Llc Vs. Sole Proprietor

Business By CakesbyCarla Updated 1 Apr 2010 , 12:52am by snarkybaker

CakesbyCarla Posted 14 Jan 2010 , 4:11pm
post #1 of 49

I'm researching business structures and am torn between a one person LLC and a Sole Proprietor business.

What have some of you chosen and why?

48 replies
tracycakes Posted 14 Jan 2010 , 4:53pm
post #2 of 49

I chose an LLC because it protects your personal assets if something happens. As a sole proprietor, you and the business are the same. As an LLC, you are personally protected because your assets are separate from the business assets. HTH!

costumeczar Posted 14 Jan 2010 , 5:45pm
post #3 of 49

I agree with tracycakes...Also, if you start out as a sole prop then decide to restructure as an LLC later, you have to do all the paperwork again icon_mad.gif , so you might as well do it once the first time. I had to get a new FEIN, business license, sales tax registration, etc.

indydebi Posted 14 Jan 2010 , 5:55pm
post #4 of 49

agree with both of the above. Let me give you a good example:

You get hit by a bus, with severe injuries and now you have to close your business. A past bride now decides she wants to sue you for ruining her wedding. She can sue the LLC. But since the LLC is closed and there is no longer any assets, there's nothing for her to get. So she tries to sue you personally. No can do. She can't cross over the LLC line to try to take your house or your car or your kids college fund.

let me clarify that she can TRY to sue you personally, but a good lawyer will have that thrown out in a nano-second.

CakesbyCarla Posted 14 Jan 2010 , 6:41pm
post #5 of 49

Thanks for the input ladies. That is all in line with what i've been reading. I'd been leaning in the LLC direction. That really is probably the way to go.

thecookieladycc Posted 15 Jan 2010 , 2:32pm
post #6 of 49

I am a sole proprietor right now, but will be switching to an LLC as soon as I get my shop.

itsacake Posted 15 Jan 2010 , 6:58pm
post #7 of 49

I set up as n LLC for all the reasons stated by everyone above, but then my attorney told me I most likely am wasting money because if the person suing you has a good attorney, they will be able to go after your personal assets anyway.

Haven't changed anything but I'm thinking about it. An LLC in California automatically pays $800.00/year in taxes, even if there is no profit icon_sad.gif

Check the laws in your state. Perception is not always reality icon_biggrin.gif

indydebi Posted 15 Jan 2010 , 7:32pm
post #8 of 49
Quote:
Originally Posted by itsacake

I set up as n LLC for all the reasons stated by everyone above, but then my attorney told me I most likely am wasting money because if the person suing you has a good attorney, they will be able to go after your personal assets anyway.

Haven't changed anything but I'm thinking about it. An LLC in California automatically pays $800.00/year in taxes, even if there is no profit icon_sad.gif

Check the laws in your state. Perception is not always reality icon_biggrin.gif


I specifically asked my attorney about the "yeah, but they can just sue you personally, anyway" and he said a GOOD attorney can get that thrown out of court in a nano-second. It's the whole purpose of an LLC. itsacake, sounds like you need a better attorney.

itsacake Posted 15 Jan 2010 , 8:51pm
post #9 of 49

[/quote]I specifically asked my attorney about the "yeah, but they can just sue you personally, anyway" and he said a GOOD attorney can get that thrown out of court in a nano-second. It's the whole purpose of an LLC. itsacake, sounds like you need a better attorney.[/quote]

Well one of us does LOL LOL!

Mine has been practicing law in California since 1964 and specializes in sole and small business firms and business and corporate law. I've known him for many years and have seen that he always considers a question very carefully from all angles before he makes a definitive statement. If anything, he is overly careful...

That being said, before I decide to do anything, I will check with some other attorneys. I do know a few. I set up as an LLC in the first place precisely because my understanding of the liability issues was the same as yours.

It is true, however, that we live in litigious times where anyone can sue for anything, and even if they don't win, they can make your life miserable for quite a while longer than a nano-second.

Just saying.... Check with an attorney. Most of us know cake better than we know the intricacies of the law, and states differ.

