Dear Friends and Family,
Wow, is it ever complicated. When do I get to the fun part?
Somehow, I think a lot of entrepreneurs gloss over this part and then wish they hadn't. So, here's what I've learned so far.
There's two decisions that need to be made in conjunction that define your business. There's the tax entity decision which tax people like the IRS care about. You've got three choices - sole proprietorship, partnership, some variant of corporation. Then, there's the legal entity decision which lawyers care about. As risk adverse as I am, it has to be some form of limited liability company. There's no way I want somebody to be able to go after my personal assets if this fails. Conversely, I don't want somebody to be able to go after my business assets if I fail. And, that's where it gets complicated.
A limited liability company is a legal entity, but not a tax entity. If you're a limited liability company with one member, you're a single member limited liability company. Makes sense. Your taxes are filed as a "disregarded entity" and you go from there. But, it seems like the legal protection of a single member limited liability company is a lot less than a partnership or a corporation. After all, are you really that different from a sole proprietorship, really?
If you're a limited liability company with two or more members, you can be a partnership or a corporation. Only problem is, I'm doing this alone now since my partner bailed. So, a partnership doesn't make a ton of sense.
Which leaves me with a limited liability company filing as a corporation. The paperwork burden and legal burden is the most onerous with this combination. But, I don't think the other two options really give me what I need. Therefore, I think I'll be reading 805 ILS 180 - Limited Liability Company Act in detail to see what I need to know.
Cheers!
mouse
Wow, is it ever complicated. When do I get to the fun part?
Somehow, I think a lot of entrepreneurs gloss over this part and then wish they hadn't. So, here's what I've learned so far.
There's two decisions that need to be made in conjunction that define your business. There's the tax entity decision which tax people like the IRS care about. You've got three choices - sole proprietorship, partnership, some variant of corporation. Then, there's the legal entity decision which lawyers care about. As risk adverse as I am, it has to be some form of limited liability company. There's no way I want somebody to be able to go after my personal assets if this fails. Conversely, I don't want somebody to be able to go after my business assets if I fail. And, that's where it gets complicated.
A limited liability company is a legal entity, but not a tax entity. If you're a limited liability company with one member, you're a single member limited liability company. Makes sense. Your taxes are filed as a "disregarded entity" and you go from there. But, it seems like the legal protection of a single member limited liability company is a lot less than a partnership or a corporation. After all, are you really that different from a sole proprietorship, really?
If you're a limited liability company with two or more members, you can be a partnership or a corporation. Only problem is, I'm doing this alone now since my partner bailed. So, a partnership doesn't make a ton of sense.
Which leaves me with a limited liability company filing as a corporation. The paperwork burden and legal burden is the most onerous with this combination. But, I don't think the other two options really give me what I need. Therefore, I think I'll be reading 805 ILS 180 - Limited Liability Company Act in detail to see what I need to know.
Cheers!
mouse
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