If you are a contractor, building spec homes, does it make sense to you to do business as a limited liability company? If you are doing business this way, tell us what are the pros and cons.
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Gene,
Do as I did. Find a CPA who is experienced with the dealings of contractors. He/she will be able to direct you on how you should form your business that will be most beneficial to your needs. There is no substitute for a knowledgeable CPA and one who is experienced with contractors. It will be the best money that you will ever spend on your business.
Regards, Gary R&R
While the attorney is no doubt a good piece of advice, I wouldn't want to go talk to one blind and ignorant. I look forward to this becoming an educational discussion. I don't know much about it. I've skirted the issue for thirty years now, being on the borderline of whether it is really worthwhile or not. I was once for three years but Not aware if it really did me any good. That was when I had a specialty store seling wood stoves..
Excellence is its own reward!
Piffin,
First I was not referring to an attorney, but to an accountant, (Certified Public Accountant)
Second, I do agree with you about not wanting to sit down with an attorney or account blind and ignorant. Prior to me sitting down with my accountant I did some homework and had a list of a zillion, ( well almost a zillion) questions. What I want to emphasize is that after I did my homework I thought I knew everything about corporations, LLC's etc. I left his office realizing I knew very little. But I also left with the confident feeling of being pointed in the correct direction. I am currently operating as an LLC and for my situation it seems to be the best way that I could have formed my business.
regards, Gary R&R
P.S. I guess I could be considered a lurker, not posting often. Just want to mention I value your posts.
Thanks, What you said points out why we all need to stay away from those instant internet type corporation offers (Just add water and mix in money). When I had the store business, my accountant charged me about $1200/annum but he earned every penny of it with good advice..
Excellence is its own reward!
My financial guy, who himself has done some spec house building with partners, strictly as an investor, not as a builder, advises strongly, also, for the LLC. I've a discussion scheduled with my attorney, and will seek a local accountant who is capable of giving advice. I am looking to hear from someone who can speak from experience on how much laibility protection is offered by the LLC. You can be a lone wolf builder, no partners, no nothing, operating from your heated office over the garage, running one maybe two jobs with yourself and a good lead man, plus perhaps another good carpenter, and of course a good string of subs. Let's say you have been doing well, really well, or maybe you hit the lottery, and now you have yourself a third home, beside that timeshare, and it is in, say, Jackson Hole. How well are you protected, you and ALL your assets, from events like a plumber falling through the stair hole, or your last project sinking at its southeast corner, bad, cracks everywhere, because you didn't do soil borings? Does an LLC make this better? I don't know, but I intend to find out. Can anyone speak on this?
it is my impression that llc's are especially good for short term operations... like a couple of limited investors backing a spec house... or setting up a different llc for each project..or each operation... but .. have you dismissed teh other two common forms of incorporating ?
after 25 years as a sole prop. , i decided to incorporate and talked to my attorney and my cpa..in the end i chose "S-Corp"... and i only wish i had done it 28 years agoMike Smith Rhode Island : Design / Build / Repair / Restore
In a single-person situation, an LLC is absolutely worth it. They are very simple (and cheap) to set up and can offer personal liability protection. However, concerning the area of personal liability you should consult a competent attorney and make sure you have the appropriate insurance. For tax purposes, there is no difference between operating as a sole proprietorship (unincorporated) or as a single-person LLC.
Generally speaking, LLCs limit the personal liability of the members to the capital they have contributed to the business (i.e. cash and assets). However this becomes a bit more difficult for single-person operations, as it is very common to comingle personal assets with business assets. Another common problem is personally guarantying business debts. Typically to get a loan for a spec house the bank will require you to personally guaranty the debt, which means that if the project goes in the tank, you are personally liable to repay the loan, irrespective of the LLC. This is different from the plumber situation, which liability insurance should cover, and failing that, you would only be liable to the extent of what's in your business. Again, consulting an attorney is key for that issue.
If properly structured and maintained, LLCs offer great general liability protection. Maintaining accurate books and records, keeping funds separate, and carrying good liability insurance will go a long way toward protecting yourself from lawsuits.
From what I know LLC or S corp they protect you from your employees not from yourself.
