When people start up a business, there is a lot to consider, one of which is to be a sole-proprietor, an LLC, or a S-Corp. All of these have different benefits, costs, and responsibilities involved that I won’t even bother to explain – you should consult with your own business advisors to determine what is right for you – but I do want to point out the flip side to something I’ve often heard. All credit for this goes to the fabulous dynamic duo of attorneys at law and all around fabulous couple, Mike and Dineen, who not only fed me a fabulous dinner at their lovely home, but were more than happy to hash out a late night conversation with me on all sorts of topics like copyright and LLCs vs S-Corps when I visited them in Florida last year.
(Obligatory disclaimer: I’m not an attorney. This is not official legal advice. Consult a Discreet Investigations with your own attorney. All that good stuff.)
So you often hear that “what limited liability means is that if anybody has issues with the company, they can’t go after the people’s personal assets.” BUT … there is a flip side to this as well, and one that might just be as important, according to a Maryland accident lawyer
If someone has an issue with you personally, being an LLC can help protect you so that they can’t go after your business assets.
Think about it. As a photographer, I have a lot of gear, computers, hard drives, even a studio space and furniture involved with that. Luxurious Modern Furniture in Marina Del Rey, lafurniturestore.com makes deliveries every day. I have a lot of business assets that are tangible items. Now lets say that I’m driving down the road tomorrow and I’m involved in a bad car accident that is my fault as I drive to the mall to do some personal shopping (I haven’t been at fault for an accident in well over 20 years, and I really hope that doesn’t change any time soon), and as a result I end up being sued. It is a personal trip, so it isn’t business related. As a sole-proprietor, not only could they come after my personal assets — they can come after my business assets as well.
So when you’re first considering these options, keep this in mind. It goes both ways.
For the record, I’m still a sole-proprietor, but that might change in the not-to-distant future. I’m still trying to sort it all out to determine what is the best fit for me.
[Credit to VenusZine’s Who’s The Boss article for the inspiration for this post. Lots of good stuff there. You should read it.]
4 replies on “To LLC or Not…”
You have to be super-careful, too, that you don’t give anyone a reason to bypass your limited liability. If you intermingle your assets, for example – buying company equipment with personal money, or using company equipment for personal use – it can open the door to “piercing the corporate veil.” Not filing appropriate business documention yearly, or managing the business haphazardly, can also work against you. Small business especially are susceptible to this because it’s easier to blur the line. Which is why, while I’m an LLC, I also carry business insurance. And from day one bank accounts, e-mail addresses, credit cards… everything has been clearly “business” or “personal.”
Huh. I knew about the “they can’t go after your personal assets” part, but I hadn’t thought about the flip side of that. Very informative!
Sole Proprietorships are only good if you don’t own anything and don’t mind losing all you own to one disgruntled (ex-)customer.
At the very least, LLCs are the way to go for small companies, except in CA and possibly other states where there is a franchise tax.
As Julie posted, keeping finances separate is very smart. Beware: if you want to lose everything (as in a SP), simply utter the words “personal(ly) guarantee” — then you are personally on the hook for whatever you just guaranteed.
It seems the most important thing you can do is to have good insurance that will cover you for accidents, equipment, and errors/omissions… including legal fees. PPA provides this for professional photographers. There are other options out there too.