CSotD: That which we call an S-corp by any other name would tank as fast
Skip to comments
Today's "The Flying McCoys" sent me back to Google to look up LLCs again.
I'd started to read about them in the past, but the bafflegab generally outweighed the curiosity. This time, I dug in a little harder, and this is what I figured out: (If I'm wrong about any of this, I'm sure someone will correct me, which I'm sure they will also do even if I'm right.)
Becoming a Limited Liability Company provides some tax advantages in some states, but not much on the federal level except in cases where, most times, you'd probably do better to step it up and form an actual corporation.
But forming an LLC can protect you personally from creditors. So if you open a restaurant as an LLC and then go out of business, as the majority of new restaurants do, your creditors can come after your fryers (which you don't own yet anyway), your refrigerators (which ditto), your cash register (which also ditto) and your tables and chairs (see above).
But they can't take the boat you also haven't finished paying for either, unless you thought there would be some tax advantage in letting the business own it, in which case, well, at least they can't take the wide-screen TV in your rec room.
However, it is important to note that you are only protected if you go broke through honest stupidity. If there was something dodgy in how you were handling your finances, like, I don't know, having the restaurant spend money on a freaking boat or something, they can then come after the rest of your stuff.
That word "limited" cuts both ways.
As for the name, there are, so far as I can tell, only two reasons you would be required to have "LLC" on your signage:
1. Because you failed to file a paper saying that the purpose of "The Tasty Cafe LLC" is to operate a diner to be known as "The Tasty Cafe," or
2. Because you think it makes you sound cool.
As Glenn and Gary McCoy so ably point out above, adding LLC to your name does not make you sound cool, but, rather, quite the opposite.
Which leaves us with #1 above, which in turn means that whoever is advising you doesn't know what the hell he's doing. Or wants you to sound like a dork.
Not to be judgmental, mind you. We all do stupid things and take bad advice now and again. And again. And again.
In fact, I think I may have formed a corporation in my youth, though I'm not 100% sure.
What happened was that my then-wife and I were going to start a small business, and someone told us we had to form a corporation so we couldn't lose our house. We didn't have a boat, and widescreen TVs hadn't been invented yet. We didn't own our house yet, either. I think we just owned the front porch. We hadn't been there very long.
Anyway, we hired a lawyer and he filed some papers, and, just about the time we found out we had to appoint officers and jump through a couple of other bureaucratic hoops, we also found out that the business wasn't going to work anyway.
I can't remember if we actually went through all the stages of incorporation or just the important part where we paid the lawyer, but I do remember an increase in the volume of junk mail we received, so it's possible that we did formally incorporate.
Forming an LLC is easier than forming a corporation and ought to be less expensive, so there's a potential savings for those planning to foolishly flush money down a rathole. You don't have to flush as much as you did in the past.
And that, as far as I can tell, is the main advantage of forming a Limited Liability Company.
(And here's another savings tip for those planning to start a business: Between Microsoft Word and the software that comes with blank business card forms from Avery, you no longer have to waste nearly as much money on business cards and reams of stationery as in the past. On the other hand, you will then have to buy paper for the kids' art projects over the five years that follow, which may cancel out the savings.)
Comments
Comments are closed.