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I am getting a bit lost in your arguments, but I'll try to address them:

Originally Posted by derekmajor

Well, and keep in mind I have 2 corporations but for the reason of distributing shares, however I know many others whole go the insurance route for as little as $10 a month.

Now I am not sure of the history of LLC's and their liability, nor am I a lawyer, but at the end of the day if you are not purchasing insurance for your LLC then that's just as stupid as having a sole proprietorship without insurance.

I agree, you should have insurance when conducting business. However, I'm just confused as to when that became a decent substitute for the formation of a limited liability entity. I don't think that it is.

Originally Posted by derekmajor

Your 2nd response....I'd expect a good business person who tasks risks has some sort of insurance. Would you really want to work your butt off and then lose it all? I'd say its just as painful to lose everything as an LLC as it is personal. Unless of course you're not out to make money.

And what happens if some accident results exceeds the limit? Well I'd certainly hope you would do research on similar cases in your industry to make sure that doesn't happen. Judges always use comparative analysis when determining a judgement, it is no different when looking for insurance.

I am still confused by this argument in favor of insurance. I never questioned insurance. Rather, I proposed that insurance is not a rational substitute for the formation of a limited liability entity, especially when an LLC can be formed relatively easily and inexpensively.

And just to answer the question that was never really answered, if you become liable for an amount that exceeds your liability insurance and you're operating as a sole proprietor, you are personally liable for the difference. On top of that, after having worked in insurance legal defense for a couple years, your insurance company is always looking for a way out of paying for your liabilities, which could leave you footing the entire bill.

Moreover, judgements in other cases are not great indicators of how much insurance you need. I can't help but ask where you got the idea that "judges always use comparative analysis when determining a judgment." That's just dead wrong.

Rather than debate issues which I don't believe you're too knowledgable about, I'll just say that I think that your insurance coverage should be determined by your possible exposure to liability.

Originally Posted by derekmajor

Response 3 - I agree it's illegal and unethical. But a lot of people who get a Corporation or LLC are simply doing it as a scape goat for their incompetence.

Anyhow....at the end of the day and I've done both as a sole proprietor and as menionted incorporated......there are pro's and con's to both. It is a fact its cheaper as sole proprietor and as are doing the books and paying annual registration fees. For a guy starting out...your best protection is insurance....but as I said above you need to do your homework.

No situation is the same for everyone, you just need to take a look at your business and determine what route you need to go.

The Enron case proved that the LLC\corporation veil does not protect everyone from everything regardless of the situation. A lot of lawyers give that "first hour free" and I'd recommend anyone to go in there and ask them about being sued as a director, it's pretty scary to hear.

I'm just throwing my hands up at this point. You clearly don't understand LLCs, so this probably isn't an issue for you to offer legal advice on, which is exactly what you're doing in stating that insurance is the best protection, not the formation of a limited liability entity, for someone starting out in business.

Still, I'm sure your experiences with regard to corporations could prove very valuable, so please discuss your thoughts on incorporating. But leave arguments in favor of another business entity to someone who at least has some experience or knowledge of it.

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Originally Posted by Cole Taylor

I havent done my own taxes in years, so there's a remote possibility I could be wrong. That being said, it is my understanding that an single member LLC and a sole prop are taxed EXACTLY the same.

You've got it, Cole. Pass-through taxation, the advantage of a sole proprietorship or partnership, combined with limited liability, the advantage of a corporation, to form an LLC.

I'm just blown away by some other members' misunderstandings of these and yet their reluctance to stop offering legal advice on the topic, most of which is laughably wrong.

[SRichey]

Originally Posted by jmenq2

I can't do anything but be candid with you: you are completely wrong in your analysis that an LLC is advantageous for tax purposes but provides little security regarding legal action. That is just completely wrong. The main purpose of an LLC is to provide limited liability. There's no getting around it.

Now, I would definitely be interested in reading the source for your information that an LLC provides "little security regarding legal action," so I'd appreciate if you could respond with that. Thanks.

You may want to look at this. Tax & Business Law Commentary: <br><br>Limited Liability and Its Discontents, Part 2

[derekmajor]

Originally Posted by jmenq2

I'm just throwing my hands up at this point. You clearly don't understand LLCs, so this probably isn't an issue for you to offer legal advice on, which is exactly what you're doing in stating that insurance is the best protection, not the formation of a limited liability entity, for someone starting out in business.

