Best way to become incorporated

[Rdcowart]

I’m thinking about going out on my own and I’m looking to become incorporated or if there is a better option. Does anyone know the best way to do this. I was going to hire a lawyer to do this but that gets expensive very quickly. Is there a simple way I can file the paperwork myself. I live in North Carolina.

 

[jeff48356]

First off, since you live in NC, are you a bluegrass music fan? If so, who are some of your favorite bands?

I have my business set up as an LLC. Not too complicated to set up, and you don't need a lawyer. Just file the proper paperwork available on the State of NC website.

 

[romex jockey]

The initial setup could be LLC, Type S , or sole proprietor

There are pro's / con's to each

It boils down to what your goals may be

Pay a good tax accountant for an hour of their time

It'll save you a world of ado.....

~RJ~

 

[petersonra]

before you go any farther, sit down with your lawyer, your insurance agent, and your accountant. they can help you determine what is best for your situation.

for most people an LLC appears to be a somewhat better overall choice than a sole proprietorship, and is somewhat simpler than incorporating. But getting professional advice from random people on the Internet is not a good thing IMO. Lay out a few bucks upfront and get good advice rather than free advice.

 

[electrofelon]

The ease of setting up an LLC varies from state to state. I think in most states it is pretty "easy", just a simple form. That is the case for two of the three states I have an LLC in (MT and WA). In NYS its kinda a hassle because they have a publishing requirement where you have to put out notice in several papers for a certain time that you intend to incorporate. Not rocket science but no thanks screw that, Ill pay someone a grand to do that for me :happysad:

You might get different answers from even accountants/lawyers about whether an S corp or LLC is better for you. :huh: My accountant says he has an ongoing argument/discussion with another accountant about which is better. Mine says he can do more for someone with an LLC, and the other says she can do more for someone with an S corp....

In my "I am not an account or lawyer" opinion, LLC's are great. Shares, profit distribution, and control can all be assigned to members independently.
This allows you to have "members" and not employees (if you want - you can still have employees of course and all the fun with payroll that goes along with it). I can bring someone into my LLC even for short term if i want to hire someone for help on a job or two and they get paid as a member so there is no withholding, no taxes, no WC, etc. Most of the small construction companies around here are set up that way with all the "employees" as members.

 

[zbang]

before you go any farther, sit down with your lawyer, your insurance agent, and your accountant. they can help you determine what is best for your situation.

Exactly that- talk with the licensed professionals . The advice I received is to use a sub-S corp, not an LLC, since the accounting burdens are similar (this is in California), but was for my situation. That said, In most cases, you usually don't want to be a sole proprietor since that drops all liability on you directly.

 

[oldsparky52]

My 2 cents

The only 2 ways to go would be an LLC or Sub S corp. I have had both and set them up myself (in NC too, ). The thing I didn't like about the sub S was the required documented stockholder meetings. If you don't do this, it is easy for an attorney to penetrate the corporate shield. The LLC was much easier in this regard.

What I liked about the sub S was I salaried myself at $40k/year and everything I made above that didn't have any SS taxes which since I was paying both sides was a significant savings. I have heard that you can do this with an LLC, but I'm not sure how that works.

I was lucky in that I never had to test either for asset protection.

One thing, no matter what you do, have separate accounts for personal and business and DO NOT commingle funds, EVER.

There are nuances that need to be understood that although it may not seem worth it, paying a professional can help you with.

Do you know where you want to go with this business? Are you building a multi-million dollar organization or going to be a 1-man show? This may or may not effect the decision.

Bottom line, seek professional advice! It's worth the money in the long run.

 

[infinity]

I’m thinking about going out on my own and I’m looking to become incorporated or if there is a better option. Does anyone know the best way to do this. I was going to hire a lawyer to do this but that gets expensive very quickly. Is there a simple way I can file the paperwork myself. I live in North Carolina.

As you can see from this thread there are many variables that can change from state to state. Since you're investing in your company and your future IMO it's wise to spend a few dollars now and setup what's best for you. 25 years ago I had an S corp but as time went by and the tax laws changed it was no longer the best choice. If I were to start a business today here in NJ an LLC would be my best option. Get some professional advice it's money well spent.

Bob summed it up best:

before you go any farther, sit down with your lawyer, your insurance agent, and your accountant. they can help you determine what is best for your situation.

for most people an LLC appears to be a somewhat better overall choice than a sole proprietorship, and is somewhat simpler than incorporating. But getting professional advice from random people on the Internet is not a good thing IMO. Lay out a few bucks upfront and get good advice rather than free advice.

