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06/16/2006 11:44:34 AM · #1 |
This is yet another topic I'm a little confused on as far as starting up a portrait studio goes...
Which is preferable and why?
I understand that the LLC gives more protection to personal assets when/if the owner is sued, but other than that, what are the benefits? And how often do you really need to worry about being taken to court? (NOTE: I have NO aspirations of being a wedding photog.)
If you are in business for yourself, what business structure are you using and why? I'm not trying to be nosy, I just don't have anyone else to ask! I'm just having a little difficulty figuring out the benefits vs. drawbacks of different business structures.
Any help on this would be very welcome!
Thanks,
Sara
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06/16/2006 12:17:47 PM · #2 |
Sara, this is no help on your question, but it IS still on topic and might be of interest to you, so I'll throw some more food for thought your way:
I live in Renton, near Seattle, WA.
I looked into getting a business licence, but it is too ridiculous.
I would have to get:
1) a Washington State licence (once off fee)
2) Unincorporated King County (for some reason we don't count as living in Renton) licence - yearly $55.00
3) - 8) a yearly licence (($50 - $200) for every city/district I "conduct business with" - i.e. take photos at.
I would be dealing with at least 6 other districts on a regular basis because they are all only a few minutes away.
So every year, I would be many hundred dollars poorer or face the possiblity of heavy fines.
They make NO difference in fee depending on your income.
Mr Bill Gates has to pay way less than I would, since his business doesn't "travel".
Hopefully South Carolina is fairer than Washington.
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06/16/2006 12:19:44 PM · #3 |
Each business type has it's good and bad points -
some may vary by state...
Sole Propietorship - no pretection from liability, true. Often costs $0 to get started (in PA if the biz name is your name you're good to go - as in Perry Photography). You credit is the business' credit (good or bad). Profit and loss are taxed along with your personal income, spouses income, etc. You do a Schedule C for hte biz, the loss or profit is then added to your regular tax return. A simple partnership is one of these with mutliple people. In PA a marriage is considered an entity, so my wife owns 1/2 the biz, but if i die she gets it with no inheritance or will issues.
Corp, Corp S - you need officers, stockholders, etc - and lots of paperwork, laywerys - costs to get going, costs to keep going. Your personal assets are shielded, but the bus has NO credit rating, so borrowing money can be a hassle. You pay yourself a salary and that is taxed like any job. 'profit' is paid as dividends (if at all) to stockholders. stockholders vote on things. you can sell you ownership in teh business easily (in theory)
LLC - a version of a corp. if you are doing this solely to protect your assets the courts will deny that and you'll be just as liable as a sole proprietorship. I think this is used a simple way for partnership type ventures to be created.
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06/16/2006 12:25:39 PM · #4 |
Originally posted by Beetle:
I live in Renton, near Seattle, WA.
I looked into getting a business licence, but it is too ridiculous.
I would have to get:
1) a Washington State licence (once off fee)
2) Unincorporated King County (for some reason we don't count as living in Renton) licence - yearly $55.00
3) - 8) a yearly licence (($50 - $200) for every city/district I "conduct business with" - i.e. take photos at.
I would be dealing with at least 6 other districts on a regular basis because they are all only a few minutes away.
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And all my friends think Pennsylvania sucks. I guess they need to move west!
TO set up a sole proprietorship in pa...if you name it with your name (perry photography) you need file NO papers at all. Since i wil be having clients to my home i needed a bus license for that - $25/year. State tax license to collect sales tax - free. I have no employees so i don't need a fed tax ID. I can do business anywhere in PA and be good to go.
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06/16/2006 01:29:23 PM · #5 |
Originally posted by Prof_Fate:
Originally posted by Beetle:
I live in Renton, near Seattle, WA.
I looked into getting a business licence, but it is too ridiculous.
I would have to get:
1) a Washington State licence (once off fee)
2) Unincorporated King County (for some reason we don't count as living in Renton) licence - yearly $55.00
3) - 8) a yearly licence (($50 - $200) for every city/district I "conduct business with" - i.e. take photos at.
I would be dealing with at least 6 other districts on a regular basis because they are all only a few minutes away.
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And all my friends think Pennsylvania sucks. I guess they need to move west!
TO set up a sole proprietorship in pa...if you name it with your name (perry photography) you need file NO papers at all. Since i wil be having clients to my home i needed a bus license for that - $25/year. State tax license to collect sales tax - free. I have no employees so i don't need a fed tax ID. I can do business anywhere in PA and be good to go. |
Question, I know LLC's rules differ from state to state. My wife and I were just advised by an attorney that in Colorado LLC's protect you in the same manner as a corporation "so long as you show an intent to make a profit". But, we were also told that under either a sole prop. or LLC you still had to have a Fed Tax ID if you intended to receive a salary or payments from this company. Wouldn't the Fed Tax requirement be the same across the nation?
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06/16/2006 01:46:00 PM · #6 |
I suggest you contacting a lawyer or your state department of commerce.
If you haven't already checked out South Carolina's info online about starting a small business you might find some useful info at the following links:
South Carolina's small business links
They also provide some definitions (link):
Originally posted by South Carolina's Website:
Sole proprietorship
A sole proprietorship is a business that is owned by an individual who is responsible for all aspects of the business. The owner is personally responsible for all debts of the business, even in excess of the amount invested in the business.
