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Business Licensing Preference List?


#1

Happy New Year!

For those that Do Not have a “brick and mortar” establishment and sell their created jewelry from home via online or in person (wholesale, shows, custom, etc.), what decision did you come to in terms of business licensing (Sole Prop, LLC, Corp)?

Are there specific reasons you chose one over the other (good/bad experiences, perceived future, etc)?

I understand the differences between them and purposes they serve, but I thought a list might be beneficial not only to me, but anyone Searching for comparative insight within this specific niche.


First time making custom jewelry from home, any tips?
#2

I was wholesale then opened a brick and mortar retail store and have recently gone back to wholesale and jeweler by appointment out of a studio. I have always been an LLC. I can’t tell you why other than thats what my accountant said I should do. I am a bench jeweler, he has the accounting degree. He doesn’t tell me how to set diamonds and I hire him and do what he says. If you want to be in business and your not an accountant or don’t have a business degree then go find one and talk to them.


#3

Unlike a Sole Proprietorship or an LLC, a corporation is an entity, and as such, it files a tax return. Therefore, until it’s final tax return is filed, you will be filing your personal tax return and the corporation’s tax return. If you pay someone to prepare your tax return, you will be paying for two separate tax returns.

A corporation has the ability to spread losses over several years on it’s tax return, thus you can offset corporate income in fat years for a number of consecutive years before and after the year of loss.

The disadvantage of an LLC or Sole Proprietorship is that you can offset income with losses only in the year the loss occurs.

The “corporate veil”, which shields shareholders from responsibility for corporate liabilities is not a sure thing. Do not depend on it.

First of all, most of your creditors will get your personal guarantee of repayment, in which case the corporate veil will not help you.

Secondly, if your corporation ends up in litigation, some sharp attorneys will find evidence that at some point you behaved like a sole proprietor instead of a corporation, and that your reason for forming a corporation was to shield yourself from your liabilities, thus the court will rule as if you were a sole proprietor and the corporate veil will not help you.

Not behaving like a corporation includes seemingly irrelevant things such as not keeping Minutes from your Board Meetings.

I think our Government takes more interest in corporate activities than they do in Sole Proprietorships and LLC, requiring compliance with absurd things like mandatory surveys that are as clear as mud and are a waste of time. Nothing good comes from governmental interference in your business.


#4

I’m a Sub S Corp. It’s basically like a corporate version of a sole proprietorship but has the tax advantage of taking a reasonable amount of income as dividends which reduces tax on that portion of your income.
That’s my understanding anyway.


#5

James, what @Betty2 said in her post is true.

I assume you are in the U.S. If you are considering forming a
corporation, even just theoretically for now, you need to speak with an
attorney or at least a CPA. Betty left out mention of sub-chapter S
corporations. As an individual you can form a sub-chapter S
corporation, which has specific advantages. I had one with a computer
software business, but it was years ago and I don’t remember enough of
the details to share with you.

Possibly the key reason to have a corporation is to shield you from
liability, as Betty said. If someone at a show suffers harm at your
booth and you have significant assets, without a corporate shield you
could lose those assets (home, savings account…) The less you have to
lose the less you need a corporation’s protections.

Not behaving like a corporation includes seemingly irrelevant things such as not keeping Minutes from your Board Meetings.

Yes, absolutely. This needs to be emphasized. Even if you are the sole
shareholder, president, treasurer, secretary of the corporation, the
entire board rolled up into one person, you need to hold meetings and
keep minutes, no matter how absurd holding a meeting with yourself may
seem. If you don’t, you do not have a corporation, regardless of any
paperwork and official seal you may have that says you do. At least at
the start you should hold your meetings & etc. with your attorney so you
get it right, do what is required and have the paperwork to prove it.
Have him / her review your adherence to the requirements regularly.

Now, my attorney said “don’t worry, fixing the paperwork after the fact
is done every day”, but he got disbarred for other reasons, so even if
you have an attorney tell you that, it is fraud and you shouldn’t buy
it. You have to do everything required exactly as required, period, or
don’t even waste your time with a corporation.

Neil A


#6

This is probably not the best place to be asking for this advice. Every state has different laws about how to incorporate, what is required and tax liabilities, so one shoe does not fit all. I would strongly suggest that anyone who needs info contact the SBA, https://www.sba.gov/starting-business/business-licenses-permits/state-licenses-permits?leavingSBA=http://www.myflorida.com/taxonomy/business/business%20licenses,%20permits%20and%20regulation/. There are links there to each state’s division of businesses. You might also talk to a corporate attorney and/or a cpa.

I am in Florida and I have had an LLC since 2004. I researched this through an attorney and my cpa (and the SBA). Both a C corp and an S corp seemed like overkill. A C corp in Florida has to pay a 5.5% tax to the state yearly. Florida does not have a state income tax unless you are a C corp. Why would a small business consider that unless they are anticipating the need to separate the business entity from the personal. Since I am the only person in my LLC, I am also a sole proprietor and I file taxes jointly with my husband. All of my business expenses are tax deductible. As an LLC, I do carry some liability with my business, but my home could not be taken as a result of any litigation. As an artisan jeweler, I am not too worried about being sued… I don’t pay taxes to the state - except sales and use tax.


#7

Unlike his title, C3ntury’s question was not about Business Licensing, which is governed by state and/or local law.

An example of Business Licensing includes “Registering” your business with your Secretary of State, which is necessary if you open a bank account in the name of your business.

Based on C3ntury’s question, I would have titled this thread: Which “Form” of business did you chose and why? If anyone is confused, I hope the following will clarify exactly what we are discussing:

The purpose of choosing a “Form” of business is to determine how your business reports it’s income to the IRS.

The original forms of business were: Corporation, Partnership and Sole Proprietorship, with each Form having unique rules. Over the years, our clever lawmakers added to these original “Forms” of business to address the following issues:

While not an issue for large corporations, small and closely-held corporations were burdened by corporate income being taxed twice, once as revenue on the corporate tax return, and again as income on a personal tax return. Thus, the S corporation was created to reduce the tax burden commonly associated with the C corporation, by allowing some of the corporate tax liability to flow to the shareholder’s personal tax return where it is taxed at a lower rate than corporate tax rates. As you might expect, the rules for an S corporation regarding shareholders and their compensation are more strict than in a C corporation.

The LLC was created to combine the limited liability enjoyed by corporations with the simplicity of reporting business income on your personal tax return like a Sole Proprietor. The LLC has become an extremely popular Form of business.

In litigation, an LLC can lose only what is owned by the LLC; however there are technicalities, for example, if during the course of doing business you neglect to include the letters LLC in your business name, then you may risk losing it’s limited liability status.


#8

Something to consider is that once you choose you can’t always go back or switch to another right away.

I’m someone who trusts my CPA, maybe too much. Years ago he recommended I switch to an S Corp as a tax strategy, the benefits as described by those more knowledgeable than me. Recently, a new CPA looked at my biz and she wondered why I’m an S Corp? She said I have to wait to change even if we wanted to.
Mark