Sole Proprietor, LLC, or...? What should I do?

[Solo2driver]

I have been a consultant/engineer for the past 5 years, mostly working on solid-state electronics for military, tactical, motorsports, and aviation applications. After the last company I worked for defaulted on all of their contracts, I have decided to go out on my own and build a product that I have been working on. I am outside of my non-compete and non-disclosure periods, and I should not have any problems in that arena.

Development is done, and I am at a stage where I can offer a sellable product that is being mass-produced. This is all privately/personally funded by my current day job (and many sleepless nights), I do not have any partners, investors, or even small business loans...just me.

In the state of Texas, I am not required to hold a business license for this type of business, I am only required to have a resale permit (done) and pay business taxes and inventory taxes. I have no employees, and have a home office and warehouse my inventory here (heavily guarded & monitored-- don't even think about it *wink*).

What is my best bet? Continue as a Sole Proprietor and let it work out that way, or set up an LLC by myself? One contributing factor is that my wife is a teacher at a private religious school and pays taxes as "self-employed Clergy", but to be honest we have not actually had to pay taxes in years because we make so little as a household and our child tax credits take care of the rest, and we don't own property.

Suggestions? Should I hire a SB lawyer to get everything organized....I really don't have the extra $$ for that at the moment, as it is all going to development and manufacturing.

Thanks!

 

[Nyquist]

That's a tough call, but I think being a LLC would give you some legal advantages. I'll have to ask a guy I know on this. He ended up going the LLC route.

Edited to add: The reason he did it was that being a LLC would help prevent a loss of his personal estate if something bad happened to his business.

 

[bepperb]

I'm sure you can find what you need to make this an LLC online for relatively cheap. It's really hard to say without knowing how much you plan to invest and revenue. But if you ever wanted to sell or bring another investor in, being an LLC will certainly help with that. That can all be worked around as a sole proprietor, but with more hassle.

 

[rshaw125]

The only advantage to the LLC is limited liability. Most states charge some where around $200 a year in fees. I would be a sole proprietor and reassess if the business really takes off.

 

[Gary Allan]

I'm trying to figure what liability you have that requires the protection of the LLC. You've got nothing to lose at this point.

I'd be more worried about patents ... and marketing ..and being knocked off by someone with more money and whack-a-mole mobility.

 

[stockrex]

llc - limits ur liability in case u get sued. and the juicy part is that, u can pay ur self dividends and pay 10% tax on it.
so do the math
corp tax + div tax = u keep more?
or just file as sole trader

either way don't forget sec 179

 

[astraelraen]

An LLC can elect to be taxed as a corporation and then you can go the corp tax & dividend route, but innately an LLC and a C corp are worlds apart.

Is Texas a community property state? If it is not and your wife is considered a partner or has ownership interest in this business venture you technically cannot be a sole proprietor because it is a venture of two or more people.

I don't know how big or serious you are in this business venture, but if you are serious about setting this up and making it long term the costs of good legal and/or tax advice more than pay for themselves in the end.

If you make it successfully enough to have partners/sell the business/other complex situations you will want everything to have been setup appropriately from the beginning.

 

[Solo2driver]

Thanks for the tips. I'll see what I can afford to do, and decide if I want to go the LLC route now or wait until 2010.