the secretary treasurer of another
corporation. I left the corporation employ, sold my stock and
completely dissolved my relationship with the corporation. However
two years after I quit, the corporation hired an employee and a year
later went bankrupt. The State of Michigan came after me for the
withholding taxes for that employee even though the infraction
occurred three years after I had left. I spent two days fighting with
the State showing them that I was not responsible. After which, the
State of Michigan still would not release me from the liability other
than to say "We'll see... ". I had to turn it over to my attorney to
get the issue resolved. A big waste of time and money.

Additionally, if you pierce the corporate vail by not passing income
through the corporation but taking payment directly, then you forfeit
the corporate protection. Likewise, not having an annual minutes
meeting can dissolve the corporation leaving you unprotected. There
are at least a dozen rules like this that you must follow. So, hire
an attorney, have him/her prepare the papers, and ask what your
responsibilities are. There's no reason to start up a corporation if
you don't know how to use it or what your responsibilities are.

Cheers,

tedd

--
-------
http://sperling.com  http://ancientstones.com  http://earthstones.com
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[Michael B Allen]

On Tue, Oct 13, 2009 at 1:25 PM, Brian O'Connor <gatzby3jr@...> wrote:

> Hey guys, I hope this isn't too off-topic, as I'm sure there's a few people
> here who are in the self-employment arena that can shed some advice.
>
> As a prefix, I'm going to assume no one is a lawyer and such won't hold you
> accountable (unless you otherwise say I can).
>
> I've been doing some side web development over the past 6 months with a
> designer and things are going great, and we seem to be getting clients at a
> great pace.  Obviously, the question is arising as to whether or not we
> should LLC our "group" and make things official and to prevent losing
> everything we own, and to look more professional.  However, I've heard
> conflicting things about what to do.
>
> I was always under the impression that LLC was the way to go, but now I
> might not be so sure.  What are the rules to getting an LLC?  Do I need an
> address in the state I registered the LLC in for it to work?

Hi Brian,

Yes. You have to register your business name with the state. It has to
be unique and it has to end in "LLC" (or some limited permutations
thereof).

>  Does the LLC
> need an official bank account in order for the checks to be cashed / money
> to be transferred?

No. But it costs nothing to open one and you'll look dumb if you
cannot accept checks and wires to a company name. To open a company
bank account you just need an EIN:

  http://www.irs.gov/businesses/small/article/0%2C%2Cid%3D102767%2C00.html

This is the number that you'll use everywhere in place of your SSN
such as on a W-9 (a form that customers use verify with the IRS that
you are in fact registered as you claim).

> How do the taxes work if there's 2 members of the LLC?

I'm not sure about 2 members but for a sole member it's easy. You just
do your regular self-employed tax return but you do an extra schedule.
I suspect it's roughly the same for 2 members but I'm not sure how you
would report what percent of the revenue is yours. Just call up H&R
Block or google it.

Note that you might also need to register to collect tax in the LLC's
state if you deliver product to that state.

So just register your LLC name with the state, get the EIN, open the
back account and your done. I don't think it even costs anything. I
think maybe I paid $50 for something.

In general, becoming an LLC is very easy. When I first did it, it was
because someone sent me a big check made out to my company name. As
soon as I saw the check I literally registered the name, got the EIN,
opened the bank account and deposited the check in a matter of hours.

Note that all of the above is for a sole member LLC in NJ. It might be
a little different in NY and with a partner. I don't know. Just Google
your way through it. It's fairly obvious. At least it's not worth
paying anyone to do IMO.

Mike
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[jontas]

Don't forget the publication requirement.  In New York you are required to publish information about your new LLC in 2 newspapers and then submit proof of this back to the state.  I spent like $500 or so getting my LLC via LegalZoom, only to find out at the end I had to pay another ~$600 for the publication.

For more info, see:

http://www.newyorksmallbusinesslaw.com/new_york_small_business_l/2007/01/taking_care_of_.html

Jon Tascher

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[inforequest]

Brian O'Connor gatzby3jr-at-gmail.com |nyphp MAIN ONE dev/internal group
use| wrote:

> Hey guys, I hope this isn't too off-topic, as I'm sure there's a few
> people here who are in the self-employment arena that can shed some
> advice.
>  
> As a prefix, I'm going to assume no one is a lawyer and such won't
> hold you accountable (unless you otherwise say I can).
>  
> I've been doing some side web development over the past 6 months with
> a designer and things are going great, and we seem to be getting
> clients at a great pace.  Obviously, the question is arising as to
> whether or not we should LLC our "group" and make things official and
> to prevent losing everything we own, and to look more professional.  
> However, I've heard conflicting things about what to do.
>  
> I was always under the impression that LLC was the way to go, but now
> I might not be so sure.  What are the rules to getting an LLC?  Do I
> need an address in the state I registered the LLC in for it to work?  
> Does the LLC need an official bank account in order for the checks to
> be cashed / money to be transferred?
> How do the taxes work if there's 2 members of the LLC?
>  
> I'm very curious about how this all works!
>  
> Thanks in advance,
> Brian O'Connor
> --
> Brian O'Connor

Your specific questions are indeed OT but the topic (addressing the
issue) is not.

