Any (very) small business owners in California?

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vkhosid

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Hey guys and gals...

I've been toying around with the idea of starting my own bid-ness for a while now, and have recently decided to get the ball rolling. However, being the first in my family to branch out like this, I'm really not sure where to look, who to talk to, and what to do. Any of you fine folks have any insight or suggestions regarding this venture of mine.

As a quick background, it will be a consulting company for building code compliance. I've looked around but for every answer I get, another one pops up to contradict the previous one.

I've run the gambit of hearing things like, "its simple enough to be a sole proprietorship", to "ohh man, there's no other options than structuring it as an LLC."....etc..

I'm all ears to anyone with any helpful suggestions/opinions.

Thanks in advance!
 
CA has what many consider to be heft LLC filing taxes.
It has been a couple years, but they wanted $800 a year in related filing fees.

There are three reasons to incorporate:
1. Taxes
2. Liability
3. Reporting/structure/separation of personal and company (primary is for marriage considerations)

My suggestion, find a local attorney get a free consult on the headaches to incorporate and protect yourself from liability. Then go talk to an insurance guy, this will likely be cheaper and easier to maintain.
Lastly, touch base with an accountant. Depending on how aggressive you want to be, and how detailed you are with records will determine if you want the headaches of an S-Corp, LLP, LLC, C-Corp, or even an LLC which files as an S-Corp. Note: an S-Corp can also have its own TIN, so you social security number is not sent around.

As a general rule, S-Corp with a dedicated TIN and general insurance will be the easiest to setup and maintain.

Good luck,

Tim (not an accountant or a lawyer, but I have spent way to much time with them)
 
How small will it be, and do you expect it to grow?

We started out as a very small business (consulting firm) and registered as an S corp. There are some tax advantages to an S corp, but in hindsight a C corp would have been better at this point in time. I wouldn't touch a proprietorship for consulting and you probably won't get professional liability insurance anyway as a proprietorship. I don't see an advantage of an LLC/LLP over a corporation, personally, and generally I only see them for legal and accounting firms for the most part.

Talk to a corporate attorney. They can advise you on the best structure and set you up with articles and bylaws and do the filings for you.
 
To answer the questions, it will be just me. As of now, it'll be a "part-time" thing to supplement my current income. However, should it take off (hopefully), I'd like it to be my primary source of income. No plans right now to expand into hiring any additional labor.

@Sac Arrow - why no sole proprietorship? Not that I'm disagreeing with you, just curious.

@Cluemeister - No, have not checked out score. But will when I get home.
 
vkhosid said:
To answer the questions, it will be just me. As of now, it'll be a "part-time" thing to supplement my current income. However, should it take off (hopefully), I'd like it to be my primary source of income. No plans right now to expand into hiring any additional labor.

@Sac Arrow - why no sole proprietorship? Not that I'm disagreeing with you, just curious.

No corporate veil. If something goes south and someone sues you, it's all on you. Although building code compliance is fairly innocuous compared to hard design and CM, there is risk.

@Cluemeister - No, have not checked out score. But will when I get home.
Click to expand...
 
EppyGA said:
Puts you at risk. As a consultant, if you give bad advice and get sued it would be bad news as a sole proprietor.
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Certainly makes sense. But I've always thought that this is exactly what E&O insurance was for?
 
vkhosid said:
Certainly makes sense. But I've always thought that this is exactly what E&O insurance was for?
Click to expand...

Generally E&O covers employees, not owners. Need to check the policy, I personally went with straight umbrella policies with a separate director policy.

Tim
 
Maybe I am wrong but I have heard that a llc or corporation doesn't provide protection to an individual for the actions of the individual. Those entities only potentially offer protection to the individual for actions of other individuals working for the business.

California does have high filing fees.

For a single member business entity there may be some tax advantage but I see little liability advantage. maybe I am wrong.
 
That's why I'm asking the questions. Quite honestly, past the general concept of starting this venture, I know very little else about actually getting it going.

I have already reached out to this SCORE reference that was mentioned earlier, and am waiting to hear back from them.
 
In essence, I'm preparing forms documenting compliance with california energy code (title 24, part 6). The design and selection of equipment, although I'd be more than capable of spec'ing out, will be left to others. My role would strictly be to verify and document compliance with the aforementioned code (and perhaps offer a suggestion or two of how to better meet or exceed code requirements).

