Llc?

[MSooner]

I'm in the process of starting my own business and was wondering if anyone has input on how they structured their business and why?

I've talked to a few photographers who have been sole proprietorships, but mentioned they weren't sure if that was the route they really should have gone, or it was a stepping stone to an LLC.

Despite the "high" cost ($300 some dollar in Texas I believe) of becoming an LLC, I believe this is the route I want to go due to the personal asset protection it provides, limited as it really may be. For at least the next 2 years, this will be a part time endeavor while I grow my business.(Hubby is in med school and someone has to bring home the bacon!) Later on it would be very necessary to protect my husband's income. (Of course I would have insurance as well)

If you are an LLC, I'm assuming you registered for your tax permit after the LLC paperwork was complete?

What else should I watch out for? Is an LLC really the route I should be going? So much to learn!

[ronocnikral]

Questions:

*With LLC protections, will you still forego insurance?
*What pains will an LLC create for you accounting wise? Why must you be extra careful with your accounting practices?
*What is EIRSA? And how does it help protect you?
*What are the TX homestead laws? How do they protect you?
*Are your plans only to "do business" in TX?
*Did you use the search function here on TPF?
*What quality of legal of advice do you expect to receive from other photographers?
*What did the CPA/lawyer you spoke with say?

My attempts at being "socratic" have landed on their face lately. You may answer the questions, but I have very little interest in what your answers are.

Here is what we learned...our CPA suggested against it b/c of a headache in accounting. It's $300 and a bunch of paperwork. And with EIRSA, the Texas Homestead Laws and insurance, very little of our assets are vulnerable. But, where you want to take the business and other factors may play into this decision. ymmv.

[suerenee]

My day job is as a paralegal. I asked my boss if I should LLC or PC. He said that I was okay as a sole Prop. The LLC will be a pain in the butt come tax time. Ron is right. The Homestead Laws will protect your home, car, etc. Carry Liability insurance for a million dollars (costs me about $500/year). If there was ever a lawsuit situation most lawyers will to settle for insurance max--easy work for them.

Now if you have lots of property and are crazy rich the SP might not be right for you. Not knowing your personal financial situation you might want to call your CPA or attorney.

[WarrenG]

Despite what you may hear, an LLC is not a catch all panacea. Does an LLC afford some greater protections than a DBA? Sure, under the right circumstances. Our attorney grew up in a photography studio, and his father was a past president of TPPA so he is very familiar with the business.

If you are the sole owner of the business, an LLC may not offer near the protections as if there are multiple owners. If you have an LLC but want to establish corporate credit and such, the truth is as the only owner your basically the guarantor (if that is a word). Also, as Ron mentioned our attorney advised that the extra accounting and paperwork really would not be worthwhile in the long run.

As already mentioned.... regardless of what you think, or others on here say... consult your CPA or Attorney as only they can best advise what direction is best for you. It is money well spent.


Good Luck.

W

[WarrenG]

One other thought... this discussion has been discussed many, many times. A quick search wilkl reveal a plethora of info.

llc site:www.texasphotoforum.com - Google Search

[stephenpinn]

Careful on relying on Homestead Protection. As I understand it (and if I am wrong please correct me) the Homestead Laws protect your property while you own it. As it was described to me, if you sell your home and there is a lein being held off by Homestead then the lein becomes actionable. I don't know the impact on things like refinancing.

[ronocnikral]

again, everyone should consult their own attorney...

stephen, you are correct as that is my understanding. but its implications being in favor of the defendant are in themselves a deterrent to small and minor civil suits. one also has until the day of a judgement to divest assets as well. couple that with other forms of protection and we find an LLC is not the best solution for us.

if i implied that just the homestead act alone was enough protection, that was not my intent. also, i should point out that TX's (generous) homestead protection reaches further than just a home....

[texpic]

*With LLC protections, will you still forego insurance?

LLC doesn't replace insurance

*What pains will an LLC create for you accounting wise? Why must you be extra careful with your accounting practices?

Extra return = extra costs

*What is EIRSA? And how does it help protect you?

Employee Retirement Income Security Act of 1974 ??? ERISA is an employee benefit plan Act.

[MSooner]

My attempts at being "socratic" have landed on their face lately. You may answer the questions, but I have very little interest in what your answers are.

I'm sorry?

Thanks for all the other input. I will do a further search to see what other info I can find.

As far as being concerned about other assets, no we're not rich. Quite the opposite. I don't "expect" to be sued by providing shoddy work, etc.--I just believe in "better safe than sorry" and want as much protection as possible. I'm terrified of something random happening and a lawsuit wiping out what little we have while my husband is in school and residency. Just trying to do this "right."

I didn't know Texas had homestead laws--good to know. However, due to my husband's career, there is a good chance we may have to move outside of Texas in 3.5 years due to residency.

[ronocnikral]

Originally Posted by texpic

*With LLC protections, will you still forego insurance?

LLC doesn't replace insurance

*What pains will an LLC create for you accounting wise? Why must you be extra careful with your accounting practices?

Extra return = extra costs

*What is EIRSA? And how does it help protect you?

Employee Retirement Income Security Act of 1974 ??? ERISA is an employee benefit plan Act.

it's good you actually used google. maybe now you should read about some of these things. everything i asked was very pertinent to our decision on if we should incorporate or not.

Originally Posted by MSooner

However, due to my husband's career, there is a good chance we may have to move outside of Texas in 3.5 years due to residency.

even more reason not to incorporate....

