Where do I begin?

The decision to start a business involves tackling a great many unknowns. Most people are aware of the many different aspects of being self employed. They include both internal (bookkeeping and bank accounts) and external (taxation and liability) factors. At our firm we are committed to assisting you in becoming successful if you choose to pursue self-employment.

Why are you skeptical about Multi-Level marketing?

We see many clients spending thousands of dollars on products and "kits" that never even produced enough income to break even, and we noticed the IRS frequently targeted taxpayers (usually not our clients) for extra scrutiny in this area.

We recommend you read this article about the industry.

Do you charge for this service?

Yes and no. Let us explain. If you are an individual tax client, we will gladly assist you with sole proprietorship planning and questions. Your Schedule C, on which your business will be reported, is a part of your individual tax return. We charge an additional fee for this Schedule based upon our assessment of risk for an IRS audit. As such, advice and planning are included.

Should you choose to elect another form of business we will charge our standard fees once you have decided to proceed.

Should I be a sole proprietorship, partnership, LLC or a corporation?

Several fundamental misunderstandings are associated with this question. Many people believe, for example, that if they operate their business within an LLC or a corporation that their personal assets will be protected in the event a liability arises from the business. In addition many people believe that forming a corporation gives them a tax advantage and allows them more "perks" than merely being a sole proprietor. Both of these beliefs are true to some extent, but both of these beliefs, in many circumstances common to my clients, are completely false.

Why wouldn't a corporation protect my personal assets?

A corporate existence does provide a great deal of liability protection, but only under certain circumstances. part of tax and entity planning is to determine whether the extra expense and compliance requirements of a corporation are worth it depending on the circumstances you find yourself in.

Under what circumstances will a corporate entity protect me, or not protect me?

Perhaps the greatest misunderstanding regarding corporations and liability concerns actions by you, the corporate officer/shareholder. We are often asked about incorporation by clients who intend to operate their business either alone, or with their spouse.  For such clients we rarely recommend a corporate structure. The reason is that no entity, no matter how well designed and compliant will shield an individual from liability for their own negligent acts. So if you are the only employee of your corporation, and you commit a negligent act, nothing prevents the aggrieved party from suing you personally, as well as your corporation. After all, you personally committed the act. The fact you were acting on behalf of your corporation does not change your personal exposure one bit. In fact, now the plaintiff may sue you and your corporation.

If neither a corporation or an LLC will protect me, what do I do?

The answer is insurance, insurance and more insurance. What kind and how much insurance you should have should be left to an insurance professional. But you should possess both basic and umbrella insurance. Basic insurance to cover whatever type of business activity you are engaged in and an umbrella policy as a back-up to protect against a catastrophic claim. An umbrella policy is relatively inexpensive, and only goes into effect if all other insurance has been exhausted.

What do you mean by a catastrophic claim?

The absolute worse case scenario does not actually involve death, but instead involves a severe injury to an individual necessitating intensive care for the remainder of their life. This may involve a claim of many millions of dollars. If your insurance company believes the claim will unquestionably exceed the limits of their coverage, they will simply pay out those limits and will have met their legal obligation to their insured.  If this is not enough money to satisfy the claim, the plaintiff will seek other sources for payment. Eventually this could reach personal assets such as real property.

How should I arrange my business finances?

The only way to go here is to have separate business and personal accounts.  But this is optional, though highly recommended for sole proprietorships. For corporations, partnerships and LLC's this is not an option. Whatever protection these entities might afford will be quickly cast aside if a potential creditor can prove personal and business assets were co-mingled or casually transferred between the entity and its owners. In a legal action known as "piercing the corporate veil," the creditors could have the existence of the protective entity disregarded and its members, partners or shareholders exposed directly to liability. The legal justification is that the formalities of the entity were not respected, and therefore no respect should be given to the legal existence of the entity and its corresponding protections.