Is it worth forming an LLC?

[john.shewchuk]

Im in the process of applying for a Type 1 FFL. Is it worth forming an LLC? Or, is it fine to just go the Sole Proprietor route?

I'm thinking that the sole proprietor route is going to be easier as all taxable income would be considered personal and I wouldn't have to worry about keeping an LLC in good standing with the state of Texas. On the other hand, it may well be worth forming an LLC to protect personal assets should I ever get sued.

What are your thought and what did y'all do? Thanks for your input.
-John

[DefensiveCarry.com]

[high pockets]

Like you said, a sole proprietership exposes ALL your assets, except your home and your vehicle. An LLC allows you to confine liability to the assets of the LLC. In many cases this may not be an issue, but in anything firearms related, you really need to protect your family as much as possible. With people suing with eventhe slightest possibility of collecting, can you really afford to lose your holdings even if you are found not at fault?

BTW - IANAL and I did NOT stay at a Holiday Inn last night.

[luvmy40]

I don't know if things are different in TX from OH as far as this goes, but...
I run my LLC as a flow through. The company never shows a profit or pays taxes. There are still tax forms to be filed for the LLC but it's not really that big of a pain. The personal liability security is worth the cost in my mind.

[troutkiller]

LLC's offer nominal asset protection. In my business (not gun-related), I have a Nevada LLC as a holding company, and a Ohio LLC as an operating company. It's a stronger set up than one LLC. I'd consult an attorney, briefly if nothing else (say 1/2 hour), but an LLC is not a bad idea.

[Diddle]

FWIT, I am a dealer operating as a sole proprietorship. I asked my CPA who is heavy into firearms and competitive shooting as to whether I should form an LLC. His reply was NO. Since I had no employees it is my butt that is in the sling. The LLC would only benefit me if I had employees and an employee did something stupid. In that case YES, it would be a good idea. However there is a multitude or scenarios to consider and be aware of. As above, seek the advice of an attorney. Especially one who deals with business law and not compensation suits.

[Rock and Glock]

Just remember you need to respect the LLC's separate legal existence and be real careful about your P&Q's.

[cdynaco]

I have had both a Partnership LLC (1065/K-1's) and a Sole Proprietor LLC (Sch C). The extra tax forms aren't a big deal. However, I've always wondered how protected my personal assets really were. Because it seems these days attorney's go after both the Entity and the Principals. Thankfully I never had to find out.
But are your personal assets really protected by an LLC or Sub S Corp?

[varob]

Also, look into incorporating yourself.

[OutWestSystems]

The reason that most people that have an LLC or a Corp end up getting sued for their personal assets is because they don't truly separate the two entities. If you for an LLC or a CORP you need to remember there is now a new being. You must treat that being completely separate from you. So you can't just take money from it to pay your phone bill or put gas in the car. If you do those things if anything ever happens the lawyers will be able to claim that you were not really operating as an LLC or CORP and come after you personally.

[cdynaco]

The reason that most people that have an LLC or a Corp end up getting sued for their personal assets is because they don't truly separate the two entities. If you for an LLC or a CORP you need to remember there is now a new being. You must treat that being completely separate from you. So you can't just take money from it to pay your phone bill or put gas in the car. If you do those things if anything ever happens the lawyers will be able to claim that you were not really operating as an LLC or CORP and come after you personally.

Right. Separate checking accounts. Pay yourself a draw out of the LLC, then pay your phone bill out of your personal account. Keep good records, easy to do.
However, wouldn't an attorney sue to hold both the LLC, as well as the individual doing the actual work, as liable? Dunno...

[bigmacque]

Diddle I have to be honest here, I don't think your CPA gave you good advice there at all.

I'd do the LLC, will definitely be more paperwork but affords many more protections than just personal assets. I'd also consider having a competent CPA file the taxes for you; one more name on the return, even though he shares no liability, will still make for a better presentation to the IRS.

[OutWestSystems]

Right. Separate checking accounts. Pay yourself a draw out of the LLC, then pay your phone bill out of your personal account. Keep good records, easy to do.
However, wouldn't an attorney sue to hold both the LLC, as well as the individual doing the actual work, as liable? Dunno...

Actually it depends. In many cases unless it is gross negligence or fraud, you are stuck suing the company. Remember, the company in many ways shields your employees also, now the problem with that is off course if they mess up it is your hard work going up in smoke.

The other thing that is important to think about is insurance. Get some. Two main reasons, they will be the ones that will be paying for the lawyers, and second, they are much less likely to go fishing for someone else to sue if you have insurance.

[Rock and Glock]

A good plaintiffs bar attorney will sue you and your LLC's and corps regardless, and it could double up your insurance. For example, I have two E&O policies - one for my S Corp and one personally. I also have a personal umbrella.

I still advocate an LLC and / or S Corps if your are in an industry that carries public risks, such as a gun store or anyone with wheels.

[cdynaco]

I'd also consider having a competent CPA file the taxes for you; one more name on the return, even though he shares no liability, will still make for a better presentation to the IRS.

I was given that sound advice by a successful realtor 30 yrs ago. Although I stayed on top of tax laws, and did most of the prep work to keep costs down, I had a CPA do the return and sign off on it.
An IRS agent seeing that is less likely to question a business return than if the owner was the only signer. Money well spent.

[BigJon10125]

Just remember you need to respect the LLC's separate legal existence and be real careful about your P&Q's.

The commingling thing took a while to get used to. I run DJ business and did it as a form of liability insurance. Haven't been sued, but better safe than sorry.