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Thread started 12 May 2008 (Monday) 23:56
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What are the disadvantages of LLC?

 
Chosenbydestiny
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May 12, 2008 23:56 |  #1

I was wondering if there was more of a penalty from filing LLC as opposed to sole proprietorship. Not in the initial fee, but later on... I know I should be asking a CPA, but if someone knew the answer already out of experience, it would be nice to learn asap. The reason why I ask is because it seems that LLC is catering to my situation a bit more than sole proprietorship after reading up on them. I'm really curious though what it would do to us in the long run though. A list of cons would be nice. Thanks! - Ryan


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John ­ Mireles
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May 13, 2008 01:14 |  #2

In California, you have to pay something like $900 per year just to maintain the LLC. You're going to pay more for your tax return as well. It's also a good idea to check in with a lawyer once a year to make sure that your LLC is following all the rules so that you're protected in the event of litigation.

Unless you have significant assets, there's really not a lot of value in forming an LLC as a photographer. It's certainly not cheap to properly maintain it. Sure, you can do without the annual lawyer check up, but then you're less likely to withstand a legal challenge should one come up.

John


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bwolford
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May 13, 2008 09:30 as a reply to  @ John Mireles's post |  #3

150 tops in Florida. If you have any assets, it's cheap protection. The lawyer is a good thing, as is an accountant. Ask yourself this, if sued, could you stand to lose all you have because you didn't take precautions?


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GPR1
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May 13, 2008 09:49 as a reply to  @ bwolford's post |  #4

$900 in California? Dang. It's $55 for an annual filing in Washington. Taxes - both state and federal - are the same between LLC and SP, especially for the most basic enterprises. I have some experience: I own 3 LLC's and 1 SP. However, I'm no expert on tax law or corporate organization, so consult the right people.


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T2000
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May 13, 2008 17:40 |  #5
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"If you have any assets, it's cheap protection. "

Really? What's the specific "protection" that a single member LLC has verse no entity ?




  
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GPR1
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May 13, 2008 17:57 |  #6

T2000 wrote in post #5518168 (external link)
"If you have any assets, it's cheap protection. "

Really? What's the specific "protection" that a single member LLC has verse no entity ?

Even with a single member entity (LLC) you have the corporate shield protecting your personal assets. You don't have that with a SP. With a single member entity LLC, however, you don't have to file a separate tax return for the LLC, it just flows to the Schedule C on your 1040 - same as with a SP.


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bwolford
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May 13, 2008 21:37 as a reply to  @ GPR1's post |  #7

In Florida it goes both ways, the assets of the LLC are protected from personal creditors and the personal assets are protected from the creditors of the LLC. I can contribute property to my LLC and it isn't taxable.

Disadvantages: They are new and there hasn't been a lot of challenge to the structure, but most believe they will hold up. It was molded after limited partnership law.

I'm not a lawyer or accountant, but I believe what I've shared is true.


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T2000
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May 13, 2008 23:25 as a reply to  @ bwolford's post |  #8
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"Even with a single member entity (LLC) you have the corporate shield protecting your personal assets."

HOW and from WHAT ?

I was assuming that the corporate entity is respected.

It doesn't explain how and from what you are protecting your personal assets.

We can discard the following:

First, liability for most debt obligations. Secured lenders (banks) don't typically lend into undercapitalized entities. The aren't foolish and so they want a personal guarantee. If you are sufficiently capitalized then those personal assets are already "at risk."

Second, personal liability for negligence and the like. The corporate entity won't help at all. You will be sued in your individual capacity (in addition to suing the entity). Adequate insurance is what will protect your personal assets from negligent acts, not having an LLC.

That leaves one category left that you may shield personal assets. Trade creditors willing to do biz with an undercapitalized entity. But they are small time. Not the big risks I'm assuming you are trying to protect against. That is why I was curious what specific protection you are getting. There may be some other risks you are thinking about that I am missing. :cool:




  
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T2000
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May 13, 2008 23:34 |  #9
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"In Florida it goes both ways, the assets of the LLC are protected from personal creditors and the personal assets are protected from the creditors of the LLC. I can contribute property to my LLC and it isn't taxable."

This isn't a florida LLC concept.

This is what it means to have any separate legal entity. "Personal creditors" can not reach LLC assets because they have no relationship with the LLC. They can indirectly reach those assets though. They can reach your member interest in the LLC .

If you, not the LLC, owe me money and you don't pay I can sue you (not the LLC). One of your personal assets is your interest in the LLC. I can reach that. So, in effect, I can reach your share of the LLC assets. Which, in the case of a single member LLC, is the whole thing.

Similarly personal assets are protected from the creditors of the LLC for the same reason. The creditors of the LLC have no relationship with you. They have an obligation of the LLC.




  
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BDM
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May 17, 2008 22:57 |  #10

Chosenbydestiny wrote in post #5513279 (external link)
I was wondering if there was more of a penalty from filing LLC as opposed to sole proprietorship. Not in the initial fee, but later on... I know I should be asking a CPA, but if someone knew the answer already out of experience, it would be nice to learn asap. The reason why I ask is because it seems that LLC is catering to my situation a bit more than sole proprietorship after reading up on them. I'm really curious though what it would do to us in the long run though. A list of cons would be nice. Thanks! - Ryan

You really need to check with your lawyer for advice as to exactly what, if any protection, an LLC may afford. Sometimes creditors may insist a personal guarantee on purchases so they can sue you and the corporation if anything happens. And if someone sues for liability (negligence, breach of contract, etc) they will most likely sue you individually and along with the LLC and then sort things out in court. And there are usually some very precise paperwork and business practices you must timely follow if the LCC is to be respected in court. If that is not done the LLC may be treated as a sham. There are also tax consequences either favorable or otherwise. That is why you should have an in depth discussion with your lawyer as to the pros and cons of an LLC looking to your personal situation.




  
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What are the disadvantages of LLC?
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