Need Advice on Business Type

Discussion in 'Growing and Managing a Business' started by jwinter, Feb 24, 2011.

  1. jwinter

    jwinter
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    I am a recently unemployed Information technology worker with background in many areas. IT jobs in my area are non-existant but there is plenty of work doing various odd jobs. I have recently been offered some contract work doing PC, server, and printer maintenance over a large area possibly multiple states. After spending many years in a cubicle I am actually enjoying getting out. Many of my contacts and even the owner of one of the companies that wants to contract me started their independent contractor carreers this way.

    My question for you gurus is about the "type" of business I should start. Some of my friends tell me to just file DBA where I intend to work and others have said I need S-Corp or LLC. I know people who do all of the above.

    For the most part I plan to use my own vehicle, have no employees (work alone), and work from home. I would like to use a business name to get banking and possibly loans as i might have to float some projects. I believe I can adjust my auto insurance policy to make sure I am covered when out working.

    Advice?
     
  2. ArcSine

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    Generally, a corporation or LLC arrangement is called for when either (1) you have, or contemplate having, partners or investors; or (2) you need to insulate your personal assets from potential business liabilities.

    (1) seems to be a nonissue for at present (you can always incorporate or set up an LLC later should you decide to take on a partner).

    WRT (2) consider scenarios in which you might become subject to a claim or lawsuit as a result of conducting your business activity, and the potential magnitude such claims might reach. Obviously a vast range for different kinds of activities....you're not a skydiving instructor, e.g.,....but make a realistic assessment for your own situation.

    If you come up with significant risks to which you might be exposed, give some thought to setting up as a corporation or LLC. Take note, though, the liability firewall of a corp / LLC is weakened considerably unless you respect all the formalities of the entity's existence. (Note also that I didn't mention protection from business debts, such as loans you might borrow for business purposes. In nearly every case, the bank will require your personal guarantee on the note, thereby circumventing any "personal protection" your corporation might provide.)

    The two primary drawbacks of having a corp or LLC are the additional administrative burden (forms to be filed on an ongoing basis, e.g.) and cost (your Secretary of State office will impose set-up and annual fees for your entity; you may have tax return prep fees).

    From a tax perspective, operating as a sole proprietor is about "as good as it gets". You're not going to gain any tax advantages by setting up an entity, and you might lose one or two. There are a few exceptions, but they tend to stem from uncommon situations.

    Bottom line: It's a case-specific call, and I've just laid out a few of the primary considerations. Best of luck with your new venture!
     

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