# What Legal Entity To Choose??



## MICKEYRAWZ (Sep 20, 2007)

Was Curious To Know Since We All Are In The Same Field What Legal Entity Some Of You Have Chosen To Become?? Does It Matter What State You Are From?? I Am Famliliar With Soel Proprietorships And Llcs And Corps And The Advantages And Disadvanatges But Just Wanted To Know What Some Of The More Experienced Users In The Tshirt Industry Have Chosen?? 
Thanks In Advance For The Help


----------



## Rodney (Nov 3, 2004)

Check out this article: http://www.t-shirtforums.com/t-shirt-articles/t17054.html


----------



## karlking85 (Sep 26, 2007)

If you are mainly going to be running a simple one-man operation, I would go with sole proprietorship. You probably already know the costs and requirements of setting up a corporation, so I won't push what you already know. I am going to be setting up as a sole proprietor, as I will run the business by myself, and be funding at least 90% of funds. As I start to grow, however, I will consider switching to a LLC. We'll see how it goes.


----------



## Poe-Boy (Oct 8, 2007)

I also considered starting as a sole-proprietor, but decided on an LLC just for the peace of mind of minimizing my liability.
I would hate to lose a chunk of my personal assets due to my business venture.

Granted, LLC is not a complete safety blanket against losing my personal assets in a settlement, but there's certainly more protection than in a sole proprietorship.

One thing that concerned me about the LLC is the franchise tax that I would be forced to pay in TEXAS (my homestate). However, I found that would not apply to me for at least a while now, so the LLC wound up being MY PERSONAL best option.

BTW, your location/state DEFINITELY MATTERS. Please familiarize yourself with how local law/regulations/taxes might help you choose the right option for YOU.


----------



## orale tees (Jan 3, 2007)

Poe-Boy,
I'm also from San Antonio I just got my DBA where would i go to get a resale/or tax exempt or any other license/forms to complete, to get my biz off the ground?


----------



## mothertongues (Aug 8, 2005)

I'm a sole proprietor, but have been thinking for a while about changing to LLC. I've thought of doing it online - has anyone tried that? At what stage do you think the business is big enough that it makes sense to change to a LLC? I've been wondering about that a lot!http://www.econscious.net/


----------



## Poe-Boy (Oct 8, 2007)

orale tees said:


> Poe-Boy,
> I'm also from San Antonio I just got my DBA where would i go to get a resale/or tax exempt or any other license/forms to complete, to get my biz off the ground?


 
The following site is a TREASURE of info on just that subject for those of us in TEXAS.

I'm still going through it all my self.

Hope it helps...here is the link: Sales Tax and Your New Business

The links contained in this main page should take you to EVERYTHING you need to know and get done specific to Texas business.


----------



## khudamorad (Mar 23, 2008)

Im just in the beggining stages of starting my t-shirt business and have already applied for a LLC. Have I made a mistake or am I ok?!?!


----------



## hobby (Nov 26, 2007)

I'm not an expert so I called an accountant. I was told that initially being a sole proprietor was fine if I wasn't going to have employees. If you have employees or start making really good money switch to a LLC to limit your liabilities and use the tax advantages


----------



## markthenewguy (Mar 17, 2008)

llc's are perfect no need for a corporation but more protection than being a sole propreitorship


----------



## XYLisa (Jan 20, 2008)

I started out as a sole proprietor but have changed to an LLC, I think in some ways it gives you more protection and tax breaks


----------



## SeasonEnds (Sep 9, 2007)

markthenewguy said:


> llc's are perfect no need for a corporation but more protection than being a sole propreitorship


I wouldn't go as far as saying they are perfect, considering almost every state has different laws for them. 

I would rather have a C-Corporation, but don't have enough knowledge or enough finances to go that route yet. I'm sticking with an LLC for now and will eventually start the process to switch over as I expand.


----------



## binki (Jul 16, 2006)

We use a C corp for the following reasons:

*Tax years doesn't have to be a calendar year:* Our tax year ends June 30. This gives us more time to work with our CPA and he isn't busy at that time of year. 
*Retained Earnings: *We don't have to take everything as taxable income
*Benefit Plans: *Nearly all our benefits are tax free. The C corp offers the most options for this. The benefits must be offered to all employees and be documented, but if you are the only one then you are good to go. 
*Dividends: *No payroll tax on them. 
*Recognized Entity: *Just what it says, the IRS recognizes the C corp as its own entity, not so with an LLC.


