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Incorporation/Business Structure Questions

—Bill Cole

If you have incorporated — or unincorporated — your speaking business, I’d appreciate receiving your responses to these questions:

  1. What type of corporation do you have — LLC, S-corp, or other, and are you glad you chose your particular type of corporate structure? Why or why not?
  2. What do you know now about incorporating that you wish you had known before you began that process?
  3. What process or system did you use to incorporate? A book? CD? Lawyer? Online service? Other?
  4. How much did you pay to incorporate?

(Editors’ note: Cole Silver, JD, discussed information on business structures in detail in his SNN teleseminar, “Legal Issues Business Owners Must Know to Protect Themselves.” You can order the CD or MP3.)

— Leslie Charles

We started out as a C corp in 1987, and found it pricey. We unincorporated for a year and then went with subchapter S. It’s less expensive than a C corp and has some flexibility with how funds can be handled, moved around, and so on. This predated the LLC — something I know little about. Your accountant might be able to help you make the best choice for your purposes.

— Daniel Jackman

Our situation is a little more complicated than most, but we have created an LLC for our business, which is taxed as a partnership because there is more than one member/shareholder. I am very happy with our structure due to the tax structure, financing flexibility, and liability protection from our personal assets. Although there is administration, accounting and some basic financing issues that we need to understand to “run” the company properly, it makes a lot of sense to separate our business from our personal assets.

If you want to save time, go to a qualified tax expert who knows your situation and ask him how to proceed. Personally, I researched everything over the Internet, and spent a lot of time understanding my options before contacting my advisor. With the Internet, all the tools/resources are available to research this issue. Because I was well-informed, it was very easy for me to have a quick discussion with my tax advisor. (NOTE: my wife is the speaker and I am her partner and have a background in finance, tax and corporate administration so she wasn’t really involved in the process until the end). For most people, I think the key is to have a great tax accountant (or lawyer) who can point you in the right direction to make the most appropriate decision for your own unique situation.

For general information, I would recommend people read a guide from www.nvinc.com called: “Choice of Entities Secrets Revealed.” Although this 50-page guide is geared towards NV and is also a sales pitch, it provides very useful information comparing your options and gives you questions that you need to ask and answer before proceeding. In my research this was one of the best summaries, I came across that is also written in layman’s terms. (NOTE: We used Nevada Corporate Planners to set-up our NV company and were satisfied with the setup of our company. The process was painless. They were very helpful for us and provided great information for after our setup. We paid about 900 USD for the company formation plus government registrations fees. But people should investigate other options which are appropriate for their situation.)

— Pamela Mitchell

I received a great tip from a former boss of mine: have your accountant do the incorporation. It’s MUCH cheaper than using a lawyer. I didn’t even know accountants did that, but I asked and mine did. I actually consulted both a lawyer and my accountant to determine which type of corporation to use, and I’d recommend going that route (most people just think of asking the lawyer). But there are tax implications involved in the decision (beyond that the “C” corp means double-taxation), and I ended going the route which was most beneficial for me on that front.

— Tom McAuliffe

I incorporated a few years ago as an LLC, looking for a corporate entity to shield my personal assets. I chose the LLC as it had the advantages of both a C Corp (liability shelter) and S corp (pass through). I did not know when I set this up that in CA where I live we have a minimum tax of $800/yr. for corporations, then you pay income taxes. I didn’t see much economic benefit, and felt the shielding effect was over-rated so I cancelled my LLC at the end of last year and bought a large business liability policy for a couple hundred dollars/year. Then my wife finished school, so I thought I’d hire her to shift income and save on taxes. Except I found out this “benefit” is only available to corporations, not sole proprietors.

Wished I had known about both of these issues in advance. I had obviously poor advice going in and coming out. I used an online incorporator to set up, and went direct to the state to close down. It cost me about $300 for setup, zero for shutdown.

— Stephen Tweed

We have structured our company as an LLC, based on the input from our accountant. It has the liability protection of a corporation, but is taxed like a partnership. That means you take a draw, pay quarterly tax deposits, and all the profits pass through your company tax return to your personal tax return. That means dividends are not taxed twice as with a C Corp, and you don’t need to pay yourself a salary as in an S Corp. We’ve found it to be a very effective entity for our business.

— Barbara Bartlein

After looking at all the options, I created an LLC which is an umbrella corp for all my services. I did it online at the State of WI Web site for less than $200. It protects me legally but is the easiest to handle in terms of taxes.

— Joe Liss

As a CPA I deal with this question a lot. No business should ever remain a sole proprietorship. It should be either an LLC or a corporation. Since speaking businesses require little capital, if incorporated it should be an S-corp. The main difference in an LLC and an S-corp is the Social Security issue. S-corps can save on Social Security but it is an aggressive tax strategy, beyond the scope of this response. In Louisiana many form an LLC and elect to be treated as an S-corp to escape the franchise tax and still take advantage of the Social Security strategy.

I don’t do legal work so I won’t address cost. I do think it is wise to use an attorney although there are alternatives on the Web, etc. IMHO, not using an attorney is penny wise, dollar foolish.