Still, I'm sure your experiences with regard to corporations could prove very valuable, so please discuss your thoughts on incorporating. But leave arguments in favor of another business entity to someone who at least has some experience or knowledge of it.

Clearly don't understand LLC's? I mentioned in my post I know nothing about them except for a general understanding. I'm from Canada my friend we don't have LLC's up here.

My point here is you're never protected entirely. You said it yourself, you do something stupid (i.e. Enron) then that corporate veil is removed very quickly.

I'd certainly read that link that was posted prior to this post. It's a good read on LLC (gave me a bit of an understanding more so) and clearly states that there are still legal stipulations. It hits the nail on the head with "piercing the veil". It's ignorant to think that there's never a way around "limited liability", go talk to a lawyer, you seem like you may be very astute in your travels so you might even have a lawyer. I guarantee he\she will give you specific cases in the last 10 years where that article above talks about piercing the veil. It's possible, it's been done.

Anyways back to the point of this thread. I'd recommend clearly reviewing all of your objectives as they relate to what type of classification you set yourself up as. And at the end of the day, and as you see with our disagreements, everybody has a preference. Obviously yours is the LLC route. I simply state review your options and do your homework regardless of what you choose.

And again...I don't know a damn thing about LLC but my lawyer can give good advice regardless of whether I'm in Canada or the USA and that's good enough for me.

Good luck.

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Originally Posted by SRichey

You may want to look at this. Tax & Business Law Commentary: <br><br>Limited Liability and Its Discontents, Part 2

Thank you for providing the link.

Unfortunately, it doesn't provide much support for your argument at all.

First, the article ONLY deals with tax liability. Thus, it does not even address or affect other issues of liability, such as if your business incurs debts or you breach a contract or you otherwise cause someone harm, against which a business owner would want to protect himself/herself personally.

Second, OF COURSE the member of an LLC is responsible for the tax liability. That is the nature of a pass-through entity. The tax liablity passes through the LLC directly to the member so that there is no double taxation, as is the case with a C corporation. On the flip side, while a member is responsible for the tax liability resulting from the LLC's gains, he/she can also deduct its losses.

I can go on, but I will stop to save time. The main point is that this article still does not point to business insurance as a reasonable substitute for selection of a limited liability entity. This article doesn't even address that issue, so I'm not quite sure why it was posted, aside from the fact that it popped up in a google search relating to piercing the corporate veil of an LLC. It's just not really valid to this argument.

See if you can find an article arguing that an LLC doesn't really provide much limited liability at all. I don't agree with this statement, as I've discussed previously, but I am very curious to read more in support of your argument.

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Originally Posted by derekmajor

Clearly don't understand LLC's? I mentioned in my post I know nothing about them except for a general understanding. I'm from Canada my friend we don't have LLC's up here.

Haha. I'm completely at a loss then! Why in the world are you advising others that business insurance is a better option than the use of a limited liability entity when you have no knowledge of LLCs other than a general understanding?! That just blows my mind.

Originally Posted by derekmajor

My point here is you're never protected entirely. You said it yourself, you do something stupid (i.e. Enron) then that corporate veil is removed very quickly.

You're quite correct. The key is to protect yourself in the best way possible and be knowledgeable as to the acts that might open yourself to personal liability.

Originally Posted by derekmajor

I'd certainly read that link that was posted prior to this post. It's a good read on LLC (gave me a bit of an understanding more so) and clearly states that there are still legal stipulations. It hits the nail on the head with "piercing the veil". It's ignorant to think that there's never a way around "limited liability", go talk to a lawyer, you seem like you may be very astute in your travels so you might even have a lawyer. I guarantee he\she will give you specific cases in the last 10 years where that article above talks about piercing the veil. It's possible, it's been done.

I read the link, and it didn't really shed much light on the situation at all. It ONLY addressed tax liability issues, and still didn't provide much new information, as one of the key attributes of an LLC is pass-through taxation. Obviously this means that the member has the tax liability, which is the trade off for not being double taxed, so this isn't an issue of "piercing the corporate veil," since it doesn't address any liability on the part of the LLC. It's irrelevant to the discussion.