Partnership
A partnership is a legal entity that is jointly owned by two or more people. As in the sole proprietorship, the partners or owners may be personally responsible for all debts of the business, even those in excess of the amount invested in the business.
Corporation
A corporation is a business that is formed and authorized by law to act as a single person and is legally endowed with rights and responsibilities.
Limited liability company
A limited liability company (LLC) is an unincorporated business association that provides its owners (members) limited liability and flexible management and financial alternatives. An LLC usually provides the favorable pass-through tax treatment of partnerships and the limited personal liability of corporations.
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You probably need to ask yourself some questions first, too. What kinds of gross receipts are you expecting to collect? In a corporation receipts can end up being taxed twice (business owes taxes and when you take a disbursement you also have to pay taxes). How large to you want to grow your business?
You generally come out ahead in a corp in terms of legal protection. If I go to shoot a wedding as an individual and I contract someone to help and they are involved in an accident on their way to, from or during the event for which they are contracted they can be considered an agent of my business and I can be sued with some reasonable measure of expectation in regards to my liability and personal financial responsibility. In a corporation there is some security from that liability (this is one side of the "corporate veil"; the other being that the business is likewise shielded from your personal whims by means of corporate documentation which gives the corporation a personality and identity). Keep in mind that you can be sued by someone somewhere regardless of how you structure your business and that the merit of their case seldom affects how much you may have to spend to defend yourself.
A sole proprietorship has advantages in terms of direct remuneration and lack of overhead. You can carry receipts to your personal finances both in day-to-day accounting and, more importantly, in your taxation at the end of the year (although almost all advice I've gotten regarding business and personal finance has started with "are your accounts segregated?" and followed up with "get a business account and keep the receipts and monies separate"). In a sole proprietorship you don't have to run decisions through any corporate policy or procedures, you don't have to schedule any meetings with a board, you don't have to register the same types of documentation with your state government, etc. You are liable, however, for all transactions such as my original example of the subcontracted "agent of your business" and his/her conduct.
Kev
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06/16/2006 01:49:15 PM · #7 |
Originally posted by vxpra:
Question, I know LLC's rules differ from state to state. My wife and I were just advised by an attorney that in Colorado LLC's protect you in the same manner as a corporation "so long as you show an intent to make a profit". But, we were also told that under either a sole prop. or LLC you still had to have a Fed Tax ID if you intended to receive a salary or payments from this company. Wouldn't the Fed Tax requirement be the same across the nation? |
A single member LLC can pay taxes on schedule C, and use the member's SSN as the tax ID. A single member LLC can also be set up as a corporation or S-corp, get a federal tax ID, etc.
A multiple member LLC needs a federal (and probably a state) tax ID, and can be treated as an S corp or regular corporation. But you can't file on schedule C.
So if you and your wife are members of the LLC, the LLC has to have its own federal tax ID. |
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06/16/2006 01:51:32 PM · #8 |
Originally posted by KevinRiggs:
You probably need to ask yourself some questions first, too. What kinds of gross receipts are you expecting to collect? In a corporation receipts can end up being taxed twice (business owes taxes and when you take a disbursement you also have to pay taxes). How large to you want to grow your business?
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You can set up an S-corp, or set up an LLC to be taxed like an S-corp, and the double taxation will not be an issue.
As far as segreagting buisness from personal, its a very good idea. It becomes easier to prove you were makeing a profit because your personal expenses are not blended in. Having a seperate credit card for business also helps when you try to remember everything you bought for your business, and all your other buisness expenses.
Message edited by author 2006-06-16 13:55:20. |
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06/16/2006 01:51:38 PM · #9 |
| Books on running a business and all kinds of legal matters are available from Nolo Press -- they usually have package deals for people in your situation. |
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06/16/2006 01:53:30 PM · #10 |
Originally posted by vxpra:
But, we were also told that under either a sole prop. or LLC you still had to have a Fed Tax ID if you intended to receive a salary or payments from this company. Wouldn't the Fed Tax requirement be the same across the nation? |
All states that I know of require that you use a unique identifier. You can use a Federal ID (also known as an Employer Identification Number or EIN) or in the case of a sole proprietorship you can use your social security number in most states. Some states will assign you an unique number. Tennessee has, in the past, offered a Tennessee Idendification Number (TIN) so that you could deliver your tax payments, fees and registration costs using either your social security number (if you were a sole proprietorship), a TIN or an EIN. You state may differ but I suggest that you contact Colorado's Department of Commerce for the most useful clarification of their policies.
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06/16/2006 03:17:19 PM · #11 |
thank you all very much for your help!
GeneralE, NoloPress is indeed very helpful!!
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06/16/2006 03:24:00 PM · #12 |
Originally posted by saracat:
This is yet another topic I'm a little confused on as far as starting up a portrait studio goes...
Which is preferable and why?
I understand that the LLC gives more protection to personal assets when/if the owner is sued, but other than that, what are the benefits? And how often do you really need to worry about being taken to court? (NOTE: I have NO aspirations of being a wedding photog.)
If you are in business for yourself, what business structure are you using and why? I'm not trying to be nosy, I just don't have anyone else to ask! I'm just having a little difficulty figuring out the benefits vs. drawbacks of different business structures.
Any help on this would be very welcome!
Thanks,
Sara |
I have been debating the same thing and I have decided that for my start up period it's just easier to be a sole proprietor. Not much else to add as I am still in the early stages of setting up the business.
June
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