Starting an S Corp

[jmbeck]

Okay, so I am looking to start doing mechanical consulting on the side. I'm wanting to set it up as an S corp to protect my family.

That being said, I'm having a hard time finding info on it that doesn't involve one those sites trying to sell me a package.

Shirley (sic) someone here has done this in the past. If so, can you give me any ideas/pointers?

I don't necessarily expect to get a ton of work at first. I just want everything set up so I can offer the work through the protection of the S corp when I want to.

 

[Santiagj]

Wouldn't an LLC be better?

 

[jmbeck]

Wouldn't an LLC be better?

I have aspirations of this eventually becoming a venture where I have other employees.

Also, if I plan to reinvest all profit into the company each year, doesn't the S corp save on taxes?

 

[bigray76]

You can have other employees in an LLC, you do need a federal tax ID number though... I was part of a LLC out of Delaware (business partner lived there); hell of a better deal with taxes than NJ... I can't speak to LLC vs. S corp in that regard.

 

[Paul S]

All the guys that I know that went on their own went with a LLC. Beyond that I have no advice!

 

[lundoc]

I have an electrical contracting LLC. I am no expert, but I did get advice from a business major and other business owners. They recommended the LLC over the S corp. They both pay taxes but there is less legal mumbo-jumbo with an LLC and you can be the sole proprietor.

If you go to the IRS site, you can read about starting a business. You can go to your states website and read about starting a business. You will need to do both. You have to register a name, apply for the tax ID, and the pay the fee for federal, state, county, & city applications. Then you pay every year to renew each of those. I set up a business checking account and purchased quick books and I am in business, ProSystems Electrical Contracting, LLC est. 2006.

I am hoping to expand to engineering when I get my engineering license.

Hope this helps. You can save money by researching it yourself and possibly buying a book on starting a business, but I wouldn't pay a company anything that you can do yourself for free (except for the gov'ment fees). There is enough $25, $50, $100 fees at every level of imperial government to make it expensive to do yourself.

 

[FINK_RB_PE]

When I started my business I went with a LLC for the simplicity but you can convert it to a S corp at any time. The way it was explained to me is that there is no real tax savings in the beginning but if you start making a significant amount of money then an S corp offers some savings. You are required to give yourself a sallary with an S corp and the savings come on the money you make above that. The paperwork is much simpler with a LLC and there is less required record keeping as far as anual reports etc.

As far as protecting your family you can forget that, I went to a convention this year that one of the presenters was an attorney and he said that you would be sued as the professional and the corperation would be sued if there was ever an issue. Just get some good insurance and make sure what you put out is correct and DEFENDABLE.

 

[Bman]

I actually had to study a little bit of business law when getting my master's degree. The following is taken from Barron's Business Law book (2004) and explains the differences between an LLC and S Corporation. There are subtle differences and these may change from state to state, so its best to consult an attorney and possibly an accountant (for tax reasons) before making a final decision.... Also, if you look at the 2nd paragraph, it appears that some states do not allow professionals (PE's) to form LLC's, so that may not even be an option for you. Good Luck!

"To some degree, the LLC format is replacing the S corporation format. The LLC is similar to an S corporation (e.g., as with partnerships, no double taxation; as with corporations, limited liability of members/shareholders), but has advantages over the S corporation because it is more flexible. The LLC has (a) no limit on the number of members/shareholders (only 75 are allowed for an S corporation); and (B) nonnantural persons (e.g, corporations) and foreign citizens can be LLC members (the fules are more restrictive for S corporation shareholders). Nonetheless, compared with partnerships or corporations, there are some potential problems with LLCs. First, although both partnerships and LLCs are not subject to federal income tax, LLCs (as are S corporations) are sometimes subject to a state income tax (e.g., in Florida and Texas), which partnerships are not. Second, an LLC may not be permitted to merge directly with a non-LLC. Therefore, the only way to effectuate a merger is for the LLC to dissolve, for a corporation, merge with the other entity, and then revert back into a LLC, with each business format transformation tending to create tax liabilities. (Conversely, corporations generally can merge without undergoing a dissolution.)

Legal Analysis, though, must be tentative: LLC law is still new. The legal principles often are uncertain both within a state and across state borders. For instance, some states tax LLCs as if they were corporations (a few states do the same for S corporations), and some states do not permit professionals to form LLCs. Additionally, an IRS regulation promulgated in December 1996 permits most business entities simply to "check the box" and choose whether to be treated, for federal tax purposes, as either a corporation or a partnership."

 

[neabob]

Here in NC, there are local retired folks who volunteer their time to help answer questions just like this. They can also provide advice about other issues around starting a company like financing, business plans, accounting, insurance, etc. There may be a local branch near you.

http://www.score.org/index.html

Good luck!

 

[lundoc]

I agree with having adequate insurance. The key is to having "layers" of protection. First, a corporation where your liabiltiy is limited. Second, do your job correctly. Third, insurance, Fourth, separation of finances. You will lose if you are sued over malpractice, but if some freak accident happens your personal finances will be separated from the suit and will not be lost. This was advice from a friend, luckily though I have never been sued!

 

[Road Guy]

My wife and I had a business that was an s Corp. Later we wished we had done an LLC , I'm not a CPA but they paperwork was borderline ridiculous.

Either way it's probably worth a couple hundred to have a CPA set it up for you. You can do it yourself though but we had it set up for 350 bucks, they even gave us stock certificates but advised us not to see our companies stock unless we really really wanted to do more paperwork.

Good luck!