S-corp vs. LLC- help!

[chocchip]

Hey Folks, I want to pick your brains for input. I'm almost done with my photography degree and need to start thinking about how to go about setting up my business. We had an accountant come in to briefly speak in one of my classes but I left class more confused. I don't want to be a sole proprietorship because I have personal assets that I want to be protected from a potential lawsuit (house, savings, etc).

The remaining avenues look to be either an LLC or an S-corp. I believe that taxes for s-corp may be more complicated than LLC, but can anyone shed some light on the pros and cons of each? As the only person in my future business, do I need to have a "partner" or another "stock holder"? Again, my apologies as this is a bit overwhelming. Any input you can provide is greatly appreciated.

[dryicerx]

Originally Posted by chocchip

Hey Folks, I want to pick your brains for input. I'm almost done with my photography degree and need to start thinking about how to go about setting up my business. We had an accountant come in to briefly speak in one of my classes but I left class more confused. I don't want to be a sole proprietorship because I have personal assets that I want to be protected from a potential lawsuit (house, savings, etc).

The remaining avenues look to be either an LLC or an S-corp. I believe that taxes for s-corp may be more complicated than LLC, but can anyone shed some light on the pros and cons of each? As the only person in my future business, do I need to have a "partner" or another "stock holder"? Again, my apologies as this is a bit overwhelming. Any input you can provide is greatly appreciated.

Go with a LLC. You don't need a partner so can be just for your, and is perfect for your purpose.

S-Corps are useful for startups/businesses that you are more likely to hand out shares or plan on raising vc/capital later on, and require yearly filings with the state and having a board, tad bit more complicated. Tax wise they are similar though.

IANAL

[David Whatley]

An LLC has "member units" instead of shares, you still have to file with the state for franschise tax, and you still have to have a member meeting. That said, it does allow you to do a few things that an S doesnt. Example, with 5 people at 20% each in an LLC, the LLC can determine how a loss or profit is distributed to members. If the LLC lost 100K it can elect to pass all 100k loss to a single member.
We used to be an S, and have moved to an LLC and that was one of the reasons why.

[HotHolly]

LLC also has other tax perks that S doesnt.

[Steelsun]

For a small shop, an LLC is easier to set up & manage than a corp, and cheaper and easier on the tax front.

The whole spiel about "Protect your personal assets" though is not exactly correct - if the person suing your, collecting debt, etc can "Pierce the corporate veil" and show that you are using the LLC/Corp as a personal bank/etc, intermingled funds, personally signed/verified loans, etc - they can go after you personally also. It's one of the things I do to pay my bills (I'm an investigator by main trade)
So, if you do go the LLC/Corp route - make sure you keep business and personal finances completely separate, get a good accountant to help set it up, get E&O insurance, etc.

[rglover]

You can be sued in your individual capacity for your personal acts regardless of which entity you use, and neither form of entity will protect your personal assets from liability. Either one could give you some protection for acts of your employees. You don't need an entity to protect your home as it is protected from liability under Texas homestead laws. IMO the best advice for you is not to try to do this yourself. Pay a lawyer to help you set up your business. If you try to do it yourself, it is likely to cost you far more in the long run than you will ever save in legal fees for the initial setup.

[PeteQ]

Originally Posted by Steelsun

For a small shop, an LLC is easier to set up & manage than a corp, and cheaper and easier on the tax front.

The whole spiel about "Protect your personal assets" though is not exactly correct - if the person suing your, collecting debt, etc can "Pierce the corporate veil" and show that you are using the LLC/Corp as a personal bank/etc, intermingled funds, personally signed/verified loans, etc - they can go after you personally also. It's one of the things I do to pay my bills (I'm an investigator by main trade)
So, if you do go the LLC/Corp route - make sure you keep business and personal finances completely separate, get a good accountant to help set it up, get E&O insurance, etc.

Originally Posted by rglover

You can be sued in your individual capacity for your personal acts regardless of which entity you use, and neither form of entity will protect your personal assets from liability. Either one could give you some protection for acts of your employees. You don't need an entity to protect your home as it is protected from liability under Texas homestead laws. IMO the best advice for you is not to try to do this yourself. Pay a lawyer to help you set up your business. If you try to do it yourself, it is likely to cost you far more in the long run than you will ever save in legal fees for the initial setup.

+1 on both of these. S-Corps and LLC do not fully protect your assets and each has their own tax implications. Meet with a CPA and/or a tax lawyer for a consultation, spend the $100 up front and get information from people whose job it is to do this. Much like you would like a client to come to you for your photography skills, pay for the experts...

After having been being a sole prop and an LLC in past endeavors I have since fully incorporated my business for liability purposes primarily. I like that I am an employee and if worse comes to worse I can lay myself off and collect some of that unemployment insurance that I have paid into throughout my life!

Seriously though, my decision was made after doing a lot of homework and consultation with my CPA of 10+ years and a tax lawyer that it was best to go this route. Get advice from the correct professionals...