Many people wish they had known this decision had more financial implications than they had originally thought and wish they had explored the alternatives with a financial advisor before seeing the attorney.

— Maria Mullen

I incorporated my speaking business last August. I am an S-Corp because people said there are more write-offs than if I did an LLC.

Here are some positive things I’ve discovered:

  1. I have lots more write-offs as a corporation, so more tax benefits. I can separate myself from my company like any other corporation.
  2. As a training company also, I find that third-party agencies require me to be a corporation in order to give me business. Otherwise I would have to be a 1099 as an individual.
  3. I can set up my own company retirement plan (banks vary).
  4. Certain companies require you to be a corporation in order to take advantage of their services.

Now let me outline the not-so-fun things I’ve discovered.

LOTS of extra bookkeeping and taxes to pay. You definitely need to get a bookkeeper to keep up with all the extra taxes you have to pay out. You need both a Federal and State tax ID number, and you pay payroll taxes even if you are the only employee of the company.

I originally had a friend’s accountant incorporate me. I think that was a mistake because she left out quite a few things that I needed. I’d recommend using someone or a company familiar with incorporating. My last business was an LLC and I went through www.Legalzoom.com. I didn’t go with them this time because they were more expensive.

That accountant charged me $350 and I think Legalzoom.com was like $700.

Basically just remember you are a corporation and you have to conduct business as one. You become the employee of your company just as if you worked for an outside corporation. Sometime those who are running their own business forget this and they still cross expenses. You should definitely separate all expenses and checking accounts, pay yourself a true salary minus payroll deductions. This will make your life much easier. I am trying to do my own bookkeeping this year with Quickbooks with ad hoc support from my bookkeeper so we’ll see how it goes. You do have to keep up with what taxes will need to be paid because as a corp there are a lot more than if you were a sole proprietor or LLC.

All in all I guess I am happy with the decision.

— Jim Bouchard

Since my speaking business was not my first business, I’ve had a chance to experiment a little. Here are some lessons I’ve learned:

  1. Absolutely create an entity. “S” Corp and LLC suit most small businesses nicely. The tax benefits usually make it worthwhile; liability protection makes it essential.
  2. Have no emotional attachment to any particular type of entity. “S” Corps, LLC, even partnerships and sole proprietorships all have their places.
  3. Get good accounting and legal advice and choose the best for your business and personal circumstances.
  4. Use a good business attorney! Yes you can do it yourself, but if you make a mistake it’s all yours! A small investment in good advice goes a long way in this area. Plus, a good attorney is a valuable part of your success team and an annual meeting to review your business and get current advice is an investment, not an expense.

— Bob Treadway

We went from a sole proprietorship to C corporation 13 years ago. The first step was to select the right accountant who continues to give us superb advice. If you’re running a profitable speaking practice C is probably the best choice. In a past mastermind group we had all of the choices represented and there were difficulties evident in S and LLC choices. Our accountant advised us on timing the formation and choosing a reporting year basis that saved us tens of thousands of dollars in taxes. We selected an accountant who had a large contingent of similar types of businesses, mostly professional practices in medicine, engineering, law, and the like. He recommended an attorney who handled the formation which I would view as optional. You may be able to do it yourself unless you incorporate as a foreign corporation in another state. We chose a state where we don’t live but where we incorporated because we knew we’d be relocating. Looking back, incorporating has been one of the absolute best decisions I’ve made. The advantages in setting up retirement plans, protecting yourself from liability, simplifying the handling of revenue, and the ability to expense so many aspects of your business make it a no-brainer if you’re planning to be in the field for the long term.

— Beth Terry

My attorney recommended it for better liability protection. Said with the litigious nature of our society these days, it might protect me better from lawsuits. Who knows really who is in our audiences? Doesn’t hurt. I got some better tax breaks, and felt like I’d finally “grown up” when I incorporated.

I didn’t realize how important all those minutes are. I finally hired a company called Just A Minute here in Phoenix who does my minutes for me. I’ll recommend them on SNN. They are the daughters of my attorney and work in his office. It helps immensely. The annual reporting isn’t all that hard. But you have to remember to renew or you’ve got problems. Taxes and all that seem to be the same. My recordkeeping has always been thorough, so incorporating didn’t change that.

A lawyer did my wills, trust, incorporation, deed transfer for my property — all in one package. I think I paid about $1,200 for incorporation AND closing the LLC to transfer it all over to INC.

— Rebecca Staton-Reinstein

I have an S-Corp. This type of corporation works well for me since it prevents the double taxation of a sole proprietorship (which I had previously). I think there is also a more positive impression with clients or prospects when you are incorporated (no matter which type you have). Since I have employees and sub-contractors, incorporation is a necessity. I wish I had incorporated sooner. I used a lawyer — for the same reason I don’t fill my own cavities or do my own corporate tax returns. I believe in paying for expertise. When it comes to incorporation, if you make a mistake, you’ll pay for it big time just like with taxes.

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