This seems to be the most age-old question on realrates.com.
Unfortuantely realrates has long-since died from lack of activity (sure, it's still there, but who uses it?)..
It seems to be a good topic to continue over here.
Who here has battled this question, and what was your outcome?
I'm debating right now on whether to incorporate my consulting business, or whether to just get a fictitious business name, and register as a sole proprietorship.
The benefits to a sole proprietorship seem clear : I can still accept money under a fictitious business name, and the paperwork is pretty simple. The negatives seem to be not getting the "prestige" of a corporation, and not getting the liability protection.
The benefits to an LLC are less clear : Potentially good tax savings, prestige, asset protection (who knows if this means anything anymore, since corporate lawyers are experts at piercing the corporate veil). The negative side seems to be high cost ($1500-$2500 to have a lawyer, plus $250+ in filing costs, and $800 a year in californian state franchise tax). Some of the negatives get offset with certain SF city tax credits like creating a new job in an enterprise zone, which I think is a few hundred dollars.
Unfortuantely realrates has long-since died from lack of activity (sure, it's still there, but who uses it?)..
It seems to be a good topic to continue over here.
Who here has battled this question, and what was your outcome?
I'm debating right now on whether to incorporate my consulting business, or whether to just get a fictitious business name, and register as a sole proprietorship.
The benefits to a sole proprietorship seem clear : I can still accept money under a fictitious business name, and the paperwork is pretty simple. The negatives seem to be not getting the "prestige" of a corporation, and not getting the liability protection.
The benefits to an LLC are less clear : Potentially good tax savings, prestige, asset protection (who knows if this means anything anymore, since corporate lawyers are experts at piercing the corporate veil). The negative side seems to be high cost ($1500-$2500 to have a lawyer, plus $250+ in filing costs, and $800 a year in californian state franchise tax). Some of the negatives get offset with certain SF city tax credits like creating a new job in an enterprise zone, which I think is a few hundred dollars.
posted by:
|
Unsubscribed |
-
Re: To incorporate or Not to incorporate, for that is the question.
Mon, January 5, 2004 - 2:51 AMI decided to stay with sole proprietorship.
I don't know about the laws where you live, but I was in business after registering with the tax office and getting an ABN (Australian Business Number).
Incorporating, on the other hand, would be an expensive and complicated affair. I would have to get two other people to act as officers of the corporation, and either fill out a whole lot of paperwork, or pay someone a lot of money to do it for me. I'm not aware of any tax advantages in incorporating, but then I haven't really been looking.
As a freelance consultant, I don't see any need for the extra trouble associated with incorporation. But that's just me. -
-
Unsu...
Re: To incorporate or Not to incorporate, for that is the question.
Mon, January 5, 2004 - 9:35 AMSo in America there are definately tax benefits involved with
incorporating.. Things you can do like give yourself a large salary, but write a contract with the corporation agreeing to withhold the salary until it can pay you, thus deferring taxes and saving some..
And then there is corporate welfare.. Various city, state, and federal programs that encourage business. In SF there are only 2, because SF seems to hate business.. The two that are in SF are for creating a new job in a development zone (a ghetto), and for hiring a "disadvantged" person, which as far as I can tell means somebody who lives in a ghetto.. Which gives me 2 thumbs up, since my office is in geographically in a region deemed development, and I live in my office (it's a live/work).
Another important benefit seems to be healthcare. As an individual, insurance companies will deny you on the smallest infraction of what they thinmk is perfect health. As a corporation, your health insurance plan cannot deny your employees.
Another problem I'm getting worried about is, I've been working larger projects that have had requirements for me to have several subcontractors working under me. Liability issues alone are concerning, because if a subcontractor were to do something that would cause a lawsuit, I would personally be liable.
-
-
Re: To incorporate or Not to incorporate, for that is the question.
Mon, January 5, 2004 - 8:02 PMSo, aside from legal costs, you haven't mentioned any negative aspects to incorporation. For example, how many officers do you need in the corporation?
It sounds like the healthcare and liability benefits could be a real bonus. Of course, you would simply shift the liability from yourself to the corporation. I would imagine that if the corporation gets sued out of existence, then you would just have to create a new one. Is that how it works?
I don't work on large projects, so I don't have any subcontractors to worry about. Of course, if I get sued, then that's the end of the story. Indemnity insurance is prohibitively expensive. On the other hand, health insurance is not a problem here in Australia (universal healthcare). Also, people tend to be less litigious here.
So folks, you've seen two perspectives on the issue. Anyone else considering incorporating?
-
Re: To incorporate or Not to incorporate, for that is the question.
Fri, January 9, 2004 - 3:03 PMI'm skeptical of the health coverage benefits. Companies with large numbers of employees can get cheap group plans because the chance of a large proportion of people having expensive illnesses is low. If you are a company with a couple of people seeking coverage, won't they examine your health just as for an individual applying.
If I'm not covered by some company plan, I'll stay with Kaiser. So far I have not heard of them arbitrarily terminating existing members when they get sick.
It's possible a corporation gets better tax treatment for money spent on health premiums. I don't know if this is the case or not, but it would be a tangible and significant benefit. -
-
Unsu...
Re: To incorporate or Not to incorporate, for that is the question.
Fri, January 9, 2004 - 3:05 PMActually, I have a friend who had kaiser cancel his health
coverage when he found out he had cancer, now he's sueing them.
Most health insurance require a minimum of 5 people to get
a group rate, with tiers, so every time you hit a tier the
rates get better and the benefits better, but with 5 people (that I can easily scrape together just from the people in my house, none of whom have health insurance) I can get a rate comparable to kaiser's individual plan...
-
-
Re: To incorporate or Not to incorporate, for that is the question.
Fri, January 9, 2004 - 7:01 PMa plan with who, and are they less likely to cancel? (but this should probably continue elsewhere, would rather get answers to the incorporation questions here)
-
-
-
-
-
Re: To incorporate or Not to incorporate, for that is the question.
Fri, January 9, 2004 - 2:57 PMI'm considering it now.
1. If you create a corporation, does it prohibit you from doing business outside it as you would have done otherwise? Your comment on FBN suggests otherwise.
2. Isn't it only a C corp and possibly a S corp that requires 3 officers? I thought a LLC didn't.
3. Nevada corps seem to be popular now. On the other hand, the California state website says a foreign corp has to "qualify for business in CA" if it does business here, and that this is as much effort as simply incorporating in CA. Any views on this?
4. Do you really need a lawyer? Lots of online ads suggest you only need their services for less than the 1500-2500. There's also Nolo Press's do it yourself books.
5. The franchise tax is a minimum, if your corporate income is large enough so that the corporate tax rate charges you >=$800, you don't pay anything else. I think this would be about $10k a year of income. You probably want to retain this income within the corp to avoid paying personal income taxes on it as well. (I'm not sure how favorable dividend taxation is these days, possibly better than than ordinary personal income.) What do you do with this corporate income then? You probably can't pay corporate expenses, as income is what's left after expenses are paid. You can retain it for expansion, but only if you have something useful to spend it on. -
-
Re: To incorporate or Not to incorporate, for that is the question.
Sat, January 17, 2004 - 3:59 PMInterestingly, TechRepublic's columnist urges you to consider going whole hog for a C corporation.
techrepublic.com.com/5100-63...534.html
This is sounding attractive to me, if I can find enough savings to offset the double and minimum taxation problems. -
-
Unsu...
Re: To incorporate or Not to incorporate, for that is the question.
Sat, January 17, 2004 - 4:01 PMThanks for the link, I'll check it out..
-
-
