Question

Topic: Strategy

Business Entity

Posted by Anonymous on 12/17/2008 at 1:43 PM ET 85 Points
At what point does it make sense for a small business owner to change business entity from sole proprietor to LLC or Scorp? (Small accounting business)
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RESPONSES

  • Posted on 12/17/2008 at 5:23 PM Accepted
    Since your business service can cause people harm if you make a mistake, or since some people might try to blame you for their own mistakes even though you are not at fault, you might want to protect your personal finances from law suits and other liabilities by putting your business into an LLC.
  • Posted by Peter (henna gaijin) on 12/17/2008 at 8:21 PM Member
    I would read the book "Small Business Startup Kit" by Peri Pakroo. There is a whole section on business formation. I have a review of it at:
    https://expandabroad.blogspot.com/2005/08/start-up-book-recommendation.html
  • Posted by Mikee on 12/18/2008 at 9:44 AM Member
    I too think you should create an LLC. The best reason is to protect individual assests (thus the Limited Liability) part of the LLC. It is usually very easy to do through the secretary of states office. I did mine online in CO. You may want to have a lawyer drop up some papers if there is more than one manager.

    If you do become and LLC I have been told that it is very important to include the LLC designation on all corespondence, invoices, etc to let people know you are an LLC. It is also important to sign everything as Mr. Smith, General Manager so that you are signing for the entity and not your selft. A Lawyer can help you with all of these particulars.

    Mike
  • Posted by maryann on 12/19/2008 at 9:28 AM Member
    If you have personal assets that could be seized or that need protection, an LLC is a safer method of doing business. It is a relatively quick and painless process in my state, however I know that it can vary depending on where you are located, so do your homework first with an attorney you trust.

    It is not only a legal issue, but also an accounting one. Be sure to let your accountant know that you are changing your company's status as it may affect retirement packages or other business investments.

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