T-Shirt Forums banner

1 - 20 of 22 Posts

·
Registered
Joined
·
4 Posts
Discussion Starter #1
Howdy Gang?

Thoughts on the necessity of incorporation? And to expand, getting a taxpayer ID and running all expenses through a legal entity...?

Any comments would be appreciated...

Regards,

Kramer
 

·
Premium Member
Joined
·
27,691 Posts
I don't think it's "necessary" for a business selling t-shirts, especially starting out. But it is an option, depending on how you see your business growing.

Setting up some type of business structure (sole proprietor, partnership, llc, etc) is a good idea. If at the very least to help keep your personal income and business income separate. Getting a separate business bank account is a good idea as well.
 

·
Registered
Joined
·
1,906 Posts
Has anyone come across any good articles comparing the benefits of sole-propietership (or partnership) versus LLC or Incorporating? I'm sure Google could point me at some as well, but if anyone already knows any good comparisons clearly giving the advantages/disadvantages of such that would be spiffy.
 

·
Moderator
Joined
·
2,957 Posts
I think the main benefits an LLC or INC is the protection of your personal assets.

With a sold proprietorship your assets have no protection against claims brought against your company (you!).

The main benefits to a sole proprietorship is taxes. With an LLC and Corp., you basically get the "double taxation"!

Sales and profits of the business are taxed, AND when you pay yourself from the business that income is taxed again.

With a sole proprietorship you avoid this.

Depending upon your state, it can also be quite expensive to form an LLC or Corp.

Those are the main ones. I don't know of any articles off the top of my head, but I'll keep a look out.;)
 

·
Registered
Joined
·
106 Posts
Holy crap.
I went to the bank to open up a merchant account in order to accept credit card payments through the internet, but they scared me with the Sole propietor thing, saying that it doesnt protect me.
They said that it was better to register a corp. but then again thats a whole LOT of complicated mumbo jumbo a small starting bussiness like mine doesnt need.
 

·
Premium Member
Joined
·
27,691 Posts
They said that it was better to register a corp. but then again thats a whole LOT of complicated mumbo jumbo a small starting bussiness like mine doesnt need.
It could vary from country to country (or even state to state) on the requirements/benefits. If your local bank can't handle it, you can try setting up a mechant account online from places like e-onlinedata
 

·
Registered
Joined
·
3,800 Posts
Comin'OutSwingin said:
The main benefits to a sole proprietorship is taxes. With an LLC and Corp., you basically get the "double taxation"!

Sales and profits of the business are taxed, AND when you pay yourself from the business that income is taxed again.
I thought that the corp. pays the President and this amount is deducted from the Corp. taxable income. (an expense like).
 

·
Registered
Joined
·
690 Posts
With an LLC, you have the option to be taxed either as a corporation or as a proprietary business. A corporation will always tax you twice, except for s-corp.
 

·
Registered
Joined
·
37 Posts
really informative post guys thanks for the info, just one quick question, since i am going into business with my friend, no relation, can our companys bank account be joint or how does that work so both of us are allowed access into it? thanks
 

·
Registered
Joined
·
1,906 Posts
ontheCoMeUP said:
really informative post guys thanks for the info, just one quick question, since i am going into business with my friend, no relation, can our companys bank account be joint or how does that work so both of us are allowed access into it? thanks
Just set up the business as a partnership (basically a sole-proprietership but with 2 people instead of 1). The bank shouldn't give you any troubles setting up a joint account even if you aren't related; if they do you could always use a different bank (or threaten to).
 

·
Registered
Joined
·
18 Posts
Hi,

Me and my friend are starting an urban streetwear company, and I handle the business part of it, and have found a lot of good info from your website. I figure it's time to start paying some of it back.

I am a CPA exam candidate with a background in accounting 3/4 passed, so I have an okay picture of what I am talking about. However, if you view this as a really big business decision you should consider talking to a professional CPA and a quick disclaimer that this advice should not be interpreted as a recommendation of any kind (since I am from California, where suing is the new form of the duel)

With that being said, as someone mentioned earlier, incorporating in general "protects your assets," but it's a bit more complicated. A corproation in regards to law is seen as a seperate entity, which means that whatever you put into it, imagine that that is a person. Now when you start a business you put things into the corproation, such as IP (designs), cash, accounts, etc... Say you infringe on a trademark and you are now in hot water. If someone decides to sue you, they can only sue you to the extent of the assets in the corporation, they cannot go after your personal assets. Now think of this as compared to a partnership, if they decide to sue you in a partnership, you are fully liable for all possible damages.

