Re: Inc. vs. LLC - which is better?

-----Original Message-----
From: Linda Titus <ltitus(at)mindspring.com>
To: hwg-business(at)hwg.org <hwg-business(at)hwg.org>
Date: Wednesday, June 21, 2000 11:28 AM
Subject: Inc. vs. LLC - which is better?


>Hi fellow entrepreneurs,
>
>I am a sole proprietor and I'm considering incorporating.  (How do you know
>when it's time to do so?  Is there a figure, such as when one is grossing
>more than $50,000 it's time to incorporate?)


As an accountant by education and experience, I would strongly suggest that
you find a competent, experienced CPA and trust his advice.  The first
answer you'll get to any question is "it depends."  Only someone intimately
acquainted with the details, goals, strengths and weaknesses of your entity
is going to be able to give you the best counsel.

Remember also that any decision you make regarding the structure and
strategy of your business will eventually affect you personally as well.

>I am trying to decide which style of incorporation is best.  I've heard
that
>becoming an 'S3'(?) Inc. would good.  I've also been told that becoming an
>LLC would be good.
>
>I heard that becoming an Inc. will force me to have a corporate bank
account
>(which I don't want 'cause of the cost) and that becoming an LLC will not.
>Is this true?


Banks vary widely on account features, fees, and requirements.  Check
around.  One of our businesses found a bank that offers small business
checking with no fees for 3 years and small opening balance.  It can be
done.

>What are the pros/cons of incorporating as an S3 Inc. and what are the
>pros/cons of incorporating as an LLC?  Which one requires the greatest
>amount of paperwork?  Does one cost a lot more than the other?


It depends.  Couldn't resist ;)  First, it depends on which state your
business is located in.  In the case of the infamous "Delaware Corporation"
or "Delaware LLC" you just need a registered agent in that state, the fees
are low (comparatively speaking) and you can be incorporated in a matter of
days, if not hours.  I, personally, wouldn't recommend such a move.  It is
almost always better to charter or organize a business entity in the state
in which the office is located.  Usually a no brainer, but I thought I'd
mention it.

Fees vary *widely* between states, California being the most expensive,
coming in around the $1,000 mark for some entities.  Texas is next, with
$300-400 to incorporate.  (This range is because some states charge extra
bucks here and there for certified docs, copies for you, blahblahblah...
then you've got all the forms required by the revenue folks and on it
goes...)  Florida, as another example, is something like $87.50 for a
corporation.  Most states fall in around that figure.  It is also worth
mentioning that LLCs seem to be consistently higher to register, some
substantially so.

>And is there a good web site or booklet that can explain this stuff briefly
>and in layman's terms?


There are scads of them out there, but unfortunately, most of them want to
sell you a service, or tell you that you need "this and that and this" but
tell you nothing about where to get them.  There are sites that offer free
"generic" forms, but unless you really know what you're doing, someone
should at the *least* go over them to make sure nothing is left out.
Believe it or not, there is a reason that accountants and attorneys go to
school forever ;)

That is not to say that you can't research all this and do it yourself, just
be aware that "only a fool has himself for a client" as they say in legal
circles.

The absolute best place to get info online, however, is your state's
department in charge of corporations.  This varies by state, but is usually
the Department of State.  You'll also want to check with your state's
Department of Revenue, because they usually have a section on the very
questions you've asked, as well as copies of their required forms.  Most
states also have a Business Development or similar division.  And by all
means, don't forget the Small Business Administration, who has resource
centers scattered all over the place, particularly around colleges and
universities.

Do your legwork, decide what your goals are for your entity, as well as your
personal finances and liabilities, and then find a highly recommended
accountant or tax attorney.  It will be time and money wisely invested.

Karin

---------------------
Karin Ransdell - kransdell(at)squishedmosquito.com
Escapade Development Team
Squished Mosquito, Inc.
http://www.squishedmosquito.com - http://www.escapade.org


>Many thanks in advance,
>
>Linda Titus

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