Business Structure and Banking

Yellowfin

At the advice of many of my peers, I am getting ready to incorporate. I'm wondering how I should go about setting up a good business account for not a lot of money. I've heard figures like $2000-5000 to open a biz account vs. personal...but honestly I don't have that kind of cash laying around! :huh What kinds of options do I have in terms of setting up an account under an LLC? Many have told me this is the best structure to be under.

Safari

Yellowfin wrote:

At the advice of many of my peers...... Many have told me.......

Who are these "many peers"? "Peer" photographers? You should be seeking advice on business structure and banking from accountants, lawyers, bankers.
I know we do things differently in Canada, but.....
There is no charge here to "open a biz bank account". Fees and service charges, however, are higher than for a personal account and are based on the number of transactions and average account balance.
For about $50 you can buy a book with detailed instructions for starting a corporation. Government fees are about $250. Another $50 for a cheap "Minute Book" and a few essential stationery items and you're done.
If you're not comfortable doing it yourself - consult a professional accountant. Not a bookkeeper, photographer, or your mother's hairdresser's cousin's gardener's neighbour. As an accountant, I charge my clients about $500 (plus the aforementioned costs).
Don't know what your "$2000-$3000" covers, but it would be outrageous here.
Anyway, whatever the cost - if you can't afford it, you should wonder if you really need it. OR - if you really need it, you'd better find a way to afford it.

Angelo

I too would wonder about these "peers". Why do you think or why are they recommending incorporating? There are a lot of ramifications associated with incorporating that can weigh you down, not the least of which is taxation and fees.

Mike Lane

A Limited Liability Corporation (LLC) is definitely the way you want to go. The main advantage of an LLC is it protects your personal assets if you get sued. So let's say that someone sues you for whatever reason and you lose, if your business is an LLC then only your business assets are liable. They'll be able to take your camera equipment, any cash associated with your business, maybe a computer or something but they wouldn't be able to take your house or your car or anything really important. If you're to the point that you're thinking of incorporating you should definitely get the advice of a tax attorney. He can give you the straight facts about the benefits and drawbacks of an LLC or any other form of corporation and the fees and taxes associated with it. We on dgrin are good photographers (well I'm an okay photographer :uhoh ) but you won't find much sound advice on tax laws I bet.

gbroiles

Yellowfin wrote:

At the advice of many of my peers, I am getting ready to incorporate. I'm wondering how I should go about setting up a good business account for not a lot of money. I've heard figures like $2000-5000 to open a biz account vs. personal...but honestly I don't have that kind of cash laying around! What kinds of options do I have in terms of setting up an account under an LLC? Many have told me this is the best structure to be under.

Curiously enough, I am living proof that at least one tax attorney is lurking around on photo forums.

I don't know how things work in AL, but in California, it's possible to open a bank account with something like $100 as an initial deposit.

I think an LLC is a good option for creating a new entity, but someone in your state will be able to give you the best advice about that - there can be state tax differences that turn out to be significant.

From a federal standpoint, an LLC is essentially a chameleon - you can choose to have it taxed as a partnership, as a C corporation, as an S corporation, or as a sole proprietorship (if you are the only member).

What are the benefits you're hoping to get from creating an entity? In many ways, I think the "liability shield" angle is oversold. If you are personally involved in the operation of the LLC, then there's a good chance that any litigation arising from the operation of the LLC will also name you individually as a defendant.

An entity like an LLC or a corporation will provide protection from trade creditors (like landlords, suppliers, etc) but only if those creditors don't make you co-sign any obligations as an individual .. which is a very common request for new or unknown entities.

I don't know if you need a tax attorney, per se, but you should find someone - an accountant, an attorney, an enrolled agent - who will sit down with you and help you put together a strategy for finances, business structure, and taxes. Ideally, this person will work with you over a period of years - so they will have to live with/explain the results of the advice they give you. It's easy for people to offer gratuitous advice about "make an LLC" or "create a corp" or "don't bother" .. but tougher to stick around and actually do the work, and cope with the costs/implications of the choices.

In California, operating a corporation or LLC has an overhead, between taxes, tax preparation, filing fees, etc., of probably $1500-$2000 per year. You (or someone) should be able to articulate some concrete benefits you'll enjoy for that cost before signing up for it.

afmdmc

I'll have to agree with gbroiles here. if your primary reason for an LLC is asset protection, then your best bet is lots of insurance. 2 or 3 million is a good start.

Here's what happens: let's say you do something to cause some damage to someone first they sue your LLC then they sue you personaly for causeing the damages in the first place. now if the damages were caused by say an employee then you LLC might help. but in the end your best protection is having enough insurance. hope this helps.

Dave

David_S85

I've set up many business checking accounts over the years. The only requirements the banks have ever asked of me was my FEIN number (if you incorporate), and copies of certain incorporation papers. Then you sign a personal guarantee statement. There has never been a minimum balance requirement over what a personal account might be (read small). If any bank required a silly amount of cash assets in the checking or savings account, I'd leave immediately and begin biz with another bank. Competition between banks for business is a good thing. Oh, and order your checks and supplies through a 3rd party printer. Never pay the rediculous prices for bank printed checks. Again, if they restrict you on that, shop around for another bank.

Now, if you establish a line of credit with a bank, then they probably will insist on a minimum balance for collateral. That is justified. One bank once billed me several hundred dollars for "interest" on an unused credit line. I got out of that bank too. Read the fine print first.

burke

My suggestion: go to your local SBA - or SCORE office. They offer business classes that are chock full of info on starting your business. They can help you weigh the pros and cons of the different entity options. In addition, once you enroll in one of their classes, it qualifies you for their free business counseling sessions - one-on-one with a professional who can help guide you (and you can choose the focus, you can request that meeting to be with a CPA or a tax attorney, etc.)