What is the full cost of going legit? (FL)

[BudLeiser]

Assuming I draft, fill, and file all of the necessary paperwork on my own. What are the necessary forms and costs to going completely legit? (Also forming an LLC either in FL, NV, WY or CA)

Because I am soon looking to work with someone on placing arcades into locations, in addition to vending. I am wondering what really are the full documents and costs to going completely legit. This person will not be a partner. I would also he rather not be an employee. He will receive a % of the commission in exchange for the use of his arcades, and monthly service repairs. But this person wants to avoid all legal/paper work from his end. So I was thinking a rental agreement would be ideal, but I know private citizens (without business licenses) cannot rent equipment such as Cars and Forklifts.

So what do I need to cover ALL bases:

LLC

Liability Insurance

FEI (have)

County DOR Tax Id (Have)

Anymore local taxes?

City documents?

Occupational license?

etc?

I have tried looking this stuff up online. But I either get stuff that is too general, or stuff that is confusing as to what I really need or don't really need.

[alyssamma]

Bud, first, it is best to for the LLC in the state where you live. There are *some* advantages to forming an out of state LLC, but in general, if you are operating a "normal" business, they won't apply. If you think you have a high chance of being sued, plan on being fancy with taxes, or doing anything "grey", PM me, otherwise...

Be *very* careful with your "employee". At a minimum you will need to 1099 him, but it is very likely he will be considered an employee by the IRS if you are audited. If he uses his own equipment (e.g., tools for maintenance), and has general authority over how to complete his tasks, then you might get away with calling him a contractor.

Bottom line, can you explain this relationship more?

Go to your state's secretary of state website. It should guide you through how to make a business.

Forming the LLC is simple and can often be done online. If not, a simple form is filled out and mailed in.

CA is expensive for form businesses in, and FL has no state taxes. Note however, whatever state you do business in you'll have to file as a foreign LLC there if that isn't where your LLC is formed to begin with. In other words, if you are doing business in OH, but formed the LLC in FL, you'll need to also file in OH - in effect filing twice. You'll also have to deal with multiple state taxes (well, not in FL ). This is why I said to file where you are doing business.

All of that being said, I believe you listed most of what you need.

To be legit, you'll need:

Fed Tax Id (you said you have this)

Get set up for sales tax (is this the DOR tax Id?)

Get set up for state taxes. Most states don't tax LLCs, but some do (e.g., IL). Others have "sneaky" taxes like Ohio. I'll need to know where you live to answer this.

Get set up to file local taxes. You'll need to contact the cities where you will be selling stuff. In FL, I don't believe there are any local taxes, but not sure where you are. For example, we need to file 6 different local tax returns each year.

Get accounting software - I recommend QuickBooks.

Get a bank account (and deposit slips). VERY IMPORTANT. For an LLC to be "legit", you should have a separate business bank account.

Get business cards

Get business/liability insurance

Get business supplies (folders, etc.)

"Other stuff" for your locale. Everyplace is different. In Ohio, I don't need any permits or licenses, but in other places you will.

Kevin

[caserri]

Geez Kev,

I was powerless to resist clicking the respect button on that post!  According to the stats page, that makes you the most respected member on the site right now. (and it has nothing to do with you waving that light saber around)

[alyssamma]

LOL, well, I thank you for that Steve, but I can't discount the power of a lightsaber. An elegant weapon for a more sophisticated time

And have you ever seen anything prettier than a purple one?

Kevin

[BudLeiser]

Apopka, orlando, kissimme (arcades), mt dora

not sure what counties kiss and mt dora are

[alyssamma]

OK, since you are in FL you are good. I don't believe there are any local taxes, but call your dept of taxation to be sure. There are definitely no state taxes, however you will need to pay each year to "re-register" your LLC.

[Beer980]

Mt Dora is in Lake county.

[Poplady1]

I don't know how to punch the respect button yet but your post was just great.  We should cut copy and paste it over the Automatic Merchandiser and let them brush it up for publication.  Nice job.  Bev

[tedk]

Bev:

Look at the upper right hand side of the post. Between the Reply and Quote function you will find an up and a down arrow. The up arrow adds arrow adds respect.

