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View Full Version : Incorporating, LLC, etc.? How, Why, Why Not, How Much?


eltee
09-06-2009, 11:01 PM
How many of you dealers incorporate, form LLC's, etc.? What about small timers / single man operations? Benefits, problems, out of state corporations, etc.? Services used, do it yourself, etc.?

FortCourageArmory
09-07-2009, 6:35 AM
I'm a corporation. -S- corp to be specific. Benefits are all the profits (yeah...all the profits!!) can be passed dirtectly from the corporation to the owners without being subject to corporate taxes. Only have to pay personal income taxes on the $$. Saves being taxed twice on the same $$. Also, in the event of a devistating lawsuit, the corporate barrier will provide somewhat of a shield for personal assets.

halifax
09-07-2009, 6:54 AM
I'm a corporation. -S- corp to be specific. Benefits are all the profits (yeah...all the profits!!) can be passed dirtectly from the corporation to the owners without being subject to corporate taxes. Only have to pay personal income taxes on the $$. Saves being taxed twice on the same $$. Also, in the event of a devistating lawsuit, the corporate barrier will provide somewhat of a shield for personal assets.

OK, those are the benefits. What are the costs?

fuegoslow
09-07-2009, 6:59 AM
Go to legalzoom.com. Everything you could ever need from a lawyer or Legal firm at a fraction of the cost.

eltee
09-07-2009, 10:00 AM
Maybe one of the many CGN legal eagles can take some time from the 2A forum and pop over here and offer some insight as well. It would be interesting to see if there were any savings in insurance costs for kitchen table dealers, or what actual level of shielding might be realized from from lawsuits. Specific FFL insurance seems extremely costly, even for those who just do transfers and keep no inventory.

SDProtection
09-08-2009, 6:03 PM
How many of you dealers incorporate, form LLC's, etc.? What about small timers / single man operations? Benefits, problems, out of state corporations, etc.? Services used, do it yourself, etc.?

check out www.lawinc.com I used them and they are cheaper than Legal zoom. They are CA only as well, so they know what they are doing in this chaotic state.

There are too many reasons to go into as to why you should incorporate. However, you need to look at LLC or corporation. LLC may be easier or an S-Corp. Having had my fair share of companies, I can tell you that the liability alone should have you running to the nearest post office to send in your paperwork. Here is one good reason why you should: With a corporation (or LLC) you personally can't be liable so they can't come take your home if you screw up (or someone else screws up but wants to blame you). The liable entity is the corporation, not the employee (which you are regardless of being an owner). The corporation can only be liable up to the amount the corporation has in assets, so there is your limit. Of course you have insurance for these issues, but at least you have a huge bullet catch between your personal assets and your corporations efforts.

just my opinion. Do your homework.

JP

tenpercentfirearms
09-08-2009, 9:29 PM
Downside, no more "For Owner's Personal Collection" for long guns. I really liked not DROSing long guns and taking them home with me.

halifax
09-09-2009, 3:39 AM
Help me understand. Why the recurring fee $800/yr? Seems you are just filing a legal document once. Who does the $800/yr go to? Is this a tax, protection money?

SDProtection
09-09-2009, 5:28 AM
Help me understand. Why the recurring fee $800/yr? Seems you are just filing a legal document once. Who does the $800/yr go to? Is this a tax, protection money?

It certainly isn't protection money as the state is out to get all of us with an FFL sooner or later. So, let's stick with "tax". The first year fee is waived for an S-Corp.

rkt88edmo
09-09-2009, 6:38 AM
Help me understand. Why the recurring fee $800/yr? Seems you are just filing a legal document once. Who does the $800/yr go to? Is this a tax, protection money?

In a nutshell, it is basically the current minimum fee the state of CA charges to do business.

halifax
09-09-2009, 6:55 AM
OK, thanks guys. If I were to go with business insurance instead for $800/yr and my home/net worth isn't greater than the $1M policy coverage, I should be OK. I think :confused:

rkt88edmo
09-09-2009, 7:26 AM
Yes, at that point you may be better off as a sole proprietor, but remember, even if you don't have that much in personal assets the legal protection may give you peace of mind and keep you from incurring recourse debts beyond your assets.

ojisan
09-09-2009, 8:31 AM
The CA $800 per year is just free money for the state.

The LLC was my choice for a small business...yes, the money is only taxed once as part of your usual income like you would get from a regular job.
The LLC also provides some protection from huge judgements in a lawsuit...the LLC name itself tells an attorney right up front that there are no big bucks to be had.
Regardless of the LLC protection, you should always have appropriate liability insurance too, especailly if you manufacture or sell goods.