I am not a lawyer, but here's my advice:

1. don't take advice from a list or forum. Read it if you like, as a
means of gaining perspective from peers, but don't follow any of it.
Including this part ;-)

2. use this group activity (your first "company") to advance your self
in this regard. You all need to learn, and education costs money. But,
if you think education is expensive, you need to check the cost of
ignorance. Resolving this issue AS A GROUP achieves a number of PERSNAL
gains for you:

a. you get to see how your group makes decisions about expenses and risk
management (important for future)
b. you get to see how your group collaborates on tough issues outside of
scope (who will be the CEO anyway?)
c. you get to see how your partnership values intangible expenses (like
your own time and effort put into finding a good accountant or lawyer)
d. you get the group to cover the costs of education (your personal cost
is 1/n of the total cost...which saves you money later)
e. Any individuals who actually worked hard and paid attention, like you
hopefully, walk away with personal knowledge of how to do it right next
time (more cheaply)

Note that this is why someone gets to be "CEO"... she takes the
responsibility for managing the decision process, and later gets the
credit for having managed it.

3.  Interview several accountants and several lawyers, for free. If you
can't accomplish that, you're not ready to represent your group and
incur a bill from one. If the group can't allocate attention to that,
reconsider your planned organization. It might be best for ONE of you to
form an entity that employs the others or otherwise manages the
business. After all, the rewards need to follow the risk.

4. Remember that besides the part about limiting liability and buying
insurance, there is no correct answer to the question. The proper answer
from ANY lawyer or accountant is that it depends on how YOU want to
structure things. How will an individual quit the group? How will you
all decide what to do with profits earned? How often will that be
addressed? How to invest more money into the enterprise? How to take on
another partner? How will each account for the income on taxes (each
person is in a unique situation in that regard) ? What happens if one
person doesn't uphold responsibilities?

ANY suggestion from anyone else is just that : a suggestion of how that
accountant or lawyer might doing it, knowing (probably) less than you do
about your group and its business. Following the recommended advice
should not sound like a good idea to you... because it is not. YOU need
to know what is best for YOU.  Worst case, it is a suggestion of how
that lawyer or accountant can make the most in fees for the least amount
of work. Interviewing a few should tell you which ones are mostly
interested in earning your incorporation fees, and which ones would
rather get that part going a.s.a.p. so they can help you make and keep
your $$$, so they get lots more business from you as you grow and need
more services. Again, is it getting clearer why one person is CEO while
another is CTO or CFO?

IMHO the bottom line is to do SOMETHING now, without investing $2000,
and have expert advice FROM THAT POINT FORWARD so you can manage your
situation properly (legally, efficiently). As you learn and grow, the
reasons for making specific changes will become apparent; they provide
the justification you all need to make the decision to change something
in the future. Nothing going forward should be a guess. That's why you
pay professionals for their expertise - so you don't have to guess. If
you ever see that you have a bill from your professional, yet have to
make what seems like a best guess decision, take that as a clue you need
a different professional.

I hope that helps ;-)

-=john


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[Kristina Anderson]

> Tedd wrote:
>
> I recommend seeking the advise of an attorney and having him/her draw
> up the articles of incorporation. You can discuss with the attorney
> what the advantages and disadvantages are of the different types of
> incorporation (e.g., S, C, LLC). Each has it's own tax structure.
>

Absotively.  A business partnership is like a marriage and there is a
LOT of detail to these agreements, and consequences that are way more
complicated than if you just go it alone as a sole proprietor.


> Additionally, if you pierce the corporate vail by not passing income
> through the corporation but taking payment directly, then you forfeit
> the corporate protection. Likewise, not having an annual minutes
> meeting can dissolve the corporation leaving you unprotected. There
> are at least a dozen rules like this that you must follow. So, hire
> an attorney, have him/her prepare the papers, and ask what your
> responsibilities are. There's no reason to start up a corporation if
> you don't know how to use it or what your responsibilities are.

What Tedd is saying above is true -- that having an entity like this is
a PITFA because once you form it, that's JUST the beginning of the
fun.  A cursory look at the "Corporate Tax Forms for NYS" will disabuse
you of any idea that this is not a whole new eggplant.

Kristina


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[Kristina Anderson]

>
> 3.  Interview several accountants and several lawyers, for free. If
you
> can't accomplish that, you're not ready to represent your group and
> incur a bill from one. If the group can't allocate attention to that,
> reconsider your planned organization. It might be best for ONE of you
to
> form an entity that employs the others or otherwise manages the
> business. After all, the rewards need to follow the risk.

> 4. Remember that besides the part about limiting liability and buying
> insurance, there is no correct answer to the question. The proper
answer
> from ANY lawyer or accountant is that it depends on how YOU want to
> structure things. How will an individual quit the group? How will you
> all decide what to do with profits earned? How often will that be
> addressed? How to invest more money into the enterprise? How to take
on
> another partner? How will each account for the income on taxes (each
> person is in a unique situation in that regard) ? What happens if one
> person doesn't uphold responsibilities?
>
> -=john
>

Some more gems of wisdom, above.  Make sure the relationship works for
you and makes sense overall.  Make sure you have 100% confidence that
the other person(s) in the relationship will honor their commitments.

In other words, don't just incorporate with the first person who asks.

:)

Kristina
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[Daniel Convissor-2]

Hi:

Pardon me for not reading the whole thread, but everything you need to
know is in "Legal Guide for Starting & Running a Small Business"
published by Nolo Press.
http://www.nolo.com/products/legal-guide-for-starting-&-running-a-small-business-RUNS.html;jsessionid=2899501B574368A8B0214AEF173E0621.jvm1

Nolo has a great website too, so some of your questions may be answered
there already.

--Dan

--
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