There are many other benefits and each situation is different. You really need to talk to a tax guy, a CPA, and a Lawyer before you start.


----------



## mystysue (Aug 27, 2006)

hobby said:


> I'm not an expert so I called an accountant. I was told that initially being a sole proprietor was fine if I wasn't going to have employees. If you have employees or start making really good money switch to a LLC to limit your liabilities and use the tax advantages


 
We too are going by our cpa's thoughts.. on when its to our advantage to become a corp..
there are tax benifits to each type.. and an accountant is your best source to figure out which one is best.
for you at what time.


----------



## markthenewguy (Mar 17, 2008)

C corps are subject to double taxation though. 

the corporation pays tax on its income, then the stockholders/owners pay tax on the dividends/salary they get from the corporation 

in an LLC the company doesn't file its own return you just pay the taxes on your personal return


----------



## Girlzndollz (Oct 3, 2007)

Hello all,

I _really _wanted to go LLC, but after meeting with the director at our local Small Business Development Center out of Wilkes University, I was reluctantly convinced to go with Sole Proprietor. I say reluctant because I wanted to minimize my Liabilities with an LLC, but at least here in PA, Ed (my advisor) explained to me that being as I am the only one running my business, I am not getting me more protection with an LLC, as it is easy to figure out who to sue, that I would really be spending $xxx.xx amount of dollars for no $X-tra protection.

His example was Ed running Ed's Corner Deli. He works there, being a small business owner, even though he may have 3 employees. Suppose someone gets food poisoning, it is easy for them to figure out who to sue (Ed.). Conversely, in a larger company, registered as an LLC, with a few hundred employees, it would be much harder for someone to pinpoint who is responsible. If I was to register as an LLC, it is still only me, or me and a few employees. Hence, I may as well have a bullseye on my forehead. (That last part is my own, haha.) 

Anyway, that's how he explained it to me, and we are in PA. I was disappointed. After tons of reading, I was sure I wanted LLC. After meeting with Ed, I was sure I didn't want to waste my money setting up as an LLC if I got ~zero~ back. 

PS: None of the lawyers I spoke to would share this tidbit as it may have cost them the $750.00 I was willing to give them. The lawyers only made me more paranoid, as well as two of them try to talk me into C-corp!! Haha. 

I don't know how someone would verify my info in this post, but at least you've heard it, and can track down some information on your own to check into this further, or maybe look up some court cases in which LLC's were sued anyway when owned and operated by someone who could have registered as a sole proprietor. 

Best regards,
Kelly


----------



## markthenewguy (Mar 17, 2008)

$750 seems like a lot to file an LLC Kelly!

I filed mine myself for $200 but I am in MD. it would have cost me a lot less but I decided to pay for the rush filing service instead of the "we'll have it done within 3 months" service. 

But in an LLC, 1 employee or 100, the owner can't be sued personally. LLC's offer the protection of a corporation but the taxation of a sole proprietorship. So if someone got food poisoning at Ed's Deli they would only be able to sue Ed's Deli they would not be able to sue Ed himself. 

I just asked my accountant this question using the Ed's Deli scenario.


----------



## Girlzndollz (Oct 3, 2007)

markthenewguy said:


> But in an LLC, 1 employee or 100, the owner can't be sued personally. LLC's offer the protection of a corporation but the taxation of a sole proprietorship. So if someone got food poisoning at Ed's Deli they would only be able to sue Ed's Deli they would not be able to sue Ed himself.
> 
> I just asked my accountant this question using the Ed's Deli scenario.


Yeah, I hear you, Mark. I've read the same stuff. That's why I wanted this so bad. 

If I remember correctly, I believe it came down to this: in today's society, whether it's right or wrong, if someone wants to sue "you" personally, they can and they will.

In Ed's Corner Deli scene, it's easy to peg Ed as the one running the show, probably even making the sandwiches, so it's easy to find a name to put on the paper, pinpointing Ed as "responsible", and they'll make their case for it. 

Being part of a larger LLC, since many hands usually are involved in the process, it is much harder for a complaint to be lodged and argued against just one person.

I have to talk to Ed this week, I'll ask him again about it, but I believe I remember this was his point.

When you think about how things are these days, one doesn't even have to be in business to be sued. Anyone can sue anyone, and this is the sense in which they can still sue, as long as their lawyer can make a case as to how it is they see "Ed" as responsible. 

