View Poll Results: CORP OR LLC

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  • LLC

    6 75.00%
  • CORP

    2 25.00%
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Thread: INC vs LLC

  1. #1
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    Default INC vs LLC

    We touched on this in the tread I started a few days ago. Are you incorp (C or S?) or llc. Why? Due to some unforeseen circumstances, I am having to do one of the 2. Please advise

    mike
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  2. #2
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    Default Re: INC vs LLC

    My advice: don't leave it up to a forum poll. Find a good lawyer and plan it out. Preferably one who has experience with agricultural based companies.

  3. #3
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    Default Re: INC vs LLC

    I am not leaving it up to a forum poll. I want to see what others are doing and WHY. My LAWYER knows nothing about bees.

    mike
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  4. #4
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    Default Re: INC vs LLC

    Then find one that does.

    S corps, C corps, and LLC's all have their advantages and disadvantages. Most individuals that sit down and choose their own (or go to a quick or inexperienced lawyer) go with the structural advantages and the administration costs associated with them or with forming them. However, what is much more important than those are the tax advantages and the liability behind them, as well as the tax advantages in the future. Additionally, many states have specific S corporation type business entity structures designed to benefit agricultural based companies, giving them many advantages from one area while avoiding the costs or disadvantages that usually come with it.

    Another thing to consider, you always need an exit strategy. In forming your company make sure you know how to liquidate it and sell it off if need be. Also be aware of what happens if bankruptcy becomes an issue (either for you, or for the company). Most individuals think they can avoid a personal bankruptcy by creating an LLC. Bad news there. When you go bankrupt, and you are the majority (or only) shareholder in HONEY FARMS, LLC, the bankruptcy administrator can't take your business, but they can take your shares and force the company to liquidate. Bankruptcy liquidations usually give you 10 cents on the dollar if you are lucky. Most people treat bankruptcy like death, just avoid it. I wouldn't suggest that option.

    So what's good for me, or for those on this forum, isn't going to be what's good for you. Find a good lawyer that knows about agricultural based companies.

  5. #5
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    Default Re: INC vs LLC

    My LAWYER knows nothing about bees.

    Then why are you discussing bees with them? ( A 'trade or business' has a VERY limited scope - a good lawyer knows this.)

    Why do you feel you even need a lawyer?

    I see no reason to consult a lawyer to be a beekeeper.

    BTW, there has to be two parties to become incorporated. (That's what incorporation means - to combine.)

  6. #6
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    Default Re: INC vs LLC

    I met the guy that I am having set this up via my lawn care business. I cut him a deal on lawn care, and he gives me some legal advice. I would try to find lawyer that knows ag, but have you priced one lately?
    Mike
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  7. #7
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    Default Re: INC vs LLC

    There is no single answer, even for two entities in the same state.
    Do you have employees?
    Do you import or export?
    What level of risk are you comfortable with?
    Do you have a determined annual gross?
    What activities is the business engaged in?
    It is one thing to manage hives and extract honey. It is quite another to have saws running and an employee that is not as bright as that light over the saw. Even a nail gun or smoker can kill in the hands of an idiot!
    americasbeekeeper.com
    beekeeper@americasbeekeeper.com

  8. #8
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    Default Re: INC vs LLC

    >I see no reason to consult a lawyer to be a beekeeper.<

    He isn't talking about consulting a lawyer to be a beekeeper. He's talking about starting a business. He technically doesn't NEED a lawyer to do that, but trust me, I've seen people try to incorporate their own businesses and end up paying 10x more than the cost of the attorney in fees, penalties, taxes, ect.

    > I would try to find lawyer that knows ag, but have you priced one lately? <

    Most attorneys pay for themselves (at least if you find the right one). It's better to view them as a form of insurance. You don't buy car insurance because you think you are going to get into an accident. You buy it because you can't be certain that you won't. Don't get a lawyer because you think you will incorporate incorrectly, get one because you can't be certain that you won't.

    FYI, most lawyers that do business structures don't charge much to incorporate (either C corp, S corp, or LLC). The paperwork isn't that hard for them to do (especially since they are used to it). You are mainly paying them for their advice on the type of business structure. That's worth it's weight in gold in my opinion.

    Old legal saying: A person who represents themselves has a fool for a client.

  9. #9
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    Default Re: INC vs LLC

    Well to be honest, the lawyer I will most likely use does not specialize in these. But it is better than the alternative, legal zoom or getting the book and doing it myself. The purpose of this thread was to see what others do any why, not to try to extract enough legal advice to do it myself.

    mike
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  10. #10
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    Default Re: INC vs LLC

    I have both a corporation and an LLC. The reason it's structured that way is because our CPA and attorneys advised doing it that way. I graduated from college with an accounting degree way back and worked as a corporate accountant for years. I don't do my own taxes and I don't do my own legal work.

    Think about it. If you mowed one lawn one time per year, how good of a lawn care professional would you really be? The fact that you're young and just starting is even more reason to establish a business relationship with an attorney and a CPA. As has been pointed out, each individuals situation is different and the cost of professional advice is nothing compared to the cost of a mistake at this stage.
    Nobody ruins my day without my permission, and I refuse to grant it...

  11. #11
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    Default Re: INC vs LLC

    Can't speak for the rest of the people, but I can say that I had a difficult time trying to find a decent cpa/business lawyer.