While I have used Legal Zoom in the past, I did pay an attorney to do all the set-up for my LLC. It was $1,600, but it has to be done right so you don't end up with problems later.

eltee
09-09-2009, 3:00 PM
Who is writing FFL policies (insurance) for $800.00 / yr. That seems pretty reasonable, esp. since it is a writeoff.

halifax
09-10-2009, 7:34 PM
Who is writing FFL policies (insurance) for $800.00 / yr. That seems pretty reasonable, esp. since it is a writeoff.

Sorry for not answering sooner. I've been stuck in San Francisco for two days wrestling with bureaucrats.

The $800/yr quote was for a kitchen table dealer with no inventory.

http://www.guninsurance.com/

Vtgunner
09-14-2009, 10:53 AM
It really depends on your business which is better. Alot of people run to incorporate without really understanding the process or performing a cost benefit analysis on how or why to create a business entity.
The protection from liability for incorporating is valid but only in some cirumstances.

Are you going to have personally guarantee any contractual liabilities for the business? Unless you put alot of money in a bank account in a business name you will almost always be required to pesonally guarantee any liability.

Are you going to have any employees? If it it just you, then you will be held personally liable for any torts you commit anyway regardless of the business form.

Corporation protection for liability can be pierced for many reasons: inadequate capitalization, failure to act like a corporation, only one owner, commingling of funds.

The easy answer is yes but does really protect you from liability, it really depends on the business.

El Gato
09-14-2009, 10:57 AM
talk to your accountant...
ours said go with a C corp and avoid the LLC like the plague... something about Kali not liking LLC's and the fees etc. are too much... She preferred a C corp to an S corp for various reasons that had to do with accounting and that is what we are going with.... has some real benefits for us as a training facility... we get the legal protections as long as we do not pierce the corp. veil ( I don't want some moron shooting themself at our facility.... or shooting another customer and then blaming us and me losing my house due to said moron and yes there are moron's on the shooting world... used to be somebody would just shoot them and be done with it.. or they'd shoot themselves and remove themselves from the gene pool... now, not so much... but I digress)....and the tax benefits brought a smile to the accountants face.... as opposed to the partnership (wife and I) have now...

ojisan
09-14-2009, 11:01 AM
Yes, you must talk to an accountant!
If there are multiple partners, the LLC may not be best.
However, the LLC has much less paperwork and reporting to do compared to a C or S Corp.
Also it depends on if you will offer shares of the corporation for sale, etc etc.
Have fun with the business maze!

eltee
09-14-2009, 3:36 PM
Best deal for a one person, kitchen table, no inventory op? S / C corp., LLC, or just an insurance policy. Business is primarily transfers. Owner may not profit enough to hire an attorney, form a corp. AND get insurance w/o raising transfer fees to everyone.

Vtgunner
09-14-2009, 10:01 PM
i would go sole prop. You will be paying a 15.3 self employment tax on income. However you will want to make sure your business does not make a profit. It will be taxed at at least 25 % depending on your tax bracket. This is higher than a corp tax rate. To avoid profit deduct: your home office
start-up and operating expenses, vehicles and travel,entertainment and meals, health insurance and medical bills, inventory equipment and any expenses ordinary and necessary. As an aside do me a favor and get a mileage or a cash back credit card to do all of your acquisitions with. You will be amazed how well this works.

freakshow10mm
09-18-2009, 6:09 AM
I would never, ever go sole prop for any firearms business. Corp or LLC only.

Personal asset protection is the number one reason for a corporation, especially in this day of liability sharks.

Filing papers is pretty easy IF you can take the time to read. There are many books on the subject as well as local business programs that will help you file your articles of incorporation/organization with your state entity.

I intended for my business to be an S corp, but in Michigan a corporation must have at least 2 officers. My wife wanted nothing to do with it and I trusted no one else to get on board with me. An LLC was my only viable option, since in Michigan an LLC (Limited Liability Company) is treated as a corporation for everything, but can be operated with one member (owner). So I paid my $50, filed my articles of organization, and done. Yearly maintenance fee is only $25.

Another benefit to an LLC is I can elect to be taxed as an S corp or a C corp. An S corp is taxed with "pass through taxation" meaning, as Ft Courage Armory said, all profits are passed through to the officers and recorded on schedule C. An LLC can elect this pass through taxation or choose to file separately from its members, like a C corporation, so the LLC would file its own tax return at the corporate tax rate (same rate as personal income tax) and the members (owners) would file a simple 1040 with no schedule C or SE, since that would be recorded on the LLC tax form and there would be no SE tax due. You are an employee of the legal entity. You get a paycheck, you get a W2 in January like everyone else.

There's benefits to this also. the company pays half of each employee's SS tax for the first $8,000. This is deductible, reducing company profit.

Again, none of this is legal or tax advice. It's worth $500 to sit down with an accountant to wade through this. Be up front, tell them numbers, potential liabilities. Even transfer only dealers have immense liability. You are liable for every product you sell whether you like it or not. We have a legal system, not a justice system. It's not what the law says, it's what you can prove.