PS: I'm not now, or in my earlier post, advising anyone who wants to go LLC not to. I'm only mentioning it's possibly not the bullet proof protection one may be seeking.

Again, like I said earlier, if one wants to investigate it more, that is exactly what one should do. I would suggest use real life court cases though. What's theory on paper isn't always what happens in the court room. Alot of members on this forum have been on the losing end when the law was clearly on their side, but that's the way the cookie crumbles sometimes. 

I'll follow up, and remember, state to state, laws are very different. Best wishes and peace to all.


----------



## Comin'OutSwingin (Oct 28, 2005)

Kelly, I think the difference is the _actual_ liability. You're right, they _can _sue you personally, but unless there was gross negligence on your part (or intentional, which would be criminal) then you can't be legally held responsible.

More than likely, the case against Kelly, personally, would get thrown out, and only your LLC would be on trial.

Also, it's not just criminal prosecution that's protected by an LLC, and corporation, it's civil also.

If for some reason a company thought that your company owed them money, they wouldn't be able to sue Kelly, and take Kelly's personal assets, only your LLC's assets.

This should hold true even in PA, otherwise there probably wouldn't be any LLC's in PA, because there would be no benefit.

Here's a piece that I got from the PA state website:



> *Pennsylvania Limited Liability Company*
> 
> A Limited Liability Company (LLC) is a hybrid between a partnership and a corporation. It may be thought of as a limited partnership without a general partner. It provides the liability protection of a corporation with the advantage of being treated as a partnership. A Certificate of Organization is required to be filed with the Corporation Bureau on form DSCB:15-8913, accompanied by a docketing statement, form DSCB:15-134A.​


----------



## binki (Jul 16, 2006)

markthenewguy said:


> C corps are subject to double taxation though.
> 
> the corporation pays tax on its income, then the stockholders/owners pay tax on the dividends/salary they get from the corporation


Salaries are a deduction before taxes and are not double taxed. Dividends are taxed on a personal level but at a much lower rate than income tax and are not subject to payroll tax which saves 15.3% right there. This is a Red Herring IMO and should not be a reason not to form a C-corp. There are many ways to get non-taxable cash benefits from a C-Corp that are not available to other forms of companies.


----------



## Buechee (Dec 22, 2005)

First off, why don't you guys look into a S-Corp.? All I see is the C-Corp. being talked about here. 



> Kelly, I think the difference is the _actual_ liability. You're right, they _can _sue you personally, but unless there was gross negligence on your part (or intentional, which would be criminal) then you can't be legally held responsible.
> 
> More than likely, the case against Kelly, personally, would get thrown out, and only your LLC would be on trial.
> 
> ...


I'd have to agree with Swing on this. As Greg has stated, there would be no need for the LLC if it had no protection. 

Plus this is wrong. 

Girlzndollz said/wrote


> I _really _wanted to go LLC, but after meeting with the director at our local Small Business Development Center out of Wilkes University, I was reluctantly convinced to go with Sole Proprietor. I say reluctant because I wanted to minimize my Liabilities with an LLC, but at least here in PA, *Ed (my adviser) explained to me* that being as I am the only one running my business, I am not getting me more protection with an LLC, as it is easy to figure out who to sue, that I would really be spending $xxx.xx amount of dollars for no $X-tra protection.


You also wrote that no lawyer told you this. I assume your adviser is not a lawyer, but you are asking him legal advice. I hope you see the wrong in that. 

mystysue wrote.


> We too are going by our cpa's thoughts.. on when its to our advantage to become a corp..
> there are tax benefits to each type.. *and an accountant is your best source to figure out which one is best.*
> for you at what time.


This is the same as above. Do you people realize that if you are sued, a lawyer is who you will be talking to. Not an accountant. It sounds good, but we are talking about how your business is set-up legally. Not how to save on your taxes. If you don't talk to a lawyer up front, you might be talking to one down the road. In short, your account can not give you legal advice. If he does and it is wrong, you can sue him/her. That way you can find out first hand if LLC,s work. I'm sure Ed is set up as a LLC or as a Corp. If he is, follow in his foot steps and don't listen to what he told you.


----------



## Girlzndollz (Oct 3, 2007)

Comin'OutSwingin said:


> Kelly, I think the difference is the _actual_ liability. You're right, they _can _sue you personally, but unless there was gross negligence on your part (or intentional, which would be criminal) then you can't be legally held responsible.


Thank you, Greg. This is ALL I was saying. I never said or implied there isn't a place for LLC, that would be ridiculous to say. I also said (and now 3 times) that I am not advising anyone to avoid LLC.

