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Thread: Incorporating

  1. #1

    Default Incorporating

    Here is my situation. I had a successful online business selling capital equipment. I operated as a fictitious name entity i. e. dba. Had some health problems and I was a one man show. Ended up in the hospital and the business failed. I have a ton of creditors for a lot of money. Bankruptcy isn't a possibility. I am also half retired. I need to make some extra money, but not a lot.

    I am trying to restart my old business, but with much smaller requirements for earnings. On the advice of an attorney I want to incorporate. I am also going to register a new fictitious name with Florida. The question is what type of corp should I create? LLC? S Corp? etc.

    Since I have bad credit, I would like to distance my own personal credit from the company if possible. The most important reason is getting a good credit card processor. I had a lot of chargebacks when I was in the hospital. I also want to distance myself in dealing with old suppliers. Perhaps I can get a new relationship with them under a different company name?

    Any feedback is appreciated!

  2. #2

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    If you're going to pay yourself a regular W-2 salary, set up as an S corp. If you're just going to pay distributions from profits, choose an LLC.

    You're not going to be able to distance yourself from your bad credit though and you won't be fooling your suppliers by coming back to them now as a separate entity. If you owe them money personally still, they're going to think that this new entity is just a stunt to get out of paying old debts and you would possibly be alerting them to the fact that you have money or are capable or generating it to pay them back. If you're free and clear with them though and you still want to go back to using them, just make sure to let them know that you have set up this business as an independent entity now and that you were the sole prop that previously worked with them. Better to be transparent.

    The thing about being a single member entity is that you are basically still yourself, it's just a vehicle to potentially shield yourself from liabilities that wholly belong to the LLC on a going-forward basis. Would've probably been valuable to have done the first time around but that assumes that your creditors wouldn't have made you personally guarantee the debts that you have. My guess is that they would have anyway so it wouldn't have mattered. If you end up having to personally guarantee all the debts of your entity going forward then the only real benefit is legal liability protection, i.e. if someone sues your business.

  3. #3

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    Thanks, Melanie! That's very helpful.

    I certainly don't want to create extra bookkeeping for myself going into the future.

    Would the corp entity help me distance myself in being able to get a credit card processor?

  4. #4
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    It might take a while for the corporation to build up it's own credit record independent of yours. That said I do have a personal preference for proper corporations over LLCs, because they've been around a lot longer, and are a recognized entity as far as the IRS goes. If were to choose a single member LLC, you would still be viewed as a sole proprietor by the IRS, unless you elected to be treated as an s-corp, in which case why not just choose the corporation in the first place?

  5. #5

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    What are the downsides to the Corp?

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    I've read various comparisons of Corporations and LLC's and the consensus is (apparently) that Corps are supposedly more complicated and expensive to initially set up -- not sure that that is necessarily true -- and have more cumbersome and expensive requirements to maintain (e.g. annual meeting and filings) -- again, not sure that that is necessarily true. By this I mean yes, corps do have to final annual reports, but in my experience it's not that big of a deal. Much probably depends on the specifics of your state laws.

    ETA -- just reviewing Melanie's comments, so another downside is that to the extent you are working for your Corporation, you will have to pay your self a "reasonable" salary or wage as a W-2 employee, treating yourself as an employee of the Corporation, so will have to maintain appropriate payroll records and make sure all employer tax filings are taken care of, etc... The payroll process will withhold federal income tax, and FICA taxes, and you will be subject to federal and state unemployment taxes, and having to obtain worker's compensation insurance (or a waiver). Etcetera.... being an employer is a headache for sure.

    Not sure how it works if you are an LLC that has elected S-Corp treatment by the IRS, whether the employment stuff still applies....
    Last edited by tallen; 02-23-2019 at 07:52 AM.

  7. #7
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    Quote Originally Posted by ReadyVerse38 View Post
    Why don't you choose corruption?
    Corruption or corporation?
    Brad Miedema
    Fulcrum Saw & Tool

  8. #8
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    My guess would be that people who have been able to incorporate corruption in their business have made more money than those who managed to incorporate their business.

    Unfortunately most of us don't have that option so we have to struggle along trying sell our products or services.
    Ray Badger, Turbo Technologies, Inc.
    www.TurboTurf.com www.IceControlSprayers.com

  9. #9

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    Quote Originally Posted by turboguy View Post
    incorporate corruption in their business.
    I think that has been done before

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