11cupcakes Posted 17 Jan 2010 , 7:53pm
post #10 of 49

I would check with attorney. My understanding that if you are homebaker and do not employ others you do not need LLC.

lonote1971 Posted 18 Jan 2010 , 12:13am
post #11 of 49

No u do not have to be an LLC, But its a good idea, If u want a sole prop, example, John Doe DBA Johns Cakes, (DBA means, Doing Business As) then you need tio invest in at the least a 1million dollar Umbrella Policy, 2 to 5 million would be better, They are in my state from $200 to $500 dollars a year.

The day that you can sue McDonalds because ur fat, and win the case.....U can be sued for anything, LLC or Not

pattycakesnj Posted 18 Jan 2010 , 12:39am
post #12 of 49

11cupcakes, having no other employees or being a homebaker makes no difference one way or the other, you need a LLC or other form of a corporation to protect your personal assets (I am an attorney so I know what I am talking about) In addition, a LLC is easier than other types of corporations you could form in that you can file your business taxes with your personal income taxes utilizing a schedule C

11cupcakes Posted 18 Jan 2010 , 6:22pm
post #13 of 49

I just mean you less likely to get sued if you have no employees. I think you get sued more often by employees than customers. And I would check if LLC protects me if I sued by a customer.So far I read that my landlord, creditor or supplyer can't go after personal assets with an LLC. And I am not sure if this is protection I need with my homebusiness.
I guess you also need to think how much business you plan to do to see if you want to deal with payroll if you only make one or two cakes per week.
But I am not an attorney or business owner. LLC sounds great if it really protect you from all lawsuits. I guess my question is do you need insurance if you choose LLC?

pattycakesnj Posted 18 Jan 2010 , 6:36pm
post #14 of 49

11cupcakes, you are mixing apples and oranges. Insurance has nothing to do with LLC. Let me see if I can explain as I think you are very confused.
For example, someone eats your cake and dies (I know, extreme but bear with me)
1. Their estate sues you, you have no insurance and no corporation set up. They win in court by proving that the death was caused by the cake. They win a huge multidollar settlement and to satisfy it, take your house, car, savings accounts, IRA's etc.
2. You have insurance but no corporation but your insurance is capped at 1/2 million dollars. The estate wins to the tune of $3 million, they get the 1/2 million from the insurance company and the rest from your house, car etc.
3. You have insurance for 1/2 million but you are also a LLC. Again they win $3 million, they get 1/2 million form your insurance company and the rest from the corporations assets, not your personal assets. So they could take whatever money is in your business account and your cake pans and tools. But, your home, etc is protected.
You ask if LLC protects you if you get sued by a customer, that is the point of forming any corporation, protecting yourself. A sole propertiership does not due that.
Hope I explained it clearly.

lonote1971 Posted 18 Jan 2010 , 6:38pm
post #15 of 49

Yes you need a General Libility policy, Or some type of Business Package, Example, covering your business contents and equiptment and libility to protect it against lawsuits resulting from your neglegence

lonote1971 Posted 18 Jan 2010 , 6:43pm
post #16 of 49

Pattycakesnj is correct, But in any case, LLC, Corp, Sole Prop....Buy Insurance, You may never use it but if you ever need it you will be glad you did.

11cupcakes Posted 18 Jan 2010 , 7:01pm
post #17 of 49

Pattycakesnj, thank for reply. I base my knowledge on articles I find online and sometimes it is confusing. This is why I post my thoughts to get a reply from someone who knows.

indydebi Posted 19 Jan 2010 , 12:44am
post #18 of 49
Quote:
Originally Posted by 11cupcakes

I guess my question is do you need insurance if you choose LLC?


You ALWAYS need insurance, regardless. Always.

chilz822 Posted 1 Feb 2010 , 4:33am
post #19 of 49

Is a lawyer required to help start the LLC or is this something you can do on your own? Does the LLC include everything you need to get going? (Registration of the business name, License tax id, etc.)

CakeInfatuation Posted 1 Feb 2010 , 4:57am
post #20 of 49

I found the LLC paperwork on my state's website and submitted them myself. My attorney recommended the LLC for the same reasons stated by others.

Not because he thought I'd make someone sick, but because we live in a society where they'd eat my cake, get the flu, and then sue me and say I made them sick...

It's a delightful world we live in these days.

Stumptowncakes Posted 1 Feb 2010 , 10:17am
post #21 of 49

pattycakesnj is on the money (and explained it very well)! I have a home based licensed business and I am an LLC with insurance. I have the LLC to protect my personal assets and the insurance to protect my business assets.

