LLC over Sole Proprietorships

[mike21]

I just started the process of getting my FFL and got the home business permit a week ago. Before I went ahead and filed for a DBA, I was trying to weigh the costs of setting up the business as a LLC over a sole proprietorship. This will mainly be a side job for me and don't plan on ever being a brick and mortar store in the future. Just a way to get some extra income for my gun/car hobbies. How many of you home based FFL's actually set up as a LLC? If I were to go this route, I was going to give legalzoom a try to set it up once I can finally decide on a name for the business. If I can just run this as a SP instead of setting up a LLC, I might just stick to it since it seems as the fees are a lot less.

[Armando de la Guerra]

If it's a single member LLC, it's a Sole Proprietorship to the IRS; they call it a 'disregarded entity'. Also, keep in mind the minimum CA annual tax is $800. But then, (theoretically) the LLC protects you from personal liability, unless you get sued individually along with the LLC.

[mike21]

So I might be better off sticking with the SP instead of the LLC if it's just going to be me running the business. I did like the fact of the additional protection that comes with the LLC. I was looking into legalzoom to get the LLC started, so their fees will add into the 800 annual tax for the LLC. I really don't mind the 800 annual tax if it's providing me a better alternative for protection, as well as making the business look a little more professional when it comes to dealing with wholesalers for inventory.

[Pally]

You can also purchase an insurance policy-business liability, umbrella policy, etc...that would also be less than the $800 FTB fee for the LLC.

[taperxz]

Sub chapter (S) corporation and LLC's allow you to keep your business and personal life separate. IF you were to get audited by the IRS for your business, they would audit only your business under these entities.

As a sole proprietor, if you were to get audited, they will audit your entire 1040 including all of you and your spouses other dealings to look for ways that you could have mixed business with pleasure/other financial obligations.

It also allows your business to get credit unrelated to your personal credit. If the business fails, its credit goes into the dumps as opposed to your personal credit score or that of your spouses.

Its basically a business insurance policy to protect you and your personal assets and credit worthiness.

[Funtimes]

Sub chapter (S) corporation and LLC's allow you to keep your business and personal life separate. IF you were to get audited by the IRS for your business, they would audit only your business under these entities.

As a sole proprietor, if you were to get audited, they will audit your entire 1040 including all of you and your spouses other dealings to look for ways that you could have mixed business with pleasure/other financial obligations.

It also allows your business to get credit unrelated to your personal credit. If the business fails, its credit goes into the dumps as opposed to your personal credit score or that of your spouses.

Its basically a business insurance policy to protect you and your personal assets and credit worthiness.

This is I did not know. Going to have to reconsider what I was doing.

[whatmeworry]

Sub chapter (S) corporation and LLC's allow you to keep your business and personal life separate. IF you were to get audited by the IRS for your business, they would audit only your business under these entities.

As a sole proprietor, if you were to get audited, they will audit your entire 1040 including all of you and your spouses other dealings to look for ways that you could have mixed business with pleasure/other financial obligations.

It also allows your business to get credit unrelated to your personal credit. If the business fails, its credit goes into the dumps as opposed to your personal credit score or that of your spouses.

Its basically a business insurance policy to protect you and your personal assets and credit worthiness.

Definitely this. ^^^

One gun goes kaboom in your client's hand and without the protection afforded by the corporate veil you could loose everything including your house, car, life savings......

[Funtimes]

Definitely this. ^^^

One gun goes kaboom in your client's hand and without the protection afforded by the corporate veil you could loose everything including your house, car, life savings......

Do we have any instances of this? I mean if someones car screws up, they go after the manufacturer and not the dealer (at least for the cases I have seen against Ford / Toyota). Our liability rates are significantly lower than many other companies / occupations as well.

[mike21]

After reading some of the replies about the business credit, audits, etc., and speaking with my wife about it, she agreed that starting it as a LLC is the way to go. I plan on doing other firearm related things in the future also, so the added protection is a good thing for the long run. Now I just need to decide on the name for the LLC and the DBA.

[mike21]

I had a few questions for those of you that have used legalzoom to set up your LLC. There are a few options through legalzoom that I'm not sure if they are really necessary for a small home based business doing this.

1) There's an option for a California Registered Agent of 159/year
2) Compliance service of 299/year

are those things I should include for a home based business, or is that more for bigger businesses with employees and a lot more paperwork being involved? I plan on getting the Gold package over the standard package. I'd like to finalize this and get it going tomorrow once I'm off work.

[Pally]

#1 For $159, LegalZoom will accept any legal correspondence on behalf of your LLC (i.e. subpoenas, etc...), rather than it being served directly to you at your home/business. This is worth it if you do not want Process Servers/Sheriffs at your doorstep!

#2 . Most small firms can do their own compliance. It should only involve minor annual/bi-annual paperwork. You would have to first determine what docs are required for an LLC. (www.sos.ca.gov/business/be/) You can save the $ and do it yourself.

[Funtimes]

#1 For $159, LegalZoom will accept any legal correspondence on behalf of your LLC (i.e. subpoenas, etc...), rather than it being served directly to you at your home/business. This is worth it if you do not want Process Servers/Sheriffs at your doorstep!

#2 . Most small firms can do their own compliance. It should only involve minor annual/bi-annual paperwork. You would have to first determine what docs are required for an LLC. (www.sos.ca.gov/business/be/) You can save the $ and do it yourself.

NOLO is great for this type of stuff.

Eh, the reg agent is kind of a waste of time (and I say this as a person who served papers for a living). Do you plan on getting sued? If not, don't worry about it. They already know where your business is... not that hard to get you anyways.

[ocabj]

I'm not an FFL, but I have experience with setting up a Single Member LLC in California.

Basically, you're going through the same registration loopholes as a regular LLC ($800 annual franchise tax, etc). You get the same personal asset protection in that if someone goes after your LLC, your personally owned assets are protected.

But you do not get the same protection the other way. If someone sues you personally, they can legally get your LLC assets, since you are the sole owner of the LLC and have no partners.

Note that the benefit of single member LLC (other than personal asset protection) is taxation. In a standard LLC, you pay taxes on your initial income as the LLC, then when you pay out yourself out as an employee (transfer any funds from LLC to you), you end up paying income tax on that as well as an individual.

With single member LLC, you simply report the LLC income to yourself as a sole proprietor (disregarded entity, as mentioned previously). This aspect gets a bit grey with regards to mixing finances, so you need to keep meticulous records and should maintain clear, separate financial accounts for the business and yourself (but you should anyway).

[mike21]

Thanks for the info. Helps out a lot. Guess ill skip the extra fees for stuff I can do on my own. Once I get this going ill have to start looking into record keeping books since I'll be mixing personal money with business. Don't really plan on pulling any profit into my personal income for the first year or two, just build my business inventory.

[Armando de la Guerra]

With regard to taxation: a single member LLC is reported on the Sole Proprietorship form, Schedule C. You are taxed twice on the net income. First, you pay SE (self employment) tax of 15% on the net. This represents both sides of FICA an Medicare that you and your employer would pay. Then you pay Federal Income Tax on the net earnings also.

With regard to record keeping-open a separate bank account for your business. Deposit all business income and pay all business expenses from that account. When you pay yourself, it is recorded as an owner's draw. Get a good accounting software package, like QuickBooks, that is easy to use an d has good support. QuickBooks also provides other business services like merchant credit card processing, etc.