So really, it is consulting, but not really. It is form preparation, but not really. :confused:
 
First - Don't do anything in CA unless you like being taxed to death.

Then - an LLC is worth the liability protection and doesn't have the restrictions you will face if you expand. If non-family employees are in the future go ahead and do it now. Main benefit of LLC vs either Corp status is they require less statutory reporting. From the IRS perspective you can choose whether an LLC is separate entity or not.

Most of the decisions should be based on where this thing might go, not on what it looks like today.

And those guys on the internet that said to talk to a lawyer and CPA are correct. Investing a few hundred dollars now is the best thing for you.
 
tspear said:
Generally E&O covers employees, not owners. Need to check the policy, I personally went with straight umbrella policies with a separate director policy.

Tim
Click to expand...

Well, E&O covers the entity insured. If it is a corporate entity, then the policy is effective for the corporation.

FORANE said:
Maybe I am wrong but I have heard that a llc or corporation doesn't provide protection to an individual for the actions of the individual. Those entities only potentially offer protection to the individual for actions of other individuals working for the business.

California does have high filing fees.

For a single member business entity there may be some tax advantage but I see little liability advantage. maybe I am wrong.
Click to expand...

It doesn't protect individuals from criminal actions or actions performed outside of the corporate scope, but as long as you mind your p's and q's you should be okay. Example - an employee signs a contract without having proper corporate authority to execute such. Something goes south and there is an E&O call. E&O refuses because the action was out of scope. Client sues the company. The corporate veil has been pierced. The owners are now liable for civil action.
 
Sac Arrow said:
Well, E&O covers the entity insured. If it is a corporate entity, then the policy is effective for the corporation.
Click to expand...

You may want to read the policy. All three E&O policies I reviewed just a few years ago had exclusions for owners and officers of the company.

Tim
 
tspear said:
You may want to read the policy. All three E&O policies I reviewed just a few years ago had exclusions for owners and officers of the company.

Tim
Click to expand...

It's a fairly meaningless exclusion. The policy covers the company (corporate entity.) To my knowledge, our E&O does not extend to individuals in any capacity.

I suspect that the exclusion that you cite covers the case of a pierced corporate shield, where the owners and officers might seek personal protection.
 
In my experience part time doesn't work. As the work comes in sales and marketing tend to suffer.
I have a poor work ethic so I have always hired the work done.
In my opinion as a one man company the best you can hope for is to make wages.
Sales is what drives any company so that is where I put my efforts.
I feel expanding your services maximizes the return on marketing.
Find a good accountant.
It is my observation most successful business net less than five percent of the gross so counting becomes important to keep from going backward.
If you can’t gross enough to make 5% work the business may not be a good idea.
 
You don't need an attorney, you need an accountant. A public accountant will do, doesnt have to be a CPA. CPA will charge more. Dont get too hung up in the structure. What you really need is customers, sales and production. Open a checking acct, get an IRS number (the bank will give you the IRS address when you open the acct) and start doing business as a proprietorship. Then if you want to make an LLC (best one IMO, because it is flexible, runable by just one person and easy) do it. No real need for one, just run all expenses and income through the checking acct and take all that to the acct at tax time (or before if you need to make quarterly income tax payments). Nothing easier than a proprietorship and it will do for a few years. H&R Block can usually do the taxes and they dont charge much. Good Luck!
 
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Step one...read this:

https://www.amazon.com/E-Myth-Revis...d=1499298755&sr=8-1&keywords=e+myth+revisited

Having owned and run many "small businesses"...some successful, some not...this is required reading IMO for anyone considering it.

You can open a business and get all the filing done in under four hours in an afternoon as a sole proprietor and poof..you are a bonafide "business".

I second the recommendation to go PAY for an hour consult with a legit corporate attorney to talk about what you wanna do and how best to set you up and in what type of entity...NOT one of those corporate filing services but a real business lawyer. I fumbled for years on my own and thank God nothing ever went wrong cuz I certainly did not do things right from the onset. A few hundred dollars spent now will save you tens of thousands later as you get successful.

