Posts Tagged ‘LLC’

My business is an LLC…that means I’m protected…right?

Sunday, July 31st, 2011

I had a client come in recently that had a small construction company that he had set up as an LLC.  That part was fine, and a lot of people use an LLC as a business structure.  This client thought that as long as there was an LLC, all of his personal assets were protected in case there was any legal action against the company.  He had started the company with $100.00 and he had been told that his personal liability would be limited to the amount of his initial investment.

The problem is that even though he had set up the LLC, he did not really treat the LLC as a separate legal entity.  He used the company checking account to pay all of his personal expenses.  Since the income from the LLC flowed through his personal income tax return, that made sense to him.  After all, it was really his money.  So when the house payments were made using checks from the company checking account, it never dawned on him that the house might be considered as belonging to the company and might be attached if someone got a judgement against the company.

He had used an online service to create the LLC and he had filed the ‘Articles of Organization’ just as required.  He had also paid the fees to the service to get the name of his LLC approved and to get a new tax ID for his company (as an aside, you really don’t need to pay for these services).  When he went to the bank to open his checking account, the bank required that he have a business license for the area, so he did that too.  He was all set.  And since the company was his only source of income, he thought it would be easier to just use the one account for all of his banking needs.  That way, he didn’t need to pay any service fees for a different checking account.

He didn’t create an ‘Operating Agreement’ because it wasn’t required by the state and nobody at the internet site told him it might be a good idea.  He didn’t keep track of any changes to how he was managing the company or how he spent the money, because nobody told him he should.

Let’s suppose that one of his customers didn’t like something he had done and the customer sued the company.  The owner thinks his house and cars are safe because they were titled in his personal name and the customer had sued the company. The customer will probably argue that the house and vehicles really belonged to the company because all of the payments had been made by the company directly from the company checking account.  What would happen?

As with most legal situations, the answer is ‘it depends’.  The one thing that we can be sure of is that there will be legal fees to try to sort it all out.

It would be much easier to separate the business assets from the client’s personal assets if the client had created an ‘Operating Agreement’ and established a set amount each month to be paid to himself as a salary which was then put into a separate checking account out of which he paid his personal expenses.  The ‘Operating Agreement’ can also make provisions for the payment of a bonus if there is a month where the income is more than usual.  The ‘Operating Agreement’ might also make provisions for the company use of a personal asset like a truck.

In fact, the ‘Operating Agreement’ can outline a lot of different things that can happen with a company and tells everyone how the company will be managed and operated.  As long as you act according to the terms of the ‘Operating Agreement’, it is much easier to establish whether something is an asset of the company or a personal asset.

I know it seems cheaper to set up your company using an internet service instead of going to an attorney, but you should consider the possibility of future costs as well as the costs today.  Even if all you do is get an initial consultation, what you learn in that consultation might save you a lot more in the long run.

If you have any questions about this or any other legal subject, please feel free to give us a call at 757-234-4650 or visit our website at http://www.BeaversLaw.com.

Hampton Office !

Friday, May 20th, 2011

We have just opened a new satellite office to better serve our clients in the Hampton area.

Our Hampton office is in the Peninsula Town Center with an address of:

Kristina Beavers, Attorney at Law

4410 Claiborne Sq, Suite 334

Hampton, VA 23666

You can use the same phone number of 757-234-4650 to access us at either office (don’t you just love technology!)

To learn more about Kristina Beavers, Attorney at Law, check out our website at www.BeaversLaw.com

Do you have a Small Business ?

Saturday, October 31st, 2009

A lot of people set up a small business as a sole proprietorship, and this is fine. Often, there is no real compelling need to set up a separate business entity (such as a Corporation or an LLC), and the IRS will allow you to use Schedule C to track your business income and expenses.

The problem is when people don’t keep their business finances separate from their personal finances.

Most people are aware that they need to keep receipts for their business expenses, but often they forget that you also need to keep accurate records of your business income. If you don’t have accurate records, and you use the same checking account for both your business and personal finances, it is possible that the IRS will allocate some of your personal income to your business. For example, if you are the ‘team mom’ for a sports team and all of the members send money to you so that you can send one check to the photographer, it is possible that the IRS might allocate those ‘picture’ checks as income to your company.

The easiest way to eliminate this potential problem is to have a separate bank account for your business and use that account for all of your business financial activity and ONLY for your business.

Also, as mentioned previously, keep very good accounting records for your business, including receipts where possible and notes to yourself when an actual receipt is not available. Use this method for both income and expenses.

You can also obtain a separate EIN for your business. This EIN is like the Social Security Number you have for your personal identification, but it is used only for the business. Using this separate EIN is also useful if you need to provide tax id information to others and you want to keep your personal SSN secure from possible identity theft.

The other way to help eliminate potential problems with the IRS is to always file your taxes on time and be sure to make all of your payments on time and in the correct amount.

You don’t necessarily need to have an Accountant or CPA to assist you in this process, but if that is what it takes to keep you on track, you might find that it is cheaper to pay the Accountant or CPA to help you get it right the first time instead of paying someone to help you with an audit later!

The bottom line is that if you are running a business, you need to treat it like a business.

If you have further questions about your small business, or if you need some help in getting started, please contact our office at 757-234-4650 to schedule a short meeting. We would like the opportunity to help you get started!

I think I want to start my own business….

Saturday, October 31st, 2009

I get calls from people who say they think they want to start their own business and they want my help. Of course I can help them, but there are some steps they should go through first.

Before you even get to the point of deciding on a business name, or whether you should be a corporation or a partnership or a whatever, you first need to develop a mission statement and a business plan.

Let’s start with a mission statement.

A mission statement is a short, one paragraph statement of what your company will be. Think about where you want to be in 3 to 5 years and what you want people to say about your company. Do you want to be the ‘global leader’ in something? or do you want to be ‘the place where local people ….’? By clearly writing your mission statement, you are setting a goal for where you want your company to go.

It’s kind of like getting in the car to go on a drive, first you need to have a goal or you won’t know what direction to go first. If you want to end up in New York, you’ll drive North (from here in Virginia). But if you want to end up in Florida, you’ll drive South. Those are in opposite directions! So if you don’t know where you want to go, you might be driving a long time in the wrong direction.

You don’t want to do that with your new business.

So start with a goal. And formalize that goal by writing a mission statement.