Therefore, before incorporating, you will have to decide for yourself what is your risk of litigation. Also there are more technical issues such as piercing the corporate veil, which means if you are using the corporate form to intentionally trick people, courts can rule that companies can go after your personal assets (I'm not too sure how often this is, and i doubt it happens much if at all with t-shirt companies)

Also another big consideration is taxation, I think which was also mentioned. There are two types of corporations S-Corps, and C-Corps. S-Corps are more or less passthroughs, which means all the income flows through to you, and C-corps function as their own entity which means that they are taxed, and then when profits are distributed to you, they are taxed again. The tax rules with this are probably beyond my ability to explain fully. But those are the two major issues with choosing to incorporate (along with the money and time spent with incorporation, the issues of course vary with each individual business).

Our business is doing business as a general partnership with a defined partnership agreement.

Hope that helped and wasn't just a big waste of time
 

·
Registered
Joined
·
1,906 Posts
Cestlavie said:
Also another big consideration is taxation, I think which was also mentioned. There are two types of corporations S-Corps, and C-Corps. S-Corps are more or less passthroughs, which means all the income flows through to you, and C-corps function as their own entity which means that they are taxed, and then when profits are distributed to you, they are taxed again. The tax rules with this are probably beyond my ability to explain fully. But those are the two major issues with choosing to incorporate (along with the money and time spent with incorporation, the issues of course vary with each individual business).
Useful Info. What are some of the other differences betwen S and C corporations? (E.g., why would you want to go with a C instead of an S?)
 

·
Registered
Joined
·
399 Posts
Nice post Cestlavie,

Is there any corporation that isn't hit with "double taxation". I realize that an LLC is pass through (much like a soloe proprietorship), but is double penalized as well.

Also, isn't there some kind of "hobby" loophole that can be exploited with a sole proprietorship for a few years? -- I'm blanking on this one!

Thanks!

P.S. - This is the topic that has been holding me back for a few weeks. At the moment I'm pretty sure I'm going to go the sole proprietorship route, and then see how things are 6 months down the road.
 

·
Registered
Joined
·
18 Posts
Hi Twinge,

I think all that would apply to your business is that a S-corp and C-corp have different ways of taxation. Other differences are not as applicable such as exclusion of foreign shareholders, the limits on shareholders, and things like that. You would want to go with a c instead of an S for those reasons, but i dont think you would have problems with the limit on number of shareholders which the last time i remember was 75, or the foreign shareholder problem.

There are also some tax differences (such as specific deductions), that I wouldnt be able to tell you, and would probably specific to your business. Your best bet would be to consult a CPA there, as there is a lot of research there for income tax minimization.

Sorry I couldnt be of more help
 

·
Registered
Joined
·
18 Posts
Hi Error426,

To my knowledge only S-corps and LLCs are passthroughs as far as corporations. If the issue is limiting liability, you can also choose a LLP (Limited Liability Partnership) which is exactly what it says, but doesnt protect everyone in it. A LLP has general partners and limited partners, only limited partners are afforded protection. However, limited partners CANNOT participate in the managemnt of the company or it voids their limited liability, and as you are running your own company it would not change much as you would have to be a general partner. Where it would be applicable is if you have investors that dont want the risk of having to pay your debts. Then they join as a limited partner, and should you run into hot water, they only liable to as much as they put in. LLPs and all partnerships are passthroughs as well.

Also, in case some board members didn't know, a sole propreitorship means you can only be one person running the show, while a partnership is two or more.

The double taxation thing does sound bad, but it can be minimized with the help of a CPA as C-corps do get other deductions and benefits as well. What those deductions are would be specific to your business.

As for the hobby loophole, I really wouldn't be able to help you on that, sorry.
 

·
Registered
Joined
·
208 Posts
kramebe said:
Howdy Gang?

Thoughts on the necessity of incorporation? And to expand, getting a taxpayer ID and running all expenses through a legal entity...?

Any comments would be appreciated...

Regards,

Kramer
if you want some help with that talk to Roy at InvestSource Inc., he can help you and answer some of your questions.
 

·
Registered
Joined
·
208 Posts
I am not an expert but used to do a little research. For a small tshirt company LLC would be the best. Limits your personal liability for one thing. Incorporation is expensive and you'll have a lot of headache with reporting and audits.
 

·
Moderator
Joined
·
2,957 Posts
The expense of incorporating depends on your state.

Here in TN the actual filing fee is $100.

For an LLC in TN the MINIMUM filing fee is $600.

Of course there is a little more reporting, but it's not bad.

The overall tax implications may be more to incorporate over an LLC, but not the initial out of pocket.
 
1 - 20 of 22 Posts
Top