If you wanna go the corporate route, a set up through a lawyer should only run ya $2k-$2,500 to get properly filed. Many will say you can do it on your own...which you can...but as an inexperienced owner and even with a paid filing services...there are too many I's that need to be dotted and T's that need to be crossed to make sure YOUR situation is done correctly.

Next step is to find a good CPA...hopefully one that works WITH your lawyer as a team. Neither of which you will really ever pay other than some basic things around tax time...but get a team lined up. A CPA is critical...but they do not do what the lawyer does from establishing the entity and protections from a legal perspective. A CPA is looking at it from a financial perspective. They are BOTH critical. You don't know what you don't know.

As far as CA specifically...welcome to the cost of doing business in the state. We looked at doing an out of state incorporation but for us the headache and hassle of what that entailed was not worth trying to save a few hundred dollars as a small closely held corporation. If that will make or break you, you will not be successful anyway.

For your line of work you will want General Liability AND Professional Liability polices at a minimum.
 
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Sac Arrow said:
It's a fairly meaningless exclusion. The policy covers the company (corporate entity.) To my knowledge, our E&O does not extend to individuals in any capacity.

I suspect that the exclusion that you cite covers the case of a pierced corporate shield, where the owners and officers might seek personal protection.
Click to expand...

Nope. Read the full policy binder; not the cover sheets and summaries. E&O policies that I have seen cover only employees and others acting on behalf of the company exluding officers and owners. Fairly stamdard language from what I have seen.
The solution so far for me, in the IT world is always a general liability or umbrella policy.

Tim
 
tspear said:
Nope. Read the full policy binder; not the cover sheets and summaries. E&O policies that I have seen cover only employees and others acting on behalf of the company exluding officers and owners. Fairly stamdard language from what I have seen.
The solution so far for me, in the IT world is always a general liability or umbrella policy.

Tim
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You should talk to your agent. It is not typical for an E&O policy to exclude the actions of officers and owners with respect to incidences that are the purview of the E&O policy. Also, neither a General Liability nor an Umbrella policy would be a solution even if the E&O policy excluded owners and officers, because they do not cover the Professional Liability exposure.
 
I have a Nevada S-Corp and have lived in Nevada most of my life. I can't imagine trying to do this in California. Just to do a 4-day trade show in San Francisco, the paperwork required to get a 4-day sales tax permit there required a mountain of paperwork and quarterly filings for the next 5 years, plus similar filings detailing how many minorities we employ etc. We (my wife and I - the whole company) decided it was not worth the hassle. In Nevada it cost me $125 to set up and took less than an hour.
 
tspear said:
Nope. Read the full policy binder; not the cover sheets and summaries. E&O policies that I have seen cover only employees and others acting on behalf of the company exluding officers and owners. Fairly stamdard language from what I have seen.
The solution so far for me, in the IT world is always a general liability or umbrella policy.

Tim
Click to expand...

Ours covers our company, and our clients on a project basis. But the IT version may well be different. Ours does not look remotely like what you describe.
 
Sac Arrow said:
Ours covers our company, and our clients on a project basis. But the IT version may well be different. Ours does not look remotely like what you describe.
Click to expand...

Like I said read the binder, I had proposals from all the major players in MD, MA, PA markets. All were basically the same.
E&O was employees only
Professional Liability was everyone
Directors was for board members
General covered everyone but owners
and Umbrella covered anyone and everything.

Tim
 
tspear said:
Like I said read the binder, I had proposals from all the major players in MD, MA, PA markets. All were basically the same.
E&O was employees only
Professional Liability was everyone
Directors was for board members
General covered everyone but owners
and Umbrella covered anyone and everything.

Tim
Click to expand...

E&O and Professional Liability are the same thing.
 
Just to echo what others have said, first consult a California business attorney and a California CPA or Enrolled Agent. The lawyer can help you pick the correct type of entity you want to form from a legal point of view, and the CPA/EA can advise you on the tax consequences of your proposed entity.

It is super critical that you have a firm understanding of both the legal and tax sides of your business coin BEFORE you going filing any sort of papers.

If the California building code people are as fanatical as their tax people then I'm sure that's something lots of people will need help with.
 
Guys...

Thanks for all the advice thus far. I reached out to SCORE.org and have an appointment schedule for this coming Monday. I figure I'll exhaust my free resources first. After that I can move on to the spending-money part.
 
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