3 posts shown.
Thomas Ortiz3 said:A sole proprietorship is just an individual, whereas an LLC is a legal entity. As far as I understand, there isn't really a "conversion" process; you simply transfer the assets from one party to another, likely through a sale as you mentioned earlier.
Sales tax should be neutral for you regardless, assuming you're even registered for it—you'll need to weigh whether it's worth it based on your annual revenue. Which taxes were you referring to specifically? Real estate, vehicles...
That’s exactly what I meant—property and vehicles.
Thomas Ortiz3 said:You could always start as a Sole Proprietorship and then "transition" to an LLC later.
If the amounts involved aren't massive and you don't need to limit your personal liability, a Sole Proprietorship is perfectly fine. Plus, you can often benefit from simpler tax structures regarding sales tax depending on your state's cash accounting rules.
However, once you're dealing with larger sums and higher risks, an LLC is highly recommended—both for the lower tax rates and for protecting your personal assets.
As for the director requirement, as long as you have social security or other benefits being paid through some means, an LLC doesn't necessarily require you to have "employees" on the books if you already have a full-time job elsewhere.
Does anyone actually know—because I’ve searched everywhere and come up empty—what the actual costs are for switching from a sole proprietorship to an LLC? Do you seriously have to sell off all your business assets to the LLC and get hit with both sales and purchase taxes—like some people on this forum are claiming—or is there a more "elegant" way to handle it?
Hey everyone!
Sorry for the long post—I can't really do "short" without losing the nuance, so if you aren't looking to help, feel free to skip this so you don't waste your time.
I’ve been scrolling through the threads here and, predictably, found plenty of conflicting advice. Even my future accountant is scratching his head.
The gist: I’ve drafted an innovative business plan. I want to pull the trigger and actually start doing this. I can handle most of the workload myself alongside some sales reps. I’ve been in my current field for 11 years, pulling an average salary, and all my taxes are fully paid up. I have zero intention—at least not anytime soon—of quitting my day job. My sales guys are also fully employed elsewhere; they’d just be working for commission based on results :=)
So here’s the dilemma: Sole Proprietorship or LLC? Honestly, a sole proprietorship feels way more practical for me right now, whereas an LLC seems like a massive headache of paperwork and complexity. But there’s a catch—if this plan actually takes off, my business could see assets worth $500 $0.00 annually and revenue hitting $750 $0.00 per year. If things go big, aren't those numbers too high for a simple sole proprietorship? Wouldn't I end up getting crushed by higher tax brackets? From that angle, an LLC makes more sense. But then we hit the "what if" factor. What if the plan fails? What happens during the startup phase?
My accountant insists that with an LLC, I’ll need to hire an employee (though I see people on this forum are split on that). I have no idea how long it'll take to get this moving—it could be weeks, months, or even years. Having a full-time employee with zero output would basically bleed my initial investment dry in a few months, leaving $26 $0.00 gone forever.
Sure, if I hit those massive numbers, hiring someone isn't an issue—at that point, I'd probably need a secretary and an assistant anyway. But if the plan only hits 10% of its target—maybe $50 $0.00 in assets and $75 $0.00 in revenue—I’ll barely cover basic costs, let alone a payroll.
A third option is starting as a sole proprietor and then converting to an LLC later if needed. There’s a lot of chatter about this on the forum, but I haven't found any clear info on what that actually costs (someone mentioned you’d have to sell off all assets and buy them back under the new entity, liquidate the old one, and pay taxes on everything—which sounds totally absurd).
To wrap this up: the plan could be a goldmine, or it could be a dud. For the first year, I’m just relying on my own labor (alongside my main job) and the sales reps working on commission (on top of their regular jobs). I have my salary savings and an extra $20 $0.00 set aside. So, what’s the move? Should I go with a sole proprietorship or an LLC?