    This was for my wife's business. I'm still not sure of how you are "suppose" to find a good one. Everyone I called was not really interested in talking to me.

    I ended up taking a small business class at the local community college and bought several business books. I ultimately paid a local CPA company to set up my llc.

    The CPA company came highly recommended from several people. However, they were generally incompetent. I paid 400 dollars for them to fill out ~10 pieces of paper, plus the 300 dollar LLC fee. They told me that I did not need x number of pieces of paper. I didn't trust them and ultimately spent a few hours on the phone with the Federal IRS, State Sales/Business, and County Clerk. Only to find out that I needed to correct their screw up.

    Now, my wife does all her own bookkeeping and paperwork. I call and talk to the associated tax entity, when we have a question.

    What is the point of all this? You need to become savvy on your business. You need to understand what is and isn't required. Do not place all of your faith in the friend down the street.

    G'luck

    ***I went with LLC, because the tax benefits between s-corp and LLC for my state are about the same. There is less formal paper work for the LLC and a smaller yearly fee. I carry liability insurance to cover any "piercing of the corporate veil".

  12. #12
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    Default Re: INC vs LLC

    What benefit do you seek to gain by becoming incorporated?

    A lawyer thinks the solution to all problems is solved with legal paperwork.
    A military man favors the military solution.
    A mechanic can always find something on your car that needs fixing.

    Most of the time the way businesses are set up is for tax advantages. Often, then run for a few years establishing themselves and their business, and THEN decide how they want to draw things up.

    How do you have your lawncare endeavor set up? Why should your beekeeping be set up any differently? Lawncare and beekeeping are both forms of agriculture.

    The purpose of this thread was to see what others do any why, not to try to extract enough legal advice to do it myself.

    A fool and his money are soon parted. Many will lead you astray.

  13. #13
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    Default Re: INC vs LLC

    What follows is not legal advice for anybody but is instead my own personal opinions. The real answer for any particular person is to talk to lawyer who represents you (and I do not represent you, whoever you may be) and figure it out for your particular situations. I really doubt that an ag lawyer can add much to the analysis. Really, its just a general business decision. Also, I would ad that I am neither an ag lawyer nor a business planning lawyer. I am primarily a civil litigation/appellate attorney who also does some criminal defense work.

    That being said, here's some general ideas:

    You probably do not want to be a C-Corp, because then you could get taxed at the corporate and personal level.

    You probably want either a S-Corp or an LLC, which get taxed the same for most purposes.

    As for taxes, maybe the only significant way to save would be to set up an entity where you can save on payroll taxes (Medicare and SS). You can do that by paying yourself a REASONABLE wage (which you pay payroll taxes on) and then distribute the rest of the money you make as profits (which you pay taxes on but do not pay payroll taxes on). In a beekeeping context, you might be able to pay yourself a pretty low wage for agricultural labor work. The net effect is that your social security taxes and medicare taxes could be lowered.

    You'd need to talk to an attorney/CPA type about that. To do this as an LLC, I think a person needs to set up the LLC to be taxed a corporation and then elect sub-chapter S taxation. I know you can do that under state law in Oklahoma, but I don't know if you can do it in all states. Also, I'm not absolutely sure that the IRS is still allowing this, so I'd check on that too.

    An advantage of LLCs over corporations is that the business formalities are not as big. However, under eithe an LLC or a corporation, you ABSOLUTELY, POSITIVELY CANNOT COMMINGLE PERSONAL AND BUSINESS FINANCES. If you do, you could have tax issues and lose your limited liability status.

    Also, you need to understand that having "limited liability" is not all that its cracked up to be sometimes. Most lenders will require a personl guarnatee anyway. For tort liability, you could be sued individually anyway if you personally are the one who causes the liability. For example, if you are driving and have an at fault accident while engaged in business, you personally will get sued and having an LLC may not help you one bit.

    The real solution for liability issues is to have adequate insurance coverage. Make sure your auto liability covers your business activities, because driving a vehicle is more likely to result in a lawsuit than beekeeping or selling honey. Also, even if you are not liable, the costs of defending a lawsuit is expensive. What is "adequate" depends on your personal situation. If you have a small operation, are judgment proof individually, and are willing to accept the risk and the economics of buying insurance don't work out for you, then you may decide not to get insurance at all.

  14. #14

    Default Re: INC vs LLC

    being old and slowing down mostly trying to do more teaching. I thought about being a for non profit. anyone have a comment on that way to go. as I don't plan on getting so big as to work 24 hrs a day. I am working from day light till dark now. any suggestions.


    Don

  15. #15
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    Default Re: INC vs LLC

    Don,

    I agree with Neil that your best liability protection is a good insurance policy. In my 40 years of owning businesses, I've had all the corps at one time or another. Unfortunately, most small business owners falsely feel their personal assets are protected by their corporations. Many don't really conduct their businesses as corporations (Stockholders meetings, resolutions, etc.), making it very easy for attorneys to "Pierce the Corporate Veil" and get their hands on their personal assets. Even if the corporation is bullet proof, there are still the considerable legal expenses you incur to defend yourself.

    So my opinion (from another old guy looking to slow down a bit); IF you have to claim your income in what you're planning, elect a sole proprietorship, get a good insurance policy and relax. If there is ever trouble, and rarely there is, let the insurance company fight your battle. Save yourself the paperwork, hassles, and expense of forming a Corp or LLC.

    Hope this helps.

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