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I have a home based business, do I have to do a limited liability corp?

Lisa A asked:

I want to protect myself from people, but it is only a home based business.
When do you or should you incorporate your business? If I have to incorporate where is the cheapest to do it and why?
I make my own cosmetics from home.
Which is the safest to do:
Limited Liability and so on. Which do I do?

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Posted in Small Business 15 years ago at 10:54 pm.


4 Replies

  1. You do not have a limited liabilty corp if you have a sole propiertership. There are several reasons to incorporate.

    1) Risk of being sued
    2) Tax benifits
    3) Protection of Name

    1) Costly, lots of paperwork, you need a lawyer
    2) Yearly fees
    3) Tax benifits only come in to play if your bussiness makes alot of money

    I would almost allways reccomened against it

  2. It’s called a Limited Liability Company. A limited liability company is a legal form of business company offering limited liability to its owners. It is similar to a corporation, and is often a more flexible form of ownership, especially suitable for smaller companies with a limited number of owners. Unlike a regular corporation, a limited liability company with one member may be treated as a disregarded entity, so the member is often singled-out as a person performing the actions of the LLC. A limited liability company with multiple members may choose, generally at the time that the new entity applies for a US federal taxpayer ID number, to be treated for U.S. federal taxation purposes as a partnership, as a C corporation, or as an S corporation. An LLC can elect to be either “member managed” or “manager managed.”

  3. Incorporating your business provides personal protection against liabilty for the obligations of the corporation, but they can be more difficult and costly to set up. You will need to issue shares in your company and assign members to your board of directors. You must also follow proper corporate formalities.

    If you choose to incorporate your business, there are three basic types of corporations:

    * A C corporation protects your personal assets if the business goes bankrupt or faces a lawsuit. However, C corporations face some tax disadvantages. Since you share your profits with your shareholders, you are taxed twice: first on your regular business earnings, and then again on payments to your shareholders.
    * S corporations offer the same legal protections as C corporations, but S corporations have only one level of tax generally. S corporations offer more tax benefits than C corporations.
    * Limited liability corporations, or LLCs, are a hybrid of a limited partnership and a C corporation. LLCs can have an unlimited number of shareholders and are not subject to the C corporation’s double-taxation problem.

    When picking the state to incorporate your business in your decision should weigh upon the following:

    1. The cost factors involved in incorporating in the state where your business is physically located compared to those involved in doing business as a foreign corporation in another state.

    2. The tax structure and corporate laws of the individual states. It is typically less expensive and involves less paperwork to incorporate in the state where your company is physically located than it is to incorporate in another state and do business as a foreign corporation in your own state. Typically, small corporations that will be doing business on a local or regional basis incorporate in the state where they are physically located and conducting business.

    To incorporate in another state with the intent of doing business in that state, your business will need to qualify as a foreign corporation in that state. Qualification is not difficult and includes a company name search and the filing of a certificate of authority in that state. Additionally, if you are incorporated in another state or doing business as a qualified foreign corporation in other states, the corporation is also typically subject to taxation and annual report fees in each of those states. A drawback about doing business as a foreign corporation in another state is the possibility of having to deal with legal claims or lawsuits in that state.

  4. You are completely at risk.

    If I purchase your product and sue you, I can get every asset you own. You have no protection at all.

    You can form an LLC easily. I have a corporation, that I actually pay an attorney $90.00 a year to maintain.

    There are a number of tax advantages even if you loose money.

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