I think if someone sues it will be due to food poisoning, which you could die from if the complications got bad enough. And in that case with todays medical marvels I think the one who died would be culpable to some degree for failure to seek medical attention. Which is why we have attorney's like pattycakesnj who can sort all the mess out for us if for some reason any of us have to walk that path. Fun aside...

With all I read I forgot who posted the question. Unless you are making bookoo bucks, LLC is the way to go and if you can afford it get as much insurance as you can.

pattycakesnj Posted 1 Feb 2010 , 1:12pm
post #22 of 49

I formed my LLC right on my state's website, it was fast and easy, pretty much guided you step by step and even brought you to the feds at the end to get a federal tax id number. Check out your state's website, look for "how to start a business" or something similar and good luck

loriemoms Posted 1 Feb 2010 , 4:07pm
post #23 of 49

I became an LLC because someone in the next county over was trying to use my business name. LLC protects you from that in your STATE. I was able to stop her.

As far as protection on if they can sue you personally, please check with your attorney. A lot depends on other factors. I wouldn't depend on LLC as being your insurance against being sued. Get yourself good liability insurance.

wyovol Posted 1 Feb 2010 , 5:17pm
post #24 of 49

Also, regardless of what type of corporation you set up, make sure that you keep business assets separate from personal. Don't treat the business bank account like your personal one.

If you co-mingle the two, it is easier for an attorney to show that you "peirced the corporate veil" and get to your personal assets.

polliwawg Posted 1 Feb 2010 , 5:36pm
post #25 of 49

Speaking from an insurance standpoint, insurance should not be too expensive, and you can purchase insurance for a bakery at most insurance agencies, since it is not a high risk occupation (company).

loriemoms Posted 1 Feb 2010 , 5:48pm
post #26 of 49
Quote:
Originally Posted by polliwawg

Speaking from an insurance standpoint, insurance should not be too expensive, and you can purchase insurance for a bakery at most insurance agencies, since it is not a high risk occupation (company).




Our policy is a restaurant insurance policy, is not very expensive, and it covers things like if we burn to the ground or a hurricane take our roof away for lost income, up to if someone falls down in front while picking up a cake...

We are running into more and more venues who are requiring proof of insurance, btw. I guess everyone is sue happy.

susychpstk Posted 28 Mar 2010 , 4:04am
post #27 of 49

Hi All,

I've been recently looking into getting licensed, LLC'd, and insured. I'm brand new at the business aspect of cake decorating, but have thought it a good idea to protect myself and my assets...as everyone has commented, this is a sue-happy society we now live in.

I'm so discouraged, after speaking with a few insurance companies (including my own Commerce Insurance in MA), I've learned that it will cost me $530/year for a 1 million dollar policy with a 2 million dollar cap.

I've also checked into having a lawyer overlook my cake contract I've devised, as well as starting up a LLC for me and tax number for me. The lawyer fee was quoted to me as $1200. I checked also with doing it myself through Legalzoom.com, and the price for their standard plan was $1006.00, so I might as well have this lawyer draft it up, as she was willing to look over my contract as well.

I even went to my state.gov website and learned that I could get an LLC myself, but the fee is $500...is this higher than every other state? On the state's website, I've also learned that there's a yearly fee for LLC's in this state anyway-- of $500/year!!!!!

I'm scared to death to make my first paid-commission cake without being protected with insurance or an LLC, but geez louise! This is so expensive! I'll have to sink in at least $1000/year in LLC and insurance alone. Is this about average?

I'm so discouraged right now...I've been so excited to get this business rolling, and it's been one hiccup after another along the way. I went to get licensed by my city, and have learned that my neighborhood is not zoned for home baking. I have to go to an open town meeting April 1st (great...April Fools Day no less!), to share with them my plan and ideas of this business. I'm going to tell them that I don't even want people coming to my home to pick up their cakes....all I need is some bridezilla knowing where I reside...no thanks!

I'm fortunate to have the health inspector on my side, as he can't understand either why these low-income homes in the center of town are zoned for home baking, yet many of them wouldn't pass the health inspection, and my beautiful home, which he knows will pass inspection with flying colors, isn't zoned. Hopefully we can get that changed icon_smile.gif

Please advise, and let me know what you all think about the expense. I guess, in order to protect your assets, its worth the money...I just don't think I'll make any profit, as I'm only interested in doing this part time.