Originally Posted by derekmajor

Anyways back to the point of this thread. I'd recommend clearly reviewing all of your objectives as they relate to what type of classification you set yourself up as. And at the end of the day, and as you see with our disagreements, everybody has a preference. Obviously yours is the LLC route. I simply state review your options and do your homework regardless of what you choose.

My preference isn't necessarily the LLC route. However, my preference IS a limited liability route. The LLC is the least expensive and easiest way to take this route. However, in certain circumstances, a corporation will be a better route. An attorney should be consulted to determine the best option, and preferably an attorney with experience in this field, as the tax issue is a very important consideration that not every attorney will have specific knowledge to address.

Originally Posted by derekmajor

And again...I don't know a damn thing about LLC but my lawyer can give good advice regardless of whether I'm in Canada or the USA and that's good enough for me.

Good luck.

Out of curiosity, did your attorney advise you that business insurance should be used rather than a limited liability entity for the purpose of limiting personal liability? I'm very curious.

[mattSantill]

Register as a sole proprietor if you want to save about $50 and fill out less paperwork. If you aren't sure whether you will make any money in the business and you really don't have any personal assets... what the hell be a sole proprietor.

I recommend switching over to an LLC when money starts coming in and business starts to grow....its as simple as filing the papers of incorporation and switching over.

If you own any personal assets.... car...home...etc. .... It would be wise to switch to an LLC ....ASAP.

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Originally Posted by mattSantill

Register as a sole proprietor if you want to save about $50 and fill out less paperwork. If you aren't sure whether you will make any money in the business and you really don't have any personal assets... what the hell be a sole proprietor.

I recommend switching over to an LLC when money starts coming in and business starts to grow....its as simple as filing the papers of incorporation and switching over.

If you own any personal assets.... car...home...etc. .... It would be wise to switch to an LLC ....ASAP.

Just a couple thoughts.

For an LLC, you'll be filing Articles of Organization, not incorporating anything. The actual paperwork involved couldn't be more straightforward and simple to complete, taking just a minute or two online. Once the LLC is filed, it's done - there are no recurring fees of which I am aware, though each state's laws are different.

The cost, to me, seems minimal, considering it will provide limited liability, which is extremely valuable, and need only be expended once. Once you have created an LLC, you can conduct all of your business activities under it from here on out.

It concerns me that one might think, "Hell, my business isn't making any money yet and I have no personal assets, I have no need for a limited liability entity because any personal debts or judgments against me are uncollectable."

I'll give you an example of why this is a bad approach:

Assume you take this approach, operating as a sole proprietor because currently you have no personal assets, your business is not making money and you believe that you are thus protected from any claims against you. While operating as a sole proprietor, you do something to create liability in the amount of, say, $100,000. Are you actually protected personally? The answer is no. Why?

Sure, if the claimant tries to collect a judgment against you now, you may have nothing for him/her to collect. However, he is not required to immediately collect it. Rather, the claimant can simply just sit on that judgment until you have collectable assets, be they house, car, business interest, inheritance, income, etc. The fact that you may create a limited liability entity in the meantime under which to operate your business doesn't protect you from the claimant. Your liability was created when you were a sole proprietor and is thus attached to you personally. This doesn't sound like something I would want hanging over MY head for the rest of my life.

And to a possible argument that if you're "judgement proof," based on your lack of personal assets, the claimant will not bother getting a judgment against you, understand that 1) a judgment against someone with no assets is not too difficult to get, often coming by default after simply filing a petition due to an assetless person being unable respond to the petition himself or hire an attorney to do so for him, and 2) statutes of limitations provide a claimant with years from the creation of the liability to file a lawsuit, which means the claimant can just sit back and wait to see if you begin to accumulate assets over those years before having to decide whether to file a claim. Thus, if you are hoping the claimant just won't seek a judgment, you'll have to sit around doing nothing for years. And still then the claimant can get a judgment and just wait for you to earn any money or accumulate any wealth over your life and then collect it.

All of a sudden "about $50" and a minute or two of filling out paperwork doesn't sound all that bad, does it? Maybe you'd rather take your chances. I wouldn't though.

[mattSantill]

All depends on the situation

If your main line of business is creating business cards for $10 a sheet the chance of a $100,000 liability will be slim.

There is certain information that needs to be filled out correctly when filing for an LLC ..... for Joe who makes business cards this easy oops can end up costing a great deal of money and a long with the extra $50 he just might go under.