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What is LLC???


naraol
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LLC = Limited Liability Corp.

It limits personal liability in the event of a lawsuit. It gives you some tax advantages, but not much.

I own Ozmer Land and Livestock LLC. It was started for my ranch. My wife owns Blue Flame Specials, which will go under the LLC. My Company, MountainMan Munchies, goes under that also. That way, if sued, they can only go after what the LLC owns and not my home, land, etc that I own, for the most part.

In Idaho, It cost me like a hundred bucks or so to set it up. Now I just file a report each year with the State, no cost, to keep the LLC.

Make sure you talk with your acct. though. I believe that each State regulates LLC's and so things may be different where you are.

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Mountainman,

I am neither an accountant nor lawyer or even pretend to be an expert on this topic.  I know that I do worry from time to time about kids choking on gumballs, superballs or toys and getting hit with a law suit.  So I am always curious about this topic.

Many years ago, I sought advice from a "small business start-up" accountant and she told me that the LLC and Corporation would only protect me personally (from law suites) if I had other people (employees) servicing the machines.  However, If I personally was servicing the machine (which most small vendors do) then the other party could still come after me personally (and sue me) as an individual.  So I just bought liability insurance to cover myself instead of forming another legal entity.  Have you ever heard this before?  Think about it - who would be to blame?  ABC Vending LLC or John Doe - they are one in the same here.

Now I don't really know if this lady was right, but at the time I only had 10 machines and had no real aspirations of doing this full time.  In fact I stopped listening to this person when she tried to talk me out of going into vending and told me that it was not profitable.

Any accountants or lawyers or anyone else out there with some more info?  I would hate to think that I was protected when I really wasn't.  For the record, I am not doubting anything you are saying.  I just always wanted more clarification on a topic that I have never really understood.

Jax

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It is probably called deep pockets. If you are injured you can sue anyone. LOL Anyway, I formed my llc for my cows and trees originally. I will attach the vending and concession business to it. Along with my wife's business. If someone were injured they would sue the company. As a sole proprieter, you would bear the full brunt. As an llc, they go after the llc. I am sure if they were not satisfied, then they would come after you also. I do not know for sure though, so perhaps someone could help. I do know that it is only a Limited protection, thus the name, but in Idaho, many people use it rather than sole, or even a partnership.

I remember when I was a cop in the academy, we had a scenerio, where I was a prisoner and was wronged. I sued even the Governer of the State! I got an A for that. :)

I just contacted my insurance Company last week and will shell out some money for insuring the company. Between the insurance and the LLC, I am pretty sure I will not ever lose my place due to an injury.

I did not have insurance before because I had trees. LOL I got some cows now and my wife started the farmer's market concession and they require the insurance. I would talk to an accountant and an insurance person for sure. Perhaps an attorney, but I hate lawyers, so I stay as far from them as I can.

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just to let you all know that LLC does not protect you from being sued. I watch court TV all the time and I have seen several cases where a persons as been sued and lost but where under the impression they were protected. I have been told a LLC only protect you from the bank taking your personal assets if they have to repo your business assets.

 

Johnny

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I'm doing a Law paper at present. Have an exam next week actually! :shock:

LLC's are helpful. But as some have already mentioned, you can be sued anyway. Often, if your a small LLC and your buying from a big company - something of big-ish value, they will often get you to sign a contract waiving the LLC, so that they can come after you if everything falls through.

It is really there to protect your assets!

However, I won't say much more because NZ law is much different to US law! In New Zealand we call LLC...LTD - Limited Liability.

There should be a government website that covers this part of the law. Google it!

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One of the trendy things to do in my state (Massachusetts) is to set up a foriegn LLC.  Setting up an LLC in a state like Delaware or Nevada.  These 2 states the filing fees are near nothing and they have laws that are very favorable to businesses.  They refer to them as bulletproofing your businesses.  I've looked into it but decided to file in my own state {(for my other business).

 

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Little Johnny chokes on a gumball he got from your machine.  If Daddy is the type that's going to sue, he's going to sue YOU individually AND whatever company sold the gumball AND the property owner where the gumball was sold.   He may even go after the company that MADE the gumball using F, D, & C Yellow # 3 food coloring in it!  It all depends on how good his lawyer is.  If you get sued, you are going to have to shell out the big bucks for a lawyer to prove that you shouldn't be getting sued, no matter what kind of business you own and no matter what name is on that business.