Oh, one more thing....my accountant advised me last year, to just bake and sell, for the first few years, as with all my accrued expenses, that I really wont need to claim my earnings. He said I really dont need to do the LLC, and that it wouldn't be good for me as far as alerting the IRS, and than I'd have to pay taxes. He suggested instead that I work under the table and then, in a couple years when/if I'm making anything, to then file for the LLC, and start with the tax claims. This sounds great, if I don't get sued....I just feel I'm leaving myself open for a lawsuit and not protected.

Sorry for being so wordy...I'm stressed!

Thanks everyone,

Susan

indydebi Posted 28 Mar 2010 , 4:17am
post #28 of 49

If those are the only start up costs you'll incur, consider yourself VERY lucky. Many spend $5000 to $75000 or more on equipment, build-outs plus the cost of commercial rents, utilities, etc. $500/yr for liability is pretty much the norm (give or take). My attorney charged me $800 to set up all of the LLC stuff, so $1200 is not that far off ... sounds like the norm, too.

Being able to be in your home is a wonderful advantage, if you can get the zoning. I've seen posts from leah, who is on her city zoning board (or something like that) and she has indicated it's not all that easy although she may be able to offer some help or advice.

I think you need a new accountant. That is very irresponsible advice he is giving you and if he flat out tells you to operate illegally, I wouldn't be too keen on him handling my accounting and taxes.

Seriously, if $1000/year ($20 a week) worries you, maybe your volume isn't at the level to justify a business yet. When I had my shop open, I had to do WAY more than that in sales a WEEK just to pay the overhead.

But dump that accountant.

Stumptowncakes Posted 28 Mar 2010 , 5:25am
post #29 of 49

Susan,
I feel your frustration! I am in my second year with my at-home baking business and have jumped through the hoops to get where I am. The first year I was in business I spent 16,500 for equipment, kitchen changes, licensing, fees and ingredients. I filed my taxes and showed a loss...I didn't pay taxes.

There is a misunderstanding by most that opening your business at home costs little to nothing. It is certainly cheaper than an actual bakery because the overhead is lower and the fees (here in OR atleast) are cheaper too. There are still significant start-up costs. My basic start-up costs (for Oregon, Multnomah County) were:

1-Addition of more cabinets $2000
2-Commercial sized refrigerator and Freezer $5000
3-State Business License (LLC) $50
4-Exempt from City/County taxes up to $50K
5-License w/ Dept. of Agriculture $152
6-Umbrella Policy $540
7-City Building Permit $138
8-Food Handler Card $10

I basically pay $1000 per year to operate from home for licensing, fees, and insurance. I couldn't get a lease for a commercial spot for that amount per month. So, although it seems to be a bit of cash out to start, you really make it up when you don't have the large over-head a bakery has. My intention is to build my clientele to the point I can open a commercial location. [/list]

Stumptowncakes Posted 28 Mar 2010 , 5:51am
post #30 of 49

Susan (continued),
One of the things I had to do when I started was to change my mindset of this being a hobby that I do for friends and family to this is a business. I hooked up with the Small Business Development Center and the Women Entrepreneurs of Oregon. Both agencies are a wealth of information for start-ups and small businesses. Both also have information on getting business loans. I know there are women's business groups in most large cities, I recommend looking one up near you.

Another helpful step might be to figure out how much cake you will have to make per week in order to pay for your start-up/operating costs. I can sell two small wedding cakes and pay for my expenses, a "piece of cake" (pun intended). My goal my first year was one cake, any kind, per week. This year it is two cakes. The maximum I want to do at home is three, at that point I am moving the business out of the house.

One last note, I do not figure out my energy bills because I would have to calculate the expense (business vs. personal use) and this would be daunting and not worth the effort. You might want a cell phone or second landline for the business so you can easily deduct that expense and keep your personal line separate. Most definitely get a separate checking account for the business. Someone mentioned this in an earlier post, it is helpful to keep finances separate for taxes too. I used Quick Books when I started but for my business at this time it was more than I need/ed. Try Cake Boss....I really like it.

Don't get too stressed out, the effort in the long run is sooooo worth it. Once you get over the initial hurdles and figure out the details for your City/State it will be a breeze!

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