Operating as an LLC

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Evan F. Hunter

Junior
Jan 11, 2011
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Houston, Texas
I apologize if this is a repeat, when I tried to search for LLC every thread showed up because of sound forums LLC. Links to other threads for reading are openly welcome.

Ive been toying with the idea of becoming an LLC for the better part of a year. The objectives are 1. I want to be a REAL state recognized company. 2. I want a company bank account. 3. I want liability insurance for the company. Really any insight or advice is fully accepted, as my only form of income at the moment I want to do this right. I have always strived to operate much like a larger company in terms of equipment, professionalism, and setup/neatness etc. So I feel like this is another step in the right direction.

How many of you operate your sound company as an LLC? What are the positives and negatives of running and LLC? What are some things to watch out for, examples of things you would have done different or the same if you had to do it all over again?
 
Re: Operating as an LLC

I chose to form an LLC because it provides some liability protection, it supports the disregarded entity tax liability treatment, and because it's a simpler and less expensive route than a C or S corporation here in Virginia. As I understand it, states have different LLC formation and registration requirements, and I strongly suggest you consult with an attorney to review your paperwork.
 
Re: Operating as an LLC

The state laws regarding LLCs vary, as do the state law tax treatments. If you are operating in multiple states, I respectfully suggest that you need to find out what is necessary in each state to have your LLC be in good standing and legally recognized. Don't assume that the laws of your home state will follow you when you operate away from home. I have formed an LLC, and operate it in particular form (manager-managed) in order to take advantage of the way some of my state's labors laws (workers' compensation and unemployment insurance) are written. Doing it differently isn't "wrong", it would just require that I do things a bit differently. (It helps that I work with state labor law as part of my day job....) Mark C.
 
Re: Operating as an LLC

Well, we incorporated as an LLC because it was cheap, easy, and solves a few problems. I think the most expensive recurring cost is our registered agent, as David and I are both somewhat nomadic. Actual incorporation might have been a few hundred bucks. Maybe David can jump in here, since he did most of the work there (and by "most" I might mean "all")
 
Re: Operating as an LLC

I had my attorneys draw up an LLC for me. I will start doing business as the LLC in July.

1. I do not believe it to have much if any liability protection.
2. Still taxed as an individual in most cases.
3. You do not need an LLC to recognized as a legitimate business.
4. You only need an EIN for you company to open a bank account. Don't need to be an LLC.
5. You can buy liability insurance regardless of business structure/entity.

So why did I have my attorney draw up the LLC? For estate planning purposes. We have a trust setup that owns our primary residence. The trust is also the sole member of the LLC that owns our rental house. The trust is also the sole member of the LLC that owns our mineral/oil estate in the Bakken oil field. The trust also is the sole member of the LLC that will begin business in July for our production company. The trust is a second beneficiary for certain retirement accounts of ours.

When we are struck down by lightning we know that our estate will be distributed by our trustees the exact way that we had our attorney write it up. That is very important to us.
 
Re: Operating as an LLC

RYAN LOUDMUSIC JENKINS said:
I had my attorneys draw up an LLC for me. I will start doing business as the LLC in July.

1. I do not believe it to have much if any liability protection.
2. Still taxed as an individual in most cases.
3. You do not need an LLC to recognized as a legitimate business.
4. You only need an EIN for you company to open a bank account. Don't need to be an LLC.
5. You can buy liability insurance regardless of business structure/entity.

So why did I have my attorney draw up the LLC? For estate planning purposes. We have a trust setup that owns our primary residence. The trust is also the sole member of the LLC that owns our rental house. The trust is also the sole member of the LLC that owns our mineral/oil estate in the Bakken oil field. The trust also is the sole member of the LLC that will begin business in July for our production company. The trust is a second beneficiary for certain retirement accounts of ours.

When we are struck down by lightning we know that our estate will be distributed by our trustees the exact way that we had our attorney write it up. That is very important to us.
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No you do not NEED and LLC to have a bank account, liability or to be recognized as a legitimate business. But at least if I have all of that through the LLC they can only come after the company if anything ever happened correct? Carrying a Liability policy not only protects my ass, but it helps me to get larger gigs that require it.
 
Re: Operating as an LLC

The way I understand it, being an LLC doesn't offer any personal asset protection, contrary to popular belief. Many people think an LLC will separate an individual's personal property (house, car, etc...) from liability claims against the company. In many cases it does, but if you "pierce the corporate veil", all bets are off. That means if you are personally on the job when something goes wrong that results in a liability claim against your company, you can be held personally liable. For this reason I continue to operate as a sole proprietor, as an LLC doesn't offer any real benefit.
We are a fully insured business with business banking and business credit, business license, workman's comp, etc...
 
Re: Operating as an LLC

An LLC can not protect you from your own actions. If you set up the speakers and they fall on someone, the attorneys are coming after you. If one of your employees sets up a show for you and he drops a speaker on someone then the LLC might give you a little personal liability protection. The company would be at risk but your other assets might be protected.
 