[alyssamma]

Kelly, your LLC should not cost you $500...are you paying someone to do it?

Also, make sure you have a business checking account - this will add the expense of checks and deposit slips.

Kevin

[alyssamma]

Kelly,

Ouch...I stand corrected. I thought only CA had those types of fees

That really sucks for IL as I believe you also need to file a state tax return for your LLC and pay state taxes

Oh well, it's done and over now. Sell some extra gumballs to cover everything

Kevin

[alyssamma]

Kelly, you don't have to file state taxes on your income? I looked at an LLC in IL, but it was a foreign entity and had nothing to do with vending. But I was lead to believe it was purely income based. That is great if you don't need to file.

Kevin

[MrEen]

Kevin,

I see a lot of companies that are "registered" (I'm pretty sure this includes all types, LLC, S-Corp, along with the big boys) in Delaware, regardless of state of operations. I know the big corporations do it for tax reasons and wondered if us "little guys" can also benefit from the same rules? (I did read and mostly comprehend your first post in this thread, but I understand that Delaware is sort of "special" when it comes to incorporating (maybe it's only good for the big C corps?)

Scott

[alyssamma]

There are several states that are "special" for incorporating. Some are good because they have strong laws protecting owners of corps/companies from lawsuits. Others have tax benefits. However, for most, like Delaware, it is the laws protecting owners and assets of the company.

Since you are inevitavbly taxed where you do business, the tax rules don't help much - unless you do business in a lot of states. In that case, being centered in a state with good tax laws/benefits can help.

So, yes, it is basically for the "big C corps" as you mention.

If you were to incorporate in Delaware, you'd still need to pay VA taxes. If you form an LLC there you would still need to file in VA as a foreign entity (NOTE - most states are like this - I'm assuming VA is too, I haven't checked).

Kevin

[MrEen]

I am sure you're correct on that last point, and thank you for the thorough answer. I just needed someone that could wrap their head around this issue to get me straight on it. You are The Tax Man! Yeah, the taxman! 

Scott

[alyssamma]

LOL, not even close - but thanks. For "simple" stuff like vending and most small businesses I understand the tax laws, but trust me, I'm a novice when it comes to the hard stuff. Anyone making over $100K would do well to not listen to anything I say and get a real accountant

Kevin

[caserri]

State fee to incorporate in Mass is $520.00. I tried to incorporate in DE but was faced with the foreign entity fee and registered agent fee. Together they totaled well over $520.00.

[Jax Snacks]

Why form an LLC or Corp in the early stages?  You are most likely going to have a net loss for the first few years or more.  Being a sole proprietor allows that net loss to "pair up" with your wages from your day job and lower your AGI.  If you have a net loss as a LLC there is nothing to "pair up" against and you lose the ability to get a business loss deduction.  Am I wrong?  You still need liability insurance in any event since an LLC or Corp will not protect you against law suites.  I am not a CPA, but IMHO, I would defer being an LLC until the business takes off and is profitable.

Jax

[alyssamma]

Jax, by default, the IRS treats single owner LLCs as sole props. So, yes, you can take a loss...but only up to the amount you invested. Still, this should not be an issue. For example, you invest $1000 to buy machines, and have a $400 loss for the year. That $400 is deductable.

Even with a partner, losses from an LLC can be deducted.

As for lawsuit protection, other than a C-Corp, nothing is better than an LLC. With an S-Corp, you can name the owners of the corp in a lawsuit - it probably won't work (i.e., you won't be able to pierce the corp shield), but you can at least try.

With an LLC you can't do that - or, at least, it is much more difficult.

The only reason to have liability insurance with an LLC is if you have assets (i.e., machines) you don't want to lose.

Looking at all of this, I guess I am lucky to be in OH where it is $125 for an LLC.

Kevin

[Jax Snacks]

I was once told by an accountant that specialized in small business setups, that if you personally service the machine, then you personally can be sued - regardless of the business entity setup.  Now if you had an employee doing the work, then that would be different and the business entity would most likely protect you.  Maybe she was right or not.  And I certainly do not know for sure.  All I know is that he more I probe in this, the more variations in answers I get from different people!

