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How and in what state to register business?

by NeverTooLate
9 replies
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Good Day Warriors,

My question today is 2 part:

1. How should I set up my new business, sole prop or corp. I don't like LLC because it sounds irresponsible and shady - "Limited Liability".

2. If I choose incorporation, should I do it in a tax-free, more private state like NV or WY or DE? I'm in MN, one of highest corp tax rates and Democrat/liberal control.

"I'll hand up and take your answers off the air."

Charles, NeverTooLate
St Paul, Minnesota
  • Profile picture of the author John Durham
    Would love to answer your questions Charles, but I would be open season for trolls. So Hopefully someone else can chime in.
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    • Profile picture of the author NeverTooLate
      Originally Posted by John Durham View Post

      Would love to answer your questions Charles, but I would be open season for trolls. So Hopefully someone else can chime in.
      :confused: Thanks John Durham. Don't understand though. Trolls? They sound bad, but what are they?

      Charles
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      • Profile picture of the author John Durham
        Originally Posted by NeverTooLate View Post

        :confused: Thanks John Durham. Don't understand though. Trolls? They sound bad, but what are they?

        Charles
        Bad people who have nothing better to talk about than other people. They like to exploit your personal details and twist them like tabloids, if you are anyone who can help them attract attention.

        Basically "Internet Vampires", or maybe "parasites" would be more appropriate.
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  • Profile picture of the author Jubu
    Are you against LLC's because they sound shady to you? or because you think it'll scare people away?

    My business is an LLC and a lot of bigger businesses are actually LLCs. It's really going to be the easiest choice.
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  • Profile picture of the author bizgrower
    My CPA would tell you to make your choice of incorporation based upon the type of business, structure of the business (just you, or do you have employees and officers...), liability potentials, and tax issues, etc. that the business would have.

    It IS VERY important to do it correctly up front because in the eyes of the IRS it is a permanent and unique entity.

    For example, I know of a dress shop owner who incorporated as a sole proprietorship. Sole proprietorships have to pay payroll taxes (Social Security and so on) on all the income and if it does well, as she did after a number of years, that is a huge tax hit.

    Had she incorporated as an LLC or c-corp, she would only have to pay payroll taxes on her salary from the corporation. And, her corporation could also pay her dividends - which are not taxed, or not taxed as heavily. In her case it would behoove her to switch corporate forms.

    But that is not an easy thing to do. To change corporation types, she would have to form an LLC (or other form), and that entity would have to buy her sole proprietorship. AND, it has to be for the real valuation price of the sole proprietorship and she does not have the $400,000 to do that. She can't sell it from one of her entities to another for $10.00. (This true example was the case about 15 years ago. Doubt much has changed and certainly not for the better.)

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    There is nothing wrong with being an LLC. It is just the name of the entity that limits your personal and business liability so that in case something does go wrong you and partners are more likely to still have a roof over head and a business. (An umbrella insurance policy is also a good idea.)

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    As for where you incorporate, my CPA would tell you that if you don't do business in say Nevada, then your state and the federal government can come after you for taxes per your state guidelines. How often do you go to Nevada? Do you have a home or business in that state? Do you get mail or pay bills or pay sales taxes, etc., in that state? Do you have children in that state? How often do you travel to that state for business?...

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    Keep in mind that I am only playing CPA for this question on the WF and you need to consult a tax or legal professional. And, your results may vary and I am not offering any expressed or implied warranty, guarantee, or refund.

    Dan
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    "If you think you're the smartest person in the room, then you're probably in the wrong room."

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    • Profile picture of the author InternetBullDawg
      Originally Posted by bizgrower View Post

      But that is not an easy thing to do. To change corporation types, she would have to form an LLC (or other form), and that entity would have to buy her sole proprietorship. AND, it has to be for the real valuation price of the sole proprietorship and she does not have the $400,000 to do that. She can't sell it from one of her entities to another for $10.00. (This true example was the case about 15 years ago. Doubt much has changed and certainly not for the better.)
      I've been in the tax and accounting field for over 17 years and have never heard of this having to be done to switch over to a corporation. If you remember the court case I would like to read it. I have changed several Sole Props over to S-Corps and the transfer of assets into the new corp is the only thing that may cause problems.

      I specialize in S-Corporations but starting out I recommend all clients to be a LLC filing Schedule C on their tax returns. The first few years of a business there can be losses and sometimes these can be limited in S-Corps. After the first few years if they are making a good income that warrants the change to a Corporate structure to save on taxes then I will suggest they do it.

      As Dan said there is no reason to incorporate in those states you listed. Just incorporate in the state you are in. LLCs are extremely popular and I do not consider them shady at all.

      You need to talk to an accountant and he/she will answer alot of your questions. I will meet with people for one hour to answer their questions when they first start out. I am sure there is someone in your area that can do the same.
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      • Profile picture of the author bizgrower
        Originally Posted by BullDawgDany View Post

        I've been in the tax and accounting field for over 17 years and have never heard of this having to be done to switch over to a corporation. If you remember the court case I would like to read it. I have changed several Sole Props over to S-Corps and the transfer of assets into the new corp is the only thing that may cause problems.
        Wow. This is what the dress shop owner told me about her situation. She needed a new advisor? Maybe she was talking about the transfer of assets: at most 2000 sq. feet of leased space, clothing, fixtures and equipment such as computer and cash register.

        Anyhow, NeverTooLate, start off right and do get competent, local, legal and financial advice. Not just from some marketing guy on a forum.

        Thanks BullDawgDany. I'll keep your contact info handy.

        Dan
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        "If you think you're the smartest person in the room, then you're probably in the wrong room."

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  • Profile picture of the author InternetBullDawg
    Code Sec. 351 covers transfer of assets. The only thing that may pose problems is when the assets have a loan on them. Everything you listed would qualify. There may have been something else in regards to her business although I do not know what that would be to cause her to have to pay to switch over.

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  • Profile picture of the author daddykool
    LLC and form it in NEW MEXICO or DELAWARE, where ever you work, live or own stuff from

    There is a current WSO around that works for this service, guy called Darren and what he is selling is good value as well, if you do not want to do it yourself
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