[Jeff Lane]

I guess I'm a little surprised by the animosity against LLC structures. Here's my two bits's worth.

There are some businesses that really don't need to set up any kind of liability shield -- for them, a sole proprietorship is just fine. But from my perspective, those businesses are rarer than the number of unprotected sole proprietorships would suggest.

If your only liability exposure is getting sued to return the money the customer paid because he got buyer's remorse (or your work showed him for how his slovenly fat self really looks), then an LLC probably is a waste of time and money. If you shoot kids or weddings, however, that's not really where your exposure ends. Kids trip over things and injure themselves. Stuff happens to corrupt all your files after a big wedding shoot and the Bride suffers a million dollar nervous breakdown.

Insurance coverage is (and always should be) your first line of defense. (It's hard for me to say that, because I dislike insurance companies for religious reasons -- they're all of the devil.) But if insurance fails to cover you, it's good to have your exposure limited to business income and assets, leaving your and your spouse's income and assets out of the collectability mix. Especially if hubby is going to be one of those plastic-surgeon doctors with the big house and the fancy car in the driveway and all that.

As far as homestead laws, etc., they're great -- up to a point. If you're operating as a sole proprietorship and your insurance fails to cover a claim for some reason, and I get a judgment against you, I can't foreclose on your house and boot you to the street. But I can file a judgment lien, and if you try to sell your house or take out a second mortgage, you're screwed until you pay me in full. (And it genuinely messes up your credit score.)

As far as inconvenience, I just don't see it as being all that much more complicated. If you're an LLC, you'll need to keep all your business interests separate from your home accounts, and fill out a couple of extra forms at tax time. If you're a sole proprietorship, you, still need to keep all your business affairs separate from your personal affairs, and fill out a couple of extra forms (Schedule C, Schedule SE, and if you're using any part of your home for your business, Form 8829). So the real difference is really pretty small.

As a lawyer, I do recommend an LLC form more often than not, but not always. You really should look at lots of factors that are too numerous to air completely on this forum (and some of the details shouldn't be hung on a public clothesline anyway). But if you're going to be insured, you might be just fine without an LLC.

Good luck!

[surlynkid]

i only have an LLC to register my class 3 weapons. for anything else, i would not bother.

[texpic]

Jeff I'm assuming if a photographer was operating as an LLC and the LLC was named in a lawsuit, he would also be named personally. This is a question.

We already know insurance comapnies are evil, Barrack told us that.

[Jeff Lane]

Jeff I'm assuming if a photographer was operating as an LLC and the LLC was named in a lawsuit, he would also be named personally.

You're most probably right, Carl -- and in a strictly "tort" lawsuit, the LLC's liability shield would likely not be of much use to protect the individual photographer from his own negligent acts. The example -- a single-member LLC photographer, working alone and without an employee, independent contractor or assistant, negligently poses an energetic 5-year-old on the second-story balcony rail, and the little darling takes a leap and breaks his leg. Your LLC shield likely will not protect your personal assets.

In a dispute about strictly contract damages, the LLC will obviously help, because any judgment will be solely against the contracting party -- which, of course, be your LLC and not you personally.

The shield may also be helpful in a tort suit when the photographer has employees or uses contractors. For example, you're hired to shoot a wedding that will take more than you can handle alone, so you engage the services of a couple of photography majors from the local community college to help out as temporary independent contractors. One of the little geniuses sets the church on fire, and the church's insurer comes after you for a subrogation claim that's about $10,000,000 more than your insurance policy covers. In this case, as long as you're not found to be personally negligent somehow (and negligent hiring cases in Texas are pretty hard to establish), the subro claim will get all your company's assets, but your personal assets will be unmolested.

Finally, there's that whole nether region between contract and tort -- and that's where disappointed Bridezillas live. Your LLC contracts with Ms. Zilla to shoot her wedding, but due to your negligence, an entire day's worth of images of the most wonderful day of her life are lost. Of course, your company is going to owe her the obvious contract damages -- you'll have to disgorge all the money she's already paid you for your performance on the contract. Nevertheless, she'll claim that you owe her consequential damages (after all, she now has to hire another photographer, and pay to completely re-stage the wedding of the century, including flying in all her friends and family from across the globe, and because it was your fault, you get to pay for all that). It may sound like a stupid claim to you, but if you can say with a straight face that the only assets Bridezilla's lawyer can reach on his bloated contingent fee are in a good LLC that can just as easily be taken into Chapter 7 without any skin off your nose, and whose assets consist of about $6,000 worth of used gear (depreciated pawn-shop value, of course) and a bank account with $83.27, the shyster will be MUCH less likely to aggressively pursue all these fancy extraordinary remedies, and in fact will probably negotiate a settlement much closer to reality for contract damages. On the other hand, if he can get a personal judgment on you that will act as a lien on your house, and that will subject you to the occasional sneak-attack bank account garnishment just before you pay your monthly mortgage, it's going to look like more fun chasing you through hell and back.

So, in summation: Is an LLC a panacea? Not by a long shot. But given the very small cost in money and time to maintain one, it can be worthwhile if you hire others who might be personally negligent on their own regard, or if you are that one-in-a-thousand guys who stumbles into the completely irrational litigation opponent. If neither of these is true (and that's not so rare a case that you should rule it out without thinking about it), then it doesn't make sense for you to choose LLC over sole proprietorship.

And of course, we haven't talked about what should happen if two or more of you decide to go in together on a business. But that's a whole 'nuther chapter.