I have another business and in this other business, there exists a wide range of circumstances that would open me open to being held negligable. 

I studied and learned everything you guys are posting, I get it, and that's why I wanted LLC, but then when I described my business to Ed, he let me know why a different situation would work better for me. I guess I don't expect anyone to understand it if you've never had to ask the questions I had to ask for my other business. So, that said, Ed was adament that I have an ironclad contract that I enter into each business agreement, to protect me from that liability we are discussing.




buechee said:


> You also wrote that no lawyer told you this. I assume your adviser is not a lawyer, but you are asking him legal advice. I hope you see the wrong in that


Excellent point, and actually, I did. After meeting with Ed, I started to call around to those same lawyers again to get a price to get that contract written. Not one lawyer had an issue with how and why I was setting up the way Ed advised me to. 

Before meeting with Ed, there were two lawyers who told me to go Corp, that LLC wasn't good enough, but I thought as one might of a lawyer, that they were just after me money, so I blew them off as trying to get more business out of me. Now, I realize, they were only reaffirming what Ed had described in a different way.

Also, it is the job of the Small Biz Dev Center to know exactly how business in PA works, and to help set businesses up properly. It's the job of these SBDC's to set businesses up for the long haul, not to set them up for failure. That wouldn't be in the best interest of the PA economy, which is why these centers exist. Also, if the SBDC had a large failure rate, they would lose their funding.

And finally, yes, in my area the going rate 2 years ago was between $550-$895'ish, depending on how much they did. Crazy, I know. 

As with all posts, this is not legal advice or a definitive accounting answer, this is merely my own personal experience I am sharing with all of you. I did my homework regarding entities, and I learned everything posted here before making the final choice of sole proprietor, and I felt I was couselled properly by the SBDC and the lawyers. 

Still, have a nice day, and no worries. I get where you are coming from, just my experience was a little different. I very much appreciate the advice, which I take as an effort to help me, not knocking my posts about my experience. I think anyone who posted regarding my posts is only trying to be helpful to me and others reading the thread.


----------



## binki (Jul 16, 2006)

IMO the LLC effectively replaces the S corp and is slightly easier to manage. The C corp has a lot of advantages with just a little more work once a year for tax prep but has many more benefits. The major negative for an LLC, S, or DBA is the flow-through in income. Now, fi you are making under $100K then I would say go with one of those entities, but from our experience, once you get over $100K annual gross you really need the benefits of the C-corp.


----------



## Buechee (Dec 22, 2005)

Kelly I see your point. I check in OH and it cost $125 to file. Does not matter if it is a LLC or Corp. and the lawyers wanted the same, $750 - $1000. So I know they want your money. And I'll agree, with what we do, I had a contract wrote up for biz too. But I also do shows, which I don't need one. Or not yet at least. I wish you the best in which ever way you go. And that goes for the rest of you guys. As for me, I'll set up as a LLC in a few more months. Not at the level where I think I would need to.


----------



## Girlzndollz (Oct 3, 2007)

Thanks for your post, Marc. I wish you the best, too. I'm waiting to hear how that First Bike Night went the other night. I hope you update the thread.


----------



## StropsCC (May 30, 2008)

Wondering if you can shed some light on my situation... I am just starting my own clothing company. A friend of a friend said it would be best and helped me get a Coproration for my company. This person helped me get it and now hung me out to dry. I am a professional Graphic Artist and do not know a thing about all that. I am now stuck with being an incorporated business and dont really know if that was the best desision. I am the only one running my business. I noticed you suggested this was the best way to go. Just wondering if you could shed some light on the situation for me. Thanks!


----------



## Girlzndollz (Oct 3, 2007)

It sounds like you are a sole proprietor who is set up as a corp, and there are requirements that you must fulfill when you are a corp, things like meetings with minutes. I don't know much, it was explained to me, and I knew it wasn't for me. I think the absolutely best thing for you to do is to contact a local accountant to get you out of this and into a set up that is appropriate for you. Find out what you should do about meeting any requirements you are obligated to meet as long as you are in this status. 

You didn't say which way you set up as a corp. Here is a link to a site. It just shows very basically the info I am refering to if you ended up as a c corp. Incorporating: Setting Up a Corporation.

Bottomline, I think, is to see an accountant for the best advice for you. As well meaning as any advice can be, each state can have different requirements. Best regards.


----------