 

[gadfly56]

There are three reasons for incorporation: asset protection, liability, and taxes. A full-blown "Inc.", as I understand it, provides the best asset and liability protection. A sole proprietorship provides no protection and you pay taxes at your individual rate. Everything else is a flavor in between. As has been suggested, sit down with the pros and hammer out what's best for your situation. For my money, liability and asset protection would far and away be my top concern, but everyone is different.

 

[cottora]

My 2 cents

The only 2 ways to go would be an LLC or Sub S corp. I have had both and set them up myself (in NC too, ). The thing I didn't like about the sub S was the required documented stockholder meetings. If you don't do this, it is easy for an attorney to penetrate the corporate shield. The LLC was much easier in this regard.

What I liked about the sub S was I salaried myself at $40k/year and everything I made above that didn't have any SS taxes which since I was paying both sides was a significant savings. I have heard that you can do this with an LLC, but I'm not sure how that works.

I was lucky in that I never had to test either for asset protection.

One thing, no matter what you do, have separate accounts for personal and business and DO NOT commingle funds, EVER.

There are nuances that need to be understood that although it may not seem worth it, paying a professional can help you with.

Do you know where you want to go with this business? Are you building a multi-million dollar organization or going to be a 1-man show? This may or may not effect the decision.

Bottom line, seek professional advice! It's worth the money in the long run.

You can indeed do this with an LLC (subchapter S Selection). Keep in mind, if you are audited, the IRS can deem that you intentionally underpaid your value to avoid SS taxes.

With a Corp, you will need to maintain yearly minutes (board meetings) or it may subject you to "piercing the corporate veil". An LLC does not have this requirement and is generally understood to be a more flexible choice. As others have stated, it is always good to run this by your accountant and attorney.

 

[oldsparky52]

You can indeed do this with an LLC (subchapter S Selection). Keep in mind, if you are audited, the IRS can deem that you intentionally underpaid your value to avoid SS taxes.

My understanding was that this was also true in the S corp. I think they look at your salary and compare it to what others would make as an employee, so here in NC (at the time) $40k/year was in line with what electricians were making (yea, sad).

With a Corp, you will need to maintain yearly minutes (board meetings) or it may subject you to "piercing the corporate veil". An LLC does not have this requirement and is generally understood to be a more flexible choice. As others have stated, it is always good to run this by your accountant and attorney.

I never "documented" meetings and was open to that piercing the corporate veil. The plan was to throw it together if I ever needed it :ashamed1: . Glad I never had to do that :happyyes:

 

[petersonra]

There seems to be a misunderstanding going on here about what subchapter S means. It has nothing to do with way your business is incorporated or not. it is solely about how your taxes are handled by the IRS. Subchapter S allows the pass through of income directly to the owner(s) so the taxes can be paid at the individual rate instead of the corporate rate. Usually this can be advantageous.

There are also some cases where the corporate tax rate is lower than the individual tax rate. It can also sometimes be financially advantageous to leave money inside an LLC rather than taking it out.

These are not things to try and decide on your own. At least learn what your options are before doing something based on advise from someone who knows as little as you do about such things.

 

[ramsy]

Corporate structure may not be appropriate for some. Lets not forget the transition from employee to self employed does not require capital if living in your parents’ house, but can be scary if supporting a family. The gig economy’s independent contractors and wheeled-cart merchants that honk squeak horns for advertising may not need asset protection.

Going from side jobs, with employer's truck, material & customers, to your own shop and customer base may not start with partners or payrolls, much less call for corporate entities.

For owner operators with meager assets, minor equipment, token retirement savings, or little equity in property or inheritance, General Liability business insurance is more appropriate protection than filing as a corporation.

Rather than pay $1000+ to CPA’s to file corporate taxes, self employed persons may prefer online tax services like TaxAct or TurboTax (Telephone support definitely needed). Further, bank fees for business accounts are expensive, and for sole proprietors the IRS does not require separate Business & Personal bank accounts if documented GAAP exists, such as with bookkeeping services or Quickbooks (Definitely needed).

Without assets to shield, jail time or wage garnishment similar to child support orders are the primary liability, and the Corporate Vail won’t shield officer members from criminal charges or convictions.

 

[ramsy]

..I can bring someone into my LLC even for short term if i want to hire someone for help on a job or two and they get paid as a member so there is no withholding, no taxes, no WC, etc. Most of the small construction companies around here are set up that way with all the "employees" as members.

If WC = Workers Comp., in California it is compelled for any contractor agent or helper. The Responsible Managing Operator's (RMO) contractor license may be automatically suspended by operation of B&P §7125.2 if worker's comp. is missing or under-reported payroll occurred. Courts also punish property owners if both; 1) the injured were unlicensed, not a statutory employee, and 2) a builders license was required, CLC §2750.5

This if frequently applied to re-modelers and panel flippers using day helpers for cash. The entire food chain gets punished, especially the home owner who hires these jokers. The only winner is the insurance industry, who legally cancels casualty claims due to lack of Trade licensing, or Workmans Compensation violations.

 

[electrofelon]

If WC = Workers Comp., in California it is compelled for any contractor agent or helper. The Responsible Managing Operator's (RMO) contractor license may be automatically suspended by operation of B&P §7125.2 if worker's comp. is missing or under-reported payroll occurred. Courts also punish property owners if both; 1) the injured were unlicensed, not a statutory employee, and 2) a builders license was required, CLC §2750.5

This if frequently applied to re-modelers and panel flippers using day helpers for cash. The entire food chain gets punished, especially the home owner who hires these jokers. The only winner is the insurance industry, who legally cancels casualty claims due to lack of Trade licensing, or Workmans Compensation violations.

These would not be helpers, they would be members of the LLC. But you are correct an LLC is not a complete work around for WC. Basically (here in NY) the requirement for what makes someone an independent contractor or sub contractor are DIFFERENT than the standards used for WC coverage. For example, and this happened to me, I was working as a sub contractor on a job. WC required the main contractor, who had WC for all his guys, to have WC for me since I did not have it for myself. So yes you can get into stuff like that. Also the person who is hiring you may have it in the contract that everyone on site needs WC coverage. OF course one can pay into WC if they desire even when it is not compulsory.

 

[electrofelon]

Corporate structure may not be appropriate for some. Lets not forget the transition from employee to self employed does not require capital if living in your parents’ house, but can be scary if supporting a family. The gig economy’s independent contractors and wheeled-cart merchants that honk squeak horns for advertising may not need asset protection.

Going from side jobs, with employer's truck, material & customers, to your own shop and customer base may not start with partners or payrolls, much less call for corporate entities.

For owner operators with meager assets, minor equipment, token retirement savings, or little equity in property or inheritance, General Liability business insurance is more appropriate protection than filing as a corporation.

Rather than pay $1000+ to CPA’s to file corporate taxes, self employed persons may prefer online tax services like TaxAct or TurboTax (Telephone support definitely needed). Further, bank fees for business accounts are expensive, and for sole proprietors the IRS does not require separate Business & Personal bank accounts if documented GAAP exists, such as with bookkeeping services or Quickbooks (Definitely needed).

Without assets to shield, jail time or wage garnishment similar to child support orders are the primary liability, and the Corporate Vail won’t shield officer members from criminal charges or convictions.

In my experience, almost no one should be a sole proprietor. Its not just liability issues, its taxes. An experienced accountant will more than make up for the formation and tax filing fees in reduced tax liability.

 

[Rdcowart]

Thank you for all the advice. I am going to play it safe and sit down with the proper people who do it for a living. It sounds like I can save myself a lot of headaches by doing this.

 

[hambone1216]

I’ll briefly share my experience at formation of small business as an example of what I learned and where it led me.
I resigned from an electrical contractor as service manager in order to have more time with family.
After 30 days of leave I poked around the idea of starting a consultant business and falling back on electrical if consulting was slow or not profitable.
I contracted a service to draft the documents and filings needed for my state.
Initial investment was fine. Then follow up requirements were needed as a service more money.
Establish business accounts- shop around some rules and fees in this category change drastically.
Document generation- invoice/contracts/safety protocols
Accounting- how to record/what to record

Customers-did you sign non competitive agreements and if so what do they state?
Are there any business morality issues contacting customers

Public Advertising- state required in my area

These are all items of contemplation before you start. With costs associated to determine whether or not you can fund your new venture.
Speaking of which creating capital for the business is probably in the top 3 reasons they fail.
I don’t regret my experience and maybe the lessons will make me just a better employee instead of an entrepreneur.
Good luck and may you find what’s right for you.



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