I would rather take my chances with a not-so-great  lawyer and a lot of liability insurance. 

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  • 2 months later...

I'm no expert in law or anything, but here's my 2 cents.

From what I've read about the LLC designation, which by the way stands for Limited Liability Company, not Corporation, because under most state laws you did not incorporate and pay no corporate franchise tax, it protects the proprietors of an LLC for there financial share of the company from the companies creditors, but has nothing to do with liability, and if you are a sole proprietor, all the financial burden is yours so there really is no protection. Liability would be protected by insurance. Now once again I am not a lawyer or business professional, but this is what I read after doing a search one time on LLC's on the net. I am sure there are other benefits related to income and taxes.

As far as I can see, for my situation at this time, a DBA and good liability insurance would be all that is applicable. The fact that this is a cash business it has built in tax advantages.

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Old thread dug up :)

JAS is correct in that the "C" stands for Company and not Corporation.

The 2 business entities that are easiest to form that provide protection are an LLC and an S-Corp (which is a "normal" corp that has chosen the S election).

You pay no corp franchise tax for either of these - in both cases the profits from the company flow through to your personal taxes.

In both cases you personally are protected from being sued. The only difference is that in an LLC, as JAS said, you can lose the amount you put into the company (but no more), hence the "limited".

In some states, the validity of LLCs have not been fully tested by the courts (with respect to lawsuits), but this is quickly changing.

Bottom line, for this type of business, either would be fine.

I personally have an S-Corp because I run another business, but if was starting from scratch would have formed an LLC as it is a little simplier to manage from a tax filing perspective.

BTW, you get the same tax breaks from either entitiy, although an S-Corp allows you to do some retirement things that I don't believe you can do with an LLC.

The reason to get liability insurance along with having an S-Corp (or LLC) is that your *corporate* interests are protected. You might have thousands (or more) of dollars in equipment, stock, etc. While you personally would be fine, your company would be wiped out without the insurance.

Hope this helps!

Kevin

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  • 4 months later...

I've got a question.   If I leave the profits IN the corporation to be used at a later date, do I have to pay taxes on this money at the end of the year???  Or do I pay taxes ONLY on what I pull out for personal use???

Lets say my business made $30,000 profit this year.  I leave it all in the corporation to use for equip, etc in years to come.  Do I have to pay taxes on the profit or only if I pull it out for myself?

I know some types of corporations you do not have to pay the taxes unless used for peronsal use. You see it in real estate all the time...

This would be great.  I could invest my own money into the business, get money back in taxes taken out from my current job, and continue to build the business without pulling any money out.  Then when I'm ready to go full time, if the business has grown to that point, then I have plenty of cash flow to start drawing a monthly income.  I would feel much more comfortable giving my 2 week notice in this scenario (if the timing were right).

Jesse

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I am not sure about all your questions but I do know for sure that the money that u deposit in the account wont be taxed twice.once u pay what you owe in sales taxes the money left in the account is yours to spend in any way towards the biz or in the form of a paycheck to yourself.

you shouldn`t add personal money to your corparate account,but I believe u can buy stuff with your personal money for your biz..

 

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Antonio,

I really appreciate all the assistance.  Yeah, I meant to purchase equip with my personal savings...

The main question I have is this, and I think you may have answered it somewhat:  Lets say I made $30,000 profit on my business in 2008 (at year's end).  Must I pay federal taxes on that $30,000?  Or is it ok to just leave it in the business account and NOT pay federal taxes since you have not drawn the money into your personal account? 

This would allow you to grow your business and purchase machines when good deals pop up versus trying to unload money before the end of the year.  It would also allow you to build a cash flow that you feel comfortable with before leaving your day job.  For instance, you can continue to build the business and increase cash flow until:  you have 800 locations and $100,000 in cash in the corporate account without ever paying a single tax dollar.  At this point you quit your day job and draw a salary.  You then will begin to pay federal taxes on salary. 

You could also keep building cash flow in the corp account without paying taxes and then buy an investment property to lease out with paying any taxes on the money.  Am I way off here??? 

Does all this work with a LLC or s-corp??