Jax

[alyssamma]

Jax, how long ago were you told this? I'm asking because if it was a while back, it might have been before LLCs were popular. One of the main advantages of an LLC is that the owners can't be sued.

Check this out: http://www.rjmintz.com/appch6.html

Here is a snippet:

In contrast to corporate law, which allows shareholders and officers to be individually sued if the corporate formalities are not followed, the LLC law specifically bars a lawsuit against a member for the liabilities of the LLC. That is an important distinction which you should understand. The principle shareholders and officers of a corporation are routinely named as defendants in a lawsuit against the company-forcing them to incur attorney's fees to defend themselves and rendering the corporate shield meaningless from a practical standpoint.

Kevin

[MrEen]

Actually, everyone can be sued. I can sue Jax if Kelly's machine falls on (or near) my foot! I won't win the case against Jax (most likely, although I can show in court some forum posts that show they were in collusion, the result of which ending with my foot almost being debottomatated.)

I have no idea how a lawsuit would play out in most cases where where a vendor was sued, but I thought that was what decent insurance coverage was for.

Scott

P.S. I have read about "similar" cases, and in each case, EVERYONE gets sued including the operator, equipment maker, location owner, product manufacturer, city/town/municipality, licensing agency, etc. By the time it gets to court, most of these have been dropped, but expenses have been incurred by all. And until penalties become the norm for frivolous lawsuits (including disbarment or at least review for the lead attorneys in the case,) this will continue to happen regularly unless golpher's wish from Henry VI comes to pass (not that I'm advocating killing all the lawyers!) 

[alyssamma]

Scott, I don't think that is true. But I'm not a lawyer

I am pretty sure you cannot sue the owners of an LLC for something the LLC did. I would guess you could file court papers *naming* the owners of the LLC, but your filing should be dismissed w/o any real effort on the LLC's part.

Note that a corp is different.

Now, let me add a couple of caveats. First, if you are not operating the LLC as a separate entity (e.g., sharing the bank account with your personal bank account, not keeping records, etc.), the court could rule that your LLC is not really an LLC and then you could be sued.

Second, if you do something grossly neglegent (say, spit on all of the candy, or coat it with poison) then you can be sued.

But for "normal" stuff, you should be protected.

Kevin

[MrEen]

Kevin,

I agree that you "should" be protected, but I can pretty much guarantee that if a plaintiffs lawyer discovers its a single member LLC (that I'd assume a lot of vendors go with) and that single member did most or all of the work involved, it would not be difficult to get them in court.

I am certainly no legal expert, but consider the following line from your link:

"A primary goal of the LLC legislation was to change this result by clearly stating that the members and managers of the LLC could not be named in a lawsuit against the company."

Sleazy lawyer workaround might be: "I'm/we're not suing the company, just the negligent individual that had his/her hands involved in the day-to-day operations."

Consider the following: Bill's Towing, LLC is an LLC with one member, Bill. While running his business, Bill got into an accident that caused catastrophic damage. Would Bill be protected from a lawsuit? I don't think so. However, if Bill had a partner in Bill's Towing, LLC, I don't think the partner could be touched.

That's my take, and I'm sure it's very flawed, but it makes a lot of sense to me right now. 

Scott

[alyssamma]

Scott, I don't think that is how it works. In fact, the very reason to form an LLC (as opposed to an S-Corp) is for protection against what you are saying. Your "workaround" example defeats the entire purpose for forming an LLC.

If you are doing work for the LLC, you are acting as its member. Therefore, you cannot be sued. Again, if you don't manage the LLC correctly, or commit gross negligence, then all of this is moot. But, given you are doing normal operations, and are running your company like an LLC, you are protected.

Ditto for your Towing example. Now, if Bill had been drinking - different story. But if Bill just had an accident, then he could not be sued personally.

Your sleazy lawyer might try to argue that Bill was texting, or drinking, or speeding. If any of those things were true, then Bill *might* be able to be named. But absent gross negligence, Bill can't be named.

From all of the research I've done, this is how it works.

Again, you can *file* a suit against anyone, but naming a member of an LLC would get your suit dismissed.

Is there a specific case you've seen that works a different way?

Kevin