Sole proprietor vs llc: can someone please explain?

[yoopermom]

DH has been the s.p. of his own company for the past twenty years or so and I've always done the books for him. I basically understand how that works.

He and a friend are thinking about opening a retail business together. I have some serious concerns about wanting to protect my/our personal assets (savings, retirement, home) from the possible vagaries of this business. I read on the IRS website about LLCs, but am still confused.

Leaving aside the personal aspects of why he should/shouldn't open this, and why I don't think he should, can anyone explain LLCs to me, how expensive they are to set up, and if the owner's personal $$s are "safe" from the company?

TIA!

Terri

 

[akcire]

DH has been the s.p. of his own company for the past twenty years or so and I've always done the books for him. I basically understand how that works.

He and a friend are thinking about opening a retail business together. I have some serious concerns about wanting to protect my/our personal assets (savings, retirement, home) from the possible vagaries of this business. I read on the IRS website about LLCs, but am still confused.

Leaving aside the personal aspects of why he should/shouldn't open this, and why I don't think he should, can anyone explain LLCs to me, how expensive they are to set up, and if the owner's personal $$s are "safe" from the company?

TIA!

Terri

You need to seek good legal advice. I will share this. My husband and I own companies that are held in LLc. Our shares of the Llcs are held in trust. Essentially we own NOTHING!

 

[yoopermom]

I do have an apt with our lawyer for next week, I just don't want to waste any of his time/my $$ on "basic" questions that I could have researched the answers on beforehand.

Noting "Shares of llc held in trust"....will ask him!

Thanks!

Terri

 

[bumbershoot]

can anyone explain LLCs to me, how expensive they are to set up, and if the owner's personal $$s are "safe" from the company

Knowing that I have just the most rudimentary knowledge of this, and it's old knowledge to boot, from what I've understood, yes, that's the whole point of the LLC. To protect personal money from company stuff.

I think of Trump, and how his businesses have gone bankrupt, but he's still insanely wealthy.


But definitely get proper advice on this.

 

[hopeforus]

Contact the Michigan Small Business Development Center. They are part of the nation-wide SBDC network that offers confidential and often free business consulting. This program is funded through the SBA. The website says they serve all counties in MI, so even in UP you soul be fine. Good Luck.

 

[Cheshire Figment]

Basically in a sole proprietorship the owner is personally responsible for everything. And any liabilities of the company can be taken from the owner's personal assets. All profits and/or losses pass through directly to the personal income tax return of the owner.

A Limited Liability Corporation is a separate legal entity. From a pure technical standpoint the personal property of the owner(s) is protected in the event of a lawsuit. Any profits and losses of the LLC will pass directly to the personal income tax return(s) of the owner(s).

The downside, which is why I tend to advise clients against this, is that if you borrow money in the name of the corporation most lenders will ask for a personal guarantee, so you are not off the hook. Also, if you personally screw something up, you will be personally sued, as well as the corporation.

For example, I have a doctor as a client. Effectively everything done by his staff (including nurses and technicians) is done under his direct supervision. So if one of them messes up, he can be personally sued, as well as the corporation and the employee.

Another downside is that You have to pay for the formation of the corporation, as well as annual state and local fees, and separate Income Tax Returns for the corporations as well as your own.

The only timer I ever suggested to a client that they incorporate was when the client was running a flying club, where she would lease aircraft and then rent them to individuals. In this instance, as she was renting them to licensed pilots they were not working under her supervision and she needed to be protected in the event one of them was involved in an accident.

Mike (CPA Retired)

 

[marlynnp]

Also, if you personally screw something up, you will be personally sued, as well as the corporation.

For example, I have a doctor as a client. Effectively everything done by his staff (including nurses and technicians) is done under his direct supervision. So if one of them messes up, he can be personally sued, as well as the corporation and the employee.

This is what D&O insurance is for, make sure you have it.

 

[Bonniec]

I will just add that a LLC does not necessarily mean that you won't personally be responsible. Learned that from personal experience. Make sure you get advice from a good attorney.