If anybody understands what that was all about.:P

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my answers are based on the litle experiance I have with the pizza shop I run that has been incorporated for 1 year. and what little I know.

depending on how much u make you will be instructed to pay taxes monthly quarterly or yearly.in any case you must pay taxes on your profit after paying all expenses, federal and state etc..so yes u have to pay taxes on the money regardless of where it is.

whatever u make should go in your corporate account and not personal.

unloading money isn`t always a good idea.imo sometimes it`s better to pay the taxes on it and have it for when a good deal pops up rather then spending it on things u wont need on the last week of december.

paying out a bonus on your salary isn`t that much better either because u still pay taxes on that money.

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my answers are based on the litle experiance I have with the pizza shop I run that has been incorporated for 1 year. and what little I know.

depending on how much u make you will be instructed to pay taxes monthly quarterly or yearly.in any case you must pay taxes on your profit after paying all expenses, federal and state etc..so yes u have to pay taxes on the money regardless of where it is.

whatever u make should go in your corporate account and not personal.

unloading money isn`t always a good idea.imo sometimes it`s better to pay the taxes on it and have it for when a good deal pops up rather then spending it on things u wont need on the last week of december.

paying out a bonus on your salary isn`t that much better either because u still pay taxes on that money.

I'm guessing if you have a day job, it would be best not to take a bonus or salary.  YOu may get more money back at the end of the year (that you paid out over the year at your day job).   I'm assuming the profits to the corporation are just that, profits to the corporation.  They wouldn't count as income for YOU unless YOU pull the money out.
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All,

The information above is a little misleading. There are 3 basic business entities that people here would use: LLC, S-Corp, and C-Corp.

For the first 2, there are *no* federal taxes for the business. Additionally, in most states, there are no state taxes either. You *will* pay local taxes if you live in a city that taxes locally.

For the last, a C-Corp, there are federal and state taxes.

Here is an example. Note that with an LLC, you can choose to have it taxed as a partnership (>1 person), sole-prop (1 person), S-Corp or C-Corp. Sole prop and partnership are the same as S-Corp (for this example), so I'll just explain S-Corp and C-Corp.

Company makes $10,000 profit...

S-Corp, owners pay taxes on $10,000 on their federal and state taxes. They don't pay on their local, as this has already been taxed through the business. This is independent of whether or not the money is physically removed from the company. Whenever (if) you do decide to remove it, you do so tax free. In other words, in 2008 your S-Corp makes a $10K profit. In 2009, you pay your 2008 taxes, and add $10K to whatever other income you have. In 2009 (or later) you take $10K from the company. This is *not* recorded as income on 2009 (or future) tax returns as you paid taxes on it in 2008.

For a C-Corp, it is the opposite. The company makes $10K profit. You file 2 tax returns - personal and business. On the business tax return you pay taxes on $10K. On the personal you only pay taxes on your salary. If you take the $10K out at a future date you are taxed on it - this is what people refer to as double taxation with corporations. However, there are ways around this.

One more thing to note. You pay no payroll taxes on the $10K with an S-Corp/LLC. This will save you $1530.

All of that being said...form an LLC...it will be the easiest thing for you. Make it a sole prop (assuming there is only you) and you'll have no business tax forms to file.

Kevin

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Kevin,

That sums it up nicely.   I have a much better understanding on how this works now.  I'm going to form a LLC. Hopefully I will do it myself through the Secretary of State's website.

Any advantages of doing it through a lawyer?  Or is it a waste of money?

You pay no payroll taxes, but must you still withhold something for social security and medicare?

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No need to use a lawyer. Assuming it is just you, form an LLC and choose to have it taxed as a sole prop (I think this is the default anyway). In doing this, you will file no business tax forms, you will only file your 1040.

This is the easiest and simplest thing to do. You can easily do this yourself, and since there are no business taxes/filings to worry about (after the LLC is set up), you don't need an accountant to help you with anything.

Note, this assumes you will not be making a lot of money...say less than $30K. If you are making $30-$50K, then there are some ways to avoid paying payroll taxes (15.3%) by changing how the LLC is taxed. Basically, taxed as a corp you will pay yourself a salary and whatever profits are left you can take w/o paying payroll taxes. But you'll need to pay yourself a "reasonable" salary which is why I say you'll need to be making some $ before it is worth it.

Otherwise you'll pay payroll taxes (called Self Employment taxes in your case).

Note: payroll taxes = soc sec. + medicare.

Kevin

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