# LLC, INC. or Sole Proprietorship: Good, Bad, Ugly



## RandyMc (Jul 10, 2006)

Which is most common for electrical contractor business, LLC, INC. or Sole Proprietorship. What is pros and cons? Trying to decide which way to go. Will be meeting acct. next week to talk about it.


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## mdshunk (Mar 13, 2005)

I have no idea. I see about 50/50 inc's and sole proprietorships. I have not investigated the matter for myself. I am a sole proprietorship. I'm getting into some bigger crap, so maybe I ought to look into a change? Say, Nathan does operate www.inctalk.com This question might be better suited over there. That's where the experts on this matter hang out.


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## Teetorbilt (Feb 12, 2004)

If things get ugly a proprietor bears all of the weight, that can cost you your home and even your future. An LLC insulates you somewhat and a corp. even more. You'll still be listed in the suit as a corporate officer. Look at what happened to Enron.


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## Peladu (Jan 8, 2006)

My construction co is a Inc.
My accountant talked me out of becoming an LLC with my second co. so that as well is a Inc.
People have the misconception that LLC comes with some sort of insurance factor.
If someone wants to go after you, they can get you just as easy if you are a LLC as they can if you are Inc'ed.
You will notice that a lot of LLC's are partnership companies.


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## Speedy Petey (Sep 30, 2003)

Again I pretty much agree with Marc.
I am also still a sole prop as well. I just have TONS of insurance as was suggested to me by my accountant and lawyer.

I have seen and heard that Inc.'s do not isolate you as much as they used to. As Teetor said, you are still very much vulnerable as a key officer.

And LLC is somewhere in the middle but costs you money and has some limitations.


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## Teetorbilt (Feb 12, 2004)

As a prop. you have 0 insulation. The truth AND an electrical joke!:clap:


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## hjm (Aug 26, 2006)

I'm a LLC, yes they can still get you if you don't follow the rules and keep everything seperate, my choice is an LLC. Talk to an accounant, or lawyer for more info.


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## Grumpy (Oct 8, 2003)

Moved to business.


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## Gordo (Feb 21, 2006)

The best reason to go INC. is for the tax shelter.


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## Grumpy (Oct 8, 2003)

I am a corporation, S corp to be exact. Why S corp? It's due to the flow through taxation which basically prevents double taxation of income. However being an INC requires corporate minutes and other such record keeping. I am told, and I don't know this to be true, but LLC's have the same flow through taxation and don't require near the level of record keeping.

I'd never never be in this business and not be an INC or LLC due to the corporate shield that helps to shield personal liability. This especially holds true to an electrical company that could potentially burn a house down. Worst case scenario if you are an INC or LLC you can shut down business. However if you are a sole prop, they can move into your house and you can lose basically EVERYTHING.


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## Debookkeeper (Jul 23, 2006)

Grumpy said:


> However being an INC requires corporate minutes and other such record keeping. I am told, and I don't know this to be true, but LLC's have the same flow through taxation and don't require near the level of record keeping.


If your corporation is doing a lot of "related-party transactions", such as payments, loans, or distributions between the company and the owners, the IRS can challenge the transactions. The recording of the corporate minutes document the approval by the members for these transactions and makes for a stronge defense. Also the way you get paid is different between a LLC or Sole -vs- Corp. The only other small variables are little like tax preparation and accountant fees. It costs more to file and prepare corporate taxes than LLC or Sole.


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## R&S Exteriors (Aug 4, 2006)

If you go LLC and your the only owner you can report your income on your 1040 (just like a sole proprietor). You can only do it if your the only owner and it makes it alot easier.

Here is a link.

http://www.irs.gov/pub/irs-pdf/p3402.pdf


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## B-MAN (Aug 1, 2006)

The operations part of my business is operated as an S-CORP but my real estate is is an LLC, reason being if something where to happen to my business my property would not be affected.


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## Grumpy (Oct 8, 2003)

B-MAN said:


> The operations part of my business is operated as an S-CORP but my real estate is is an LLC, reason being if something where to happen to my business my property would not be affected.


I know a guy, large commercial roofer. His offices and warehouse are owned by his person and leased back to the company. The company is responsible for all repairs to said property. He has a second company setup which owns is vehicles and equipment and those too are leased back to the roofing company and also responsible for any repairs and maintenance.

Why all this drama and paper work? If he were ever to be sued, they wouldn't get much more than his company name. If he ever had to close down shop he could open up again the next day with the same location and equipment.