Re: Operating as an LLC

Bob Urtz said:
The way I understand it, being an LLC doesn't offer any personal asset protection, contrary to popular belief. Many people think an LLC will separate an individual's personal property (house, car, etc...) from liability claims against the company. In many cases it does, but if you "pierce the corporate veil", all bets are off. That means if you are personally on the job when something goes wrong that results in a liability claim against your company, you can be held personally liable. For this reason I continue to operate as a sole proprietor, as an LLC doesn't offer any real benefit.
We are a fully insured business with business banking and business credit, business license, workman's comp, etc...
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Thanks guys, I will have to see and continue more research. When I setup my equipment I try to do so in the safest full proof manor. In fact on my last gig I had a bit of a spat with someone over why I would NOT put a truss and TV at a certain location because it was not safe for 1. the visitors/customers/donors and 2. was not safe for the equipment. But we all no that no matter how safe you are there is always a chance, and that is the chance I want to protect myself from.

Keep in mind, protecting my own ass is only 1 of the things I am trying to gain. Im OK with paying my taxes and I want to grow in this industry professionally, which is the main goal.
 
Re: Operating as an LLC

If you have no employees, forming an LLC offers little to no benefit. There is no liability protection if YOU do something stupid. ie, if you set up a speaker and it falls, you can be sued personally, as well as the company. Same thing could happen if you work for a company. If you do something stupid, you can be sued as well as the company you work for.

If you have employees, then the protection is that a lawsuit for something stupid that the employee does limits the liability to the corporation. They can't take your personal assets. If you run as a sole proprietorship and have employees, they could.

Financially, you could have some protection with an LLC if you went bankrupt. However, loans that have a personal guarantee behind them which would not have protection. Eg, if you used your house as collateral to get a loan for the LLC, if you went bankrupt, there goes your house. Where you would have protection is unsecured loans, such as terms with vendors to the company.

Taxes to an LLC are the same as with a sole proprietorship, as the profits simply pass through to your personal taxes. Setting up an S corp can be extremely beneficial once you hit a certain threshold of income, as the corporation is taxes separately from your personal income. You can decide how much to pay yourself, and how much stays in the company. This can lessen the self employment tax, social security, etc. For small companies, the added burden and paperwork to run an S corp isn't worth the savings.
 
Re: Operating as an LLC

I have an LLC. In order for it to perform its legal function you must follow the rules and procedures put forth by the states you operate in. You may need a lawyer familiar with all the states you want to operate in. It is a little more paper work and money but I think the advantages out way the cost.

First, the rules and procedures are good practices anyway. So the extra paper work really is not a bad thing.
If you follow the rules you have some legal protections. Those protections are not infallible but better than not having them.

Being an LLC puts you a notch above a sole proprietor in the eyes of many clients and possible suppliers. It shows you have gone the extra step to be an up standing business. Those letters after my company name have opened some doors for me.
 
Re: Operating as an LLC

Brian jojade said:
Taxes to an LLC are the same as with a sole proprietorship, as the profits simply pass through to your personal taxes. Setting up an S corp can be extremely beneficial once you hit a certain threshold of income, as the corporation is taxes separately from your personal income. You can decide how much to pay yourself, and how much stays in the company. This can lessen the self employment tax, social security, etc. For small companies, the added burden and paperwork to run an S corp isn't worth the savings.
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Evan,

What Brian mentioned above is the default for a single member llc, but you can choose the tax classification of your llc. By filing an 8832 and then a 2553, you can elect to have your llc treated as an s corp for tax purposes.

The main purpose of doing this is to allow some of your llc's income as a distribution, and therefore treated as dividend income not subject to seca taxes. Because 8832 changes your election to a corporation, you'll have to start doing corporate filings each quarter. There is a small alphabet soup of other forms that follow for the s corp, e.g. 1120s and k-1 filings.

Once you business is stable enough that you can pay yourself a regular monthly salary, and/or secure a short term credit line to even out the cash flow and pay yourself each month, then that's a good point to talk to your tax pro about 8832 and 2553 and avoid some of the seca taxation.

An llc elected to be taxed as an s corp is a good balance between the onerous level of paperwork for a true corp, and the lack of tax flexibility of a single member llc treated as a disregarded entity.

Also a personal hat tip to Brad Weber who has been a great sounding board and clarifier to me over the past few years on where to look next on these issues. I'm through one llc life cycle and working on another.
 
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Re: Operating as an LLC

i had to build a LLC when a client i had went to nashvegas accountants from the one he'd had in austin.


...they jus dont understand a texas handshake contract there

the only thing i regret
is that i paid one of those webbernet companies
a c-note to file it

it's extremely simple

and it looks cool on my card...

but here
as a one man shop
...that's really about all
 
Re: Operating as an LLC

Thanks again guys, I have not forgot about this. In fact Ive read everything you've posted probably 10 times. Thursday I am going to speak with a CPA to hopefully get my head fully wrapped around the best plan of action. I believe that starting an LLC now will help me in the long run. Either way I am excited to be moving forward. Im sure I will have more questions later today.
 
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