Would you use LegalZoom?

[AuntPeggy]

I have sent in my resignation, but I might be needed from time to time. Hubby may also be working from home for his job and they may want him to be working as a consultant.

I need to set up a consulting firm so I can work for my previous employer. I contacted my lawyer a couple of months ago and asked what needed to be done and he said he would get back to me after looking in to it. Nothing since then.

I went through all the steps with LegalZoom except actually confirming payments and got a bottom line of $567.99 for a LLC registration in Delaware (I once heard that Delaware is where you should register), a Tax ID obtainment, and 500 business cards (just because), and legal forms and some "free" advice.

I can call back my lawyer, but he doesn't do this normally. I can try to find another lawyer who does do this normally, but I'm lazy and uninformed.

I can use LegalZoom or find some other company in town that has off-the-shelf forms.

What would you do?

 

[Jim Logajan]

I have absolutely protected individuals behind the corporate entity. It can be done. If everything is done right. But what are the chances of that if it was a DIY?

That $1,000 you saved on the lawyer will seem like a bargain when the process server knocks.

Many things are possible; some are so low in probability as to not be worth the cost to mitigate.

She is planning to consult to a former employer who actually desires her service - that appears to be the extent of the use of any business entity she creates. Also, both parties have known each other for quite a long time, it seems. Therefore the chance for litigation of any sort is so low as to make $1000 or even $500 a needless expense.

I am not a lawyer and don't play one on TV, but I did do all the research and paperwork needed to form a California C corporation in 1995. Ten years later I did all the research and paperwork to dissolve it (I learned in the process that some corporations are simply abandoned; dissolution requires some individual to assume any post-corporation liability for any taxes.) Then a couple years later I did all this again to form an Oregon C corporation.

An LLC or S or C corporation isn't intended for her (or my) kind of work to protect private property from litigants, but is mostly to avoid problems with the IRS. Specifically, if Aunt Peggy contracts as a sole proprietor with her former employer she needs to make sure that the IRS doesn't decide to classify her as an employee of her former employer. If she hasn't already, she needs to read the IRS tests for "independent contractor" vs "employee":

http://www.irs.gov/Businesses/Small...ndent-Contractor-(Self-Employed)-or-Employee?

I agree with John's advice given back in post 5: whatever form the business takes (sole proprietor, partnership, LLC, or S or C corporation) it isn't worth the hassle for small businesses to form in a different state than the one that is the "nexus" of their business. I say this even for California which I found to be incredibly business-unfriendly. State laws are generally rigged to eliminate any alleged advantage a foreign formed business entities may try to get around.

Once you've done the research, go with what is simplest that accomplishes your goal. In small businesses there aren't that many "wrong answers" when it comes to the form it takes.

All the above in my humble opinion.

 

[Jim Logajan]

Aunt Sally could elect to be taxed as either a C or S Corporation. In the case of the C Corp her income will be double taxed.

My own experience is limited to the C corporations I formed - I'm not really conversant with regard to LLCs. The rationale I used to choose C corp seemed valid back in 1995; but things change.

But with respect to double taxation, as a pragmatic matter it seems unlikely to come into play much. I looked into having my C corp run a profit, thence to distribute dividends, but at least for a one or two person corp (depending on what is allowed in her state) I think she would find as I did that there are traps there, too. IRS also expects a "reasonable" salary to be paid there too. This being a part time business for her it is likely that the rules will force her to distribute most of the revenue as salary regardless of the form of the business.

I don't know what Aunt Peggy does but all business have legitimate uses for computers, so at least she is likely to be able have her business buy such tools with pre-tax revenues.

As far as determining if Aunt Sally is an employee or contractor, that's a worry for the employer more than for Aunt Sally. If someone files form SS-8 and Aunt Sally gets classified as an employee (and this does happen) then she probably benefits significantly.

If she is not pushing the limits and she is properly withholding taxes and sending them in, then it seems unlikely the IRS would care. I thought there were cases, though, where the "contractor" didn't do any of that. Never sent any withholdings in. And the IRS went after both parties, even though the "contractor" claimed they thought they were an employee and expected the "employer" to withhold. Too much evidence implicating the "employee".

 

[Jim Logajan]

The entire post was hyperbole Henning. There is no emoticon for that :lol::lol: