Incorporation

I am wondering what your guys' thoughts are on incorporation vs. sole proprietership? I am definitely going to be on the small side and I am trying to keep costs down...This side of the business is new to me and I want to be able to make as informed a decision as I can, so who better to ask?? I am a Canadian so I am not sure if things work the same down in the US but any insight would be great.

This is my first post and just wanted to say I have always enjoyed the site and think its a great forum for ideas and a great place to share knowledge and stay up to date.
 

Colin

Administrator
Administrator
Welcome, Jabe. I can't much help you but we have plenty of members here that can!
 
Incorporating is a big step, and you're likely to be positioned best if you start out as a sole proprietorship, see where things are going, and later evaluating the move. If it's a serious enterprise, and you're looking at continuing it long-term, take the plunge and reap the benefits.

If you find yourself staying very small, you might not recoup the costs for a long time, if ever, because there are fees and attorney expenses to take into account. But I have a Corporate Finance class in an hour, so maybe I could tell you more later. Naaah...who am I kidding, he'll just talk about bonds like he does every week. ;)
 

Tom Dunlap

Here from the beginning
Administrator
Glad to have you in the gang!

Talk with your accountant, lawyer and insurance agent before you make the final decision.

It seems like, in the US, most people make the decision to incorporate primarily because of a different tax structure. Secondary is to have a financial barrier between the risk of operating a business and your personal property.
 

Mangoes

Participating member
Jabe, I incorporated last year and to be honest I am not 100% sure it was the right thing to do. Alot more headache with the accountant at the end of the year, had to produce minutes, get a lawyer...still havn't caught up with everything. KISS
 
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Alot more head with the accountant at the end of the year,

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So whos your accountant? /forum/images/graemlins/grin.gif
 
My interest in incorporation is based strictly on protecting my own personal assets. I worry that in a sole proprietership that I may be susceptible in some way, even with my business insurance. I do realize that incorpoarating will cost me time and money, and really have no use to me financially because of the size of my business, its more protection of our assets that I am worried about? Personally I am much happier using the KISS theory just want to make sure about all the loopholes before I committ...
 
Just because you are a small outfit doesnt mean there arent financial benefits to incorporation.

Im mom and pop with seasonal employees, and I incorporated and have saved money in taxes. But it means a more structured business. It means withholding and paying payroll taxes and filing quarterly 941's.

If you wanna keep it simple sole prop. is the way to go. But dont discount incorporation, it saved me 4k in taxes the first year. Not a huge number , but not insignificant either. Id recommend consulting with your accountant. If you dont have one, get one.
 
I did a little research before I went to my lawyer so I would have an idea what was involved in the process. I ran my business for almost six years as a sole proprietor. I decided that a LLC was the way for me to go. This is the way my lawyer explained it to me. If I drop a branch on someone I can be held responsible no matter if I am a sole proprietor or incorporated. The difference is that if an employee of mine drops a branch on someone and I am a sole proprietor I will also be liable. If that same employee drops a branch on someone and I am incorporated I personally will not be liable. (KIND OF) Here is the catch. If I do not follow the rules of being a corporation the court could rule that I am not a corporation and I could be held liable. I looked at INC and LLC and decided that LLC would work for me because the rules are easy to follow and the cost to terminate the LLC is a lot less. Plus when you file your tax return the money flows to yourself similar as if you were a sole proprietor. You should still consult with your lawyer to determine the best answer for you. Remember no matter which way you go you need to follow the rules and have the supporting documentation to show that you have. Good Luck
 

Tom Dunlap

Here from the beginning
Administrator
Another ramification of incorporating, at least in the US, is that you, the former owner, is now an employee of the corporation. During an OSHA inspection you are held to OSHA standards and can be fined. Working as a sole prop. there is no employment to the company so OSHA can't tag you. This happened to a 'Buzzer out in Durango, CO last year.
 
there are lots of good reasons to form an entity and not many good reasons to be sole proprietor. i also formed and llc to run my business. i personally own my equipment and the llc leases it from me, i will form another llc to own my equipment soon. the idea of protecting assets is worth it alone. this way if an employee does something stupid all some one can take is the "bussiness" which is the company bank account and if nessasary you can start up another bussiness and lease them your equip.
as a sole they will come take your house, cars, bank accounts, your wifes business etc. its alot of paper work but wont seem like much if some thing does happen. i guess thats a nickles worth:)
 
Yeah, if protecting your assets is what is most important, check out the LLC option. Just in my own family, we have combinations of corporations, LLCs, and sole proprietorships for the different ventures. Take yer pick.
 
Interesting twist here if you happen to be in TX: The most recent suggestion for fixing our school financing (declared illegal by courts) is to tax businesses. This first pass would exempt sole proprietors and simple partnerships (don't remember the technical term) and businesses with less than $300K in gross receipts. So, incorporation here could mean more taxes. Of course, this will be the fourth special session called to address this, with nothing passed yet, so we shall see what actually comes of the idea in a few weeks.

k
 
TEXAS is the only state that does not require employers to carry workers comp for their employees.

Texas employers, except for public entities, can choose whether or not to provide workers' compensation insurance coverage for their employees. Workers' compensation provides covered employees with income and medical benefits if they are injured on the job or have a work-related injury or illness. Workers' compensation is regulated by the Texas Department of Insurance, Division of Workers' Compensation (the Division).

Participation in the workers' compensation system in Texas is voluntary for most employers. Employers who choose to have workers' compensation insurance may:
 
If you chose to carry workers comp in Texas you will find it very difficult to compete, as the standard is to not carry it. The last time I checked the premiums were approximately 24% of gross payroll. It is a tough sell down here to convince customers that it is worthwhile to pay that much more.
 
Location
NE PA
i know this is an old post but we are an s-corp. this protects my personal assets but i just found out the hard way something important. at the end of the year all of the companies profit is included on my personal tax return. this could be good under some circumstances. unfortunate for me i realized this after a child support hearing... makes me look like i get a 6 figure income when i dont because all of that extra money is really our operating capital. 3 kids and spousal support = almost $2000.00/mo
ouch!!
 

allmark

Participating member
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i know this is an old post but we are an s-corp. this protects my personal assets

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This is not always true. If you are diredtly involved in the activities that lead to a lawsuit you could still be sued personally if found to be negligent. The corp only prevents a lawsuit against financial only officers.
 

boreality

New member
Location
boreal forest
In Canada if you incorporate after building a large amount of expensive equipment, you basically sell the business from the sole propietorship to the incorporation, so selling from yourself to yourself, just a paper transfer, except to the tax man who reads it as a $300,000 purchase, and they want the appropriate taxes and they want them now. So while I'm starting out with a rope and hand tools I am a sole propietor but before I buy a large piece of equipment, or expand to having a crew without me on site I will incorporate.
My understanding is even if you are incorporated and you are the one doing the work you can still be personally sued and your cabin at the lake can still be at risk. Employees are another story though.
 

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