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## Jon F (Jul 15, 2006)

Grumpy said:


> I know a guy, large commercial roofer. His offices and warehouse are owned by his person and leased back to the company. The company is responsible for all repairs to said property. He has a second company setup which owns is vehicles and equipment and those too are leased back to the roofing company and also responsible for any repairs and maintenance.
> 
> Why all this drama and paper work? If he were ever to be sued, they wouldn't get much more than his company name. If he ever had to close down shop he could open up again the next day with the same location and equipment.


Great post Grumpy, that's the kind of thinking I like to see. But it begs the question---and I'm sure what most do anyway---is just lease those things anyway?? I'm not leasing those things right now, but that is the reason I will in the future. Person sues=they can take over all payments.


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## Grumpy (Oct 8, 2003)

Jon Fife said:


> Great post Grumpy, that's the kind of thinking I like to see. But it begs the question---and I'm sure what most do anyway---is just lease those things anyway?? I'm not leasing those things right now, but that is the reason I will in the future. Person sues=they can take over all payments.


Jon, I'd only lease from a 3rd party if the situation was right. If it is more equitable in the long run to own, then I will own even if that means owning it under my person and leasing it back to my corporation. 

What I mean is when I bought my color laser printer, I thought about leasing it. However I know it will last at least 2 years. If I lease it for 18 months I will have paid for it, so those last 6 months will be money wasted. Therefore it was a decision I made to spend more upfront so that I can enjoy those 6 months of additional profit. 

The same thing goes with vehicles. I have spoken with people who buy a truck and get a new truck every two years when it's been paid off. I ask why live in debt? That 3rd, 4th, and 5th year are debt free (in terms of owning your vehicle) why not enjoy the lack of debt? Own the truck until the repairs are half what a payment would be and then buy the new truck. Then again I am not a proponent of buying brand new work vehicles at all.

You may be asking yourself what all this has to do with INC, LLC, or Sole Prop and it just goes back to organizing yourself and your company for maximum profit and maximum protection.


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## cssconstruct (Jun 19, 2006)

Grumpy said:


> I know a guy, large commercial roofer. His offices and warehouse are owned by his person and leased back to the company. The company is responsible for all repairs to said property. He has a second company setup which owns is vehicles and equipment and those too are leased back to the roofing company and also responsible for any repairs and maintenance.
> 
> Why all this drama and paper work? If he were ever to be sued, they wouldn't get much more than his company name. If he ever had to close down shop he could open up again the next day with the same location and equipment.


Also, when he has depreciated the equipment off he can sell it to his other company, lease it back to the other, and start depreciating the equipment all over again. This is why hotel chains sell off hotels to each other, or to other subsidies that they own.


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## Grumpy (Oct 8, 2003)

cssconstruct said:


> Also, when he has depreciated the equipment off he can sell it to his other company, lease it back to the other, and start depreciating the equipment all over again. This is why hotel chains sell off hotels to each other, or to other subsidies that they own.


Yeah business is all just a numbers game and like any trade which has it's own tricks, so does business. "Tricks of the trade."


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## Jon F (Jul 15, 2006)

Grumpy said:


> Jon, I'd only lease from a 3rd party if the situation was right. If it is more equitable in the long run to own, then I will own even if that means owning it under my person and leasing it back to my corporation.
> 
> What I mean is when I bought my color laser printer, I thought about leasing it. However I know it will last at least 2 years. If I lease it for 18 months I will have paid for it, so those last 6 months will be money wasted. Therefore it was a decision I made to spend more upfront so that I can enjoy those 6 months of additional profit.
> 
> ...



Vehicles are tough. My point was that, like your friend, if you are leasing you don't own anything, thus nobody has much to take from you. Not only does that (obviously) not ALLOW someone to take something from you in a suit, but it deters them in the first place....if they see they have nothing to gain. The same would go for any biz expenses that could be leased, depending on the biz (dozer, bobcat,etc). I think what he is doing with the property is brilliant, if you don't mind being a landlord. But one way or another, the key to me is leasing, so you don't have an asset.


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## Grumpy (Oct 8, 2003)

What you and I am saying is the same thing. The only difference is I am saying own it under a seperate corp and lease it to your contractor corp. Sure actually leasing it from a 3rd party accomplishes the same thing in terms of protection but I think it could be more costly under most circumstances. I would really prefer for ME to have as many assets as possible, however for my company to have as few as possible.


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