About David K. Staub Expertise I am a business and tax attorney and have spent more than 30 years assisting people with contracts in a wide variety of business situations. I can answer questions about basic contract issues. My experience includes almost all common contracts including employment agreements, contracts for the purchase and sale of a business, shareholder agreements, partnership agreements, LLC operating agreements, leases, software development agreements, distribution agreements, franchise agreements, joint venture agreements and software license agreements, to name a few. I can also direct people to sources for answers to specific legal questions which cannot be answered in a forum of this nature.
Experience
Experience in the area I have been an Illinois business attorney for almost 30 years. I have an extensive practice in the mergers and acquisitions area and have been involved in the tax and legal issues on hundreds of business transactions.
Organizations Illinois State Bar Association;
Chicago Bar Association (former Chairman of the Corporation & Business Law Committee and former Chairman of the Mergers and Acquisitions Subcommittee; former Executive Committee member, Federal Tax Committee and Chairman of subcommittee on general tax issues); Glenkirk Foundation (Trustee; Vice-Chairman/Strategic Planning); Association for Corporate Growth, Chicago Chapter; Midwest Entrepreneur Forum; Midwest Association of Alpha Delta Phi - President
Publications Commerce Magazine; YLS Journal; ISBA Section of Taxation Newsletter
Education/Credentials Harvard Law School, J.D., 1977; University of Illinois, B.S. in Accounting, with highest honors, 1974
Disclaimer Responses are intended to be informational only. No response is intended to constitute legal advice or create an attorney-client relationship. Online advice is not a substitute for consultation with an attorney.
I own a graphic design firm in Texas and it's presently a sole proprietorship. The business is run with my husband, but everything is registered in my name with the county. We have no employees but hope to in the future. Last year after having our taxes done, our accountant recommended we look into changing our business structure as it may save us some money on our income taxes, as well as protect our personal assets if we should ever need protection. What structure do you think would best suit a small, service-based company like mine that is run out of my home? How would I go about making this change and what would it cost roughly? Lastly, I occasionally resell printed products to my clients. Do I need to get a sales tax license and how do I go about that? I really appreciate your time and any guidance you can provide.
Answer There is no single right answer to your question. There are both advantages and disadvantages to a any particular type of entity. I've listed some of them on my LLC informational web site under www.llccenter.com/llc_advantages.html and www.llccenter.com/llc_disadvantages.html.
If you are the sole owner of the LLC, just as you are in the present business, then the LLC is treated for federal tax purposes just like a sole proprietorship. In Texas, there are, however, state franchise taxes payable by LLCs, so you should discuss those with your accountant.
There are also some advantages to a regular C corporation. While there is a potential double tax if your profits exceed what you can pay yourself as reasonable salaries, if you need to reinvest some cash in the business, you can retain earnings often a lower cost than in a pass-through entity like an LLC. The marginal tax rate on the first $25,000 of corporate earnings is only 15% (probably lower than your individual tax rate) and you also save the combined 15.3% that you pay in social security and medicare taxes.
An LLC or a corporation does offer limited liability protection, but in a service business with no employees, an entity may not in reality offer much protection. Since you or your husband will be the ones performing the work, if there are any liabilities, you will will likely be the ones who caused them to occur. A member of an LLC or a shareholder of a corporation is protected from liabilities for the acts of the LLC or corporation, but he or she is not protected from his or her own acts. I wrote an article on my website titled "How Limited is Limited Liability?" that explains these issues in much more detail. http://www.limitedliabilitycompanycenter.com/how_limited_is_limited_liability.ht...
Some people argue that a major advantage of an LLC over a corporation is the absence of the corporate formalities of holding annual meetings and preparing corporate minutes. For most small companies, those are simple corporate acts that really take very little effort, so I don't give them much weight myself.
As for costs, the fees payable to the State of Texas are $300 for both corporations and limited liability companies. Although the forms themselves are simple, I recommend that you get the assistance of an attorney to make sure that you have an appropriate operating agreement (LLC) or bylaws (corporation). The fact that everything is "registered" in your name but is run by your husband raises legal issues that an attorney should discuss with you.
