Who has LLC's for thier bbq products ?

[DoubleC]

In the past I have always operated my barbecue business as a sole proprietorship. I have had a few nice caterings here and there but for the most part that's all it has been thus far. I am now coming out with a few rubs and was wandering if it would be best to go ahead and form an LLC. For those of you who have your own rub or sauce line was this something that you did or would recommend ? This is a side business and not my regular income.

I have talked to a CPA about possibly becoming a Single Member LLC filing as an S-Corp. Anyone familiar with this structure vs just filing a Schedule C ?

Any advise would be greatly appreciated.

[Haltech]

I would look into an S Corp and see if your CPA recommends that direction opposed to an LLC. My CPA changed me from an LLC to a S-Corp this year. I dont get hit with so much tax now and my write offs work out better. S-Corps arent for everyone but it worked out great for me with my situation.

[Muzzlebrake]

could you explain that a bit more?
I am looking into this same thing right now, more for liability protection than anything else. I was under the impression that the LLC was more flexible for tax purposes.

thanks for the help

[Haltech]

Sean, give these two links a read. Also, i would talk to a CPA in your area about which one he recommends for you. I already have a internet business, so with the added bbq venture, i was better suited for an S Corp over my LLC ive had for the last 2 yrs. The first day i filed for an LLC in California, i got hit with an $800 tax right off the bat before i ever pulled in a buck.

http://www.powerhomebiz.com/vol136/structure.htm
http://www.residual-rewards.com/llcvsscorp.html

[bander7003]

It's very dependent on your state of residence. Some states have franchise taxes that apply to LLCs that, in effect, make LLCs more expensive up front. However, LLCs (at least from a federal level, and for most states) are much more flexible. As a single member LLC, you may not need a separate tax return for the entity, which will save money over time. All income earned by an LLC is subject to employment taxes. This is generally true in most situations for S-corps as well; however, many accountants do not handle it properly. I find that accountants tend to over sell and over use S corps. For what it's worth (and it's really not much), I'm a corporate and tax attorney.

[landarc]

From what I remember when we looked at this, LLC status is about protecting yourself against liability. As stated by Bander, the actual tax benefits vary state by state. And S-corp, at least in CA, offers less protection from product liability and also does not provide protection from product liability issues arising from negligence. Essentially a LLC offers more asset protection than an S-corp. In the end, we chose to go C-corp for maximizing protection against liability. Each state varies and a CPA and an Attorney can be useful in making this determination.

[Jet2]

When I'm not quein I'm a CPA in real life. That said there are three major things to look at - asset protection, product liability and taxes. Different states do things differently on the all three (franchise taxes etc.) but the federal taxes all work the same. A single member LLC can be treated as an ignored entity for tax purposes and you would still file a Schedule C. S-Corp would flow through net income and losses to you personally, and C-Corp gets taxed at the Corporate level. Your individual tax scenario would help dictate which tax structure would be best for you. I'll defer to the attorneys as to which would work better for asset protection and product liabillty.

[DoubleC]

I really appreciate all of your input. I know with having an S-Corp several other things come into play such as payroll taxes and paying yourself a salary. Since this is only part time and will not be a money maker for a while, to me personally, I see no reason to do that. Away from barbecue I work under my father who owns a payroll firm.

[bander7003]

One more point regarding asset and liability protection, insurance is as important and could provide better protection that an entity. I'm not dismissing entities at all, as I set them up and use them everyday. However, an entity -- regardless of type -- is not a magic wall protecting you from everything (or sometimes anything).
The articles cited above are very informative, but the devil is in the details. I could write a book on what the articles do not say. If done right, an LLC is as effective as a corporation in protecting an owner. The only differences between an S corp and a C corp are tax-related.

[landarc]

Bander, not in CA, in CA an S-corp provide only minimal protection of personal assets from product liability and negligence in a closely held corporation. An LLC or C-corp are the only ways to have some sense of protection. S-corps actually put your assets into the corporation in the event of liability. This applies only to a closely held corporation. A LLC is specifically a method of protecting personal assets.

I cannot agree strongly enough about insurance, particularly the aspect that an insurance company is obligated to defend you in the event of a lawsuit. They pay for the attorney's which is how you can really lose in a law suit.

[Jet2]

I think in the case of negligence no matter what kind of entity you have you may have some personal liability. No an attorney-just an observation!

[bander7003]

Originally Posted by Jet2

I think in the case of negligence no matter what kind of entity you have you may have some personal liability. No an attorney-just an observation!

But a very good and very correct observation.

[landarc]

Originally Posted by Jet2

I think in the case of negligence no matter what kind of entity you have you may have some personal liability. No an attorney-just an observation!

Trust me Jet, I know this all too well. As a person who has made his living designing in the public sector, liability is a fact of life. But, insurance can buffer you from significant loss in this manner. Further, you cannot underestimate the power of the corporate shield.

[got14u]

do as much as you can to protect what you have...That is the best advice I got. I had a construction company and a catering company years ago and had ALL the insurance I could fin and was under a LLC as well. I am in the process of doing another LLC for westernsmokers as well. Protection protection protection

[Dingodile]

I'd like to second everything bander said (I'm tax attorney in California) and also emphasize Jet2's subtle point, however, this is a fairly complex question which requires a much more comprehensive answer than I can provide here. Nevertheless, here's my two cents.

S-Corps are mostly over sold and the only real tax savings provided by a S-Corp is via use of distributions not subject to self employment tax. In my humble opinion this is a very risky strategy when the only true employee of the company is also its sole owner (I'm assuming that you have no other employees, Double C). An LLC would be a much more conservative (read appropriate) tax classification if you are the only member, also then you would not need to prepare an additional tax return. You would only include the business on your Schedule C.

With respect to liability limitation and asset protection, there's no significant difference between a LLC and a Corporation (at least in California). Additionally, there's no difference between a S and C Corp. when it comes to liability as these are merely federal tax classifications and have nothing to do with liability and debtor/creditor law, which is determined from state to state.

Finally, no business entity will protect the individual who causes the harm. A business entity protects the owners of the entity from losses caused by the entity's employees. When such a loss occurs, both the entity and the employee are sued, however, the employee typically pays nothing as the insurance owned by the entity steps in and handles the claim. So if the employee who causes the harm also happens to be the owner of the company, then the owner will have no protection. Long winded answer...buy liability insurance.