Say you have 10 crews on 20 projects if some one gets hurt. You are not there your foreman is. The LLC or the S corp blocks the person from suing you personally.
or
If you are a one crew business and you run the crew personally and some one get hurt while you are there. You have given that person orders to do some thing or did not stop that person from doing something. You and the LLC or S corp are on the hook. The only thing that will protect you is don’t make mistakes or let some one else make mistakes and 4 or 5 million in general liability for LLC or the S corp. Plus a good amount of person liability insurance.
As someone who practiced law for 12 years before "jumping into" the construction industry, I have hesitated greatly about posting to this discussion. There are so many misconceptions about business entities and their impact on personal liability.
I think the best way to think about it is: do you want the doctor (or lawyer, or whatever) who injures or kills your loved one through gross negligence to escape financial liability (for raising your kids, etc.) simply because they create a corporation, an LLP, or an LLC and put $50k into it? No, the legal system (in any state) does not allow that. As an attorney, I had a C corporation (primarily for some particular tax consequences). If I had ever been sued for malpractice, any decent attorney would have (correctly) sued me personally and the corporation.
Choice of business form will probably be influenced by your tax situtation, whether or nnot you have "partners" (shareholders, investors, etc.), liability issues, how much complexity you want in your life. I hated the additional tax filings brought on by incorporating our law firm, but that's one example of the downside of any choice you make.
Talk to a good, business-oriented attorney (not some guy who does "a little corporate work" along with DUIs, divorces, some time criminal defense, etc.), and a good CPA. Ask them to list all of the pros and cons of any choice you are seriously considering. Its hard to reverse course once you have chosen some of the options, e.g., incorporation.
Good luck, ChrisA (recovering employment law litigator)
It's good to hear from a recovering lawyer. So it only took twelve years of practice to qualify you for a position in construction.
As far as I could tell, the major advantages of my corp were in tax savings. If I were a shyster, I can see other advantages to it..
Excellence is its own reward!
Is this from personal experience or has your legal advisor told you that it works that way in your state?
I know the state of Maine has a list of things you are always supposed to do when entering a contrat agreement on a home..
Excellence is its own reward!
Piffin:
Are you in Maine? If so, where?
Mike O.
One of those little spots in Penobscot Bay..
Excellence is its own reward!
I am glad that an attorney (even if he is "recovering") chimed in. His comments are what I have always suspected. No matter how the corporate veil is constructed, plan on being named personally in any lawsuit. Welcome to the US, the land of Unlimited Liability.
I am curious, say that someone comes on a site and injures themselves. They file suit against my company and me personally. Is it a judge that determines how far reaching the claim can be? Steelkilt Lives!
Timely thread.
I am in the process of incorporating in Canada. Anyone with experience with Canadian incorporation...love to hear about the advantages and posssible disadvantages. I know the laws are quite different from stateside.
thanks,
silver
A textbook answer would be that (1) judges determine questions of law, and (2) juries determine questions of fact. In real life, things are not so clear cut. When I was practicing law, I did almost entirely employment litigation in federal court. The federal judicial system, in my opinion, is much more "paper" oriented than most state and local court systems.
For example, a great many lawsuits in the federal system are decided solely on the basis of motions. If I could show a judge that the opposing party had no evidence, under the technical rules of evidence, to oppose my "factual statements" then I could avoid a jury trial and have the judge decide the case. (This is a highly simplified statement.)
Typically, issues of liability are determined by a judge and usually before any trial.
ChrisA
Oh...Southern Maine.
My family is from Frenchville...ever heard of it? I live in CT. Nuff said.
Mike O.
I'm kind of on the border between Southern Maine and Northern Maine and hoping that when the state breaks in half that we'll go with the north but you never can tell. It looks real borderline
;-).
Excellence is its own reward!
When the Northern half secedes, I'll put a vote in for you to have honerary citizenship!
Mike O.
Where on Penobscot Bay? I went to naval architecture school on the campus of MMA in Castine! Lived in the old schoolhouse that became a duplex, and is now a museum, I hear.
Only a stone's throw from Islesboro but I've only been to Castine twice so far. Known a few guys to do school there tho'.
Excellence is its own reward!
"The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are." --Marcus Aurelius