LLC or Sole Proprietor - What's Right For Your Business?

Business Brain, the show for entrepreneurs episode 420 for Wednesday, February 1, 2023. Greetings, folks and welcome to. Welcome back to Business Brain, the show where we talk about how we and do use our business brains in all aspects of our lives, including, of course, our businesses here in Durham, New Hampshire. Back here in Durham, New Hampshire, I'm.

Dave Hamilton and still here in the Bay Area in Lafayette, California, I'm Shannon Jean. Welcome back.

Thanks, man.

Good, Good chance to see your kids over in Italy.

Yeah, it was amazing being able to, you know, my, my daughter and her, her boyfriend live over there now. He plays pro hockey over there. She has a job where she can work remotely and it's just, you know, it's fantastic seeing them and how they've created their life over there, their lives, put their life together over there. Like they've got an apartment and they, you know, they exist in this community where English is not really spoken. I mean, people speak English, but it's mostly German and Italian. Even though it's in Italy, German is the sort of the primary language in this area. But it's amazing how they've fully integrated and they have good friends over there. And just being able to see how well they're thriving and all of that made it a little bit easier to leave and come home. I mean, it's hard saying goodbye, but as I always say to my family, that's a good symptom or that is a symptom of a fantastic scenario. If we were not sad to say goodbye to each other, to me, that would be. That would show failure on, on our part, the four of us, you know.

And I think it's easier to.

It's.

It's easier to say goodbye than it is to, hey, I need you to move out of my basement.

Yes. Oh, that's true. That's interesting. Yeah, yeah, yeah, right.

I think that is a sign of success on both parents and the, the young person's.

Yeah, both.

Both of them. That's a successful transfer and launching out of like, okay, I'm going to totally miss you and everything else, but I' happy for you that you're going to experience all this awesome stuff.

Exactly.

You've got a great team. I think it's very helpful when there are two of them because you feel like they're working together and you got somebody eye out for each other.

Yeah. It's like having a business partner. I mean, in a lot of ways there is a similarity there between having a life partner and a business partner. You get to experiment and make mistakes and have successes together and somebody to say, hey, that sounds like a terrible idea when you're about to do something stupid. You know, that's, that's very important. Very important. Yeah. No, it was great. It was great seeing him. I, I feel a whole lot better. I mean, I felt fine. Like I wasn't worried about them other than just the normal sort of, you know, parent sort of concerns. But, but it was great to see him. Like, yeah, like you said, they're. It's great to see them like truly on their own and, and it's working and all of that good stuff. It's like, yeah, yeah, success. Sucks to say goodbye, but success.

Yes.

Yep.

Cool. That's great.

Better, like you said, better than not saying goodbye, you know, for decades. Yeah.

Oh, yeah, yeah. Wasn't there a movie about that failure to launch or something like that where.

Oh, I never saw that movie. But that sounds like the right thing. Yeah.

Yeah, yeah, yeah, yeah. That's great. It's fun that we're both at similar stages because you can talk about it and see how things are going with these, with these kids as they start their life.

As they start their life.

Wonderful. I love it.

Same. Yep. It's great.

Really cool.

It's great. Hey, we got. We've been asking for your questions into feedback at BusinessBrain show and you've been sending them. And remember, if we take your question and feature it, answer it, highlight it, use it, mention it on the show, that enters you into our drawing for a MacBook Air this year here in 2023. Randy from Rocklin, you're in the drawing. He says, I'm a retired IT product project manager that retired from a major telecom company about eight years ago. I've been a Mac user since 86 and I'm on an all Apple ecosystem. Since retiring, I've started a side hustle in areas of tech support. Besides providing Apple support, I've also been working in the smart home areas such as ring doorbells, wireless security cameras, voice activation devices and all things to do with cutting the cord. This past year was really busy and I'm not thinking it's time to move into and now thinking it's time to move into being a small business owner. That way I can take advantage of the benefits of being a small business owner that I have heard much about on the show. I expect I will need. Yeah, I expect that I will need a business license to get started as well as completing the various starting small business tasks that you have mentioned on your past podcast. My Question is, what is the thought process in deciding on being either a sole proprietor or becoming an llc? I want to answer that question, but the first thing I want to address is the assumption about needing a business license. I've never gotten a business license. I have. I have formed LLCs. I have gotten DBAs, but I've just. I plow my path forward. And one of the first things that I did, like, when I started my first business, was I wanted a bank account in the name of the business. So I went to the bank, I started there, you know, start where you're going to end. And they were like, okay, so do you have, like, incorporation papers? I'm like, no, it's just going to be me. I'm calling myself, you know, Dave the Lawnmower or whatever. And. And they were like, okay, do you have a dba? I'm like, no, what's that? And they told me it's a paper you file with your local thing to. To get a name reserved for you. Go do that. Then you can come back and you can get an account as, you know, as your dba. So that's always where I start. And I've never encountered a scenario where someone has said, oh, you need a business license. If they did, I would have gone and gotten a business license. But I guess my advice here is don't just assume you need to do lots and lots of menial tasks before you can just get going with your business. My MO has always been just get going and then do the menial stuff that you have to do and figure that out along the way.

This is the best thing about. I love about this question as well, and I have. I'm gonna bring it up. Is that Randy, didn't you know? We made this comment. Beware the onces. Oh, once I do this, once I get a business license, once I get a resale permit, once I form an llc, those are all just barriers. So just start. Just start and pick it up. You're not gonna, you know, start and owe a million dollars in taxes immediately. Start. Get things going, keep track of things. Make sure that what you doing is viable, that you're good at it, that you have interest in it. And then when you start to see some success like Randy has, then you start asking questions. Okay, what do I need? Yeah, do you need a business license? Now, you know, if you're a contractor, if you're. There's all kinds of different types of businesses, but there's a bunch of them that you need to get a business license. I'm sure there are even in each. If you go from city to city, they would like you to have a business license in every city or town that you do work in because they would like a piece of your revenue. So you got to do a little research. You're talking to probably the two people that don't agree with that mindset the most.

Yeah, well, you know, my, My experience and, and this is Dave sharing, not Dave advising. My experience has been it for me. It's been cheaper to essentially follow the ask for forgiveness instead of permission model with all this stuff. Yes. Because if it. Because you know, you, you. First of all, like you said, beware. The once is. You can. You can always have something else to do before you can quote, unquote, start your business. So don't do that. Just start. That's what I do. Now, again, look into it. Depending on what you're doing, you might really need a license. And, and, and. But I don't know, man. Like, with what, with what Randy's doing, I don't think. Yeah.

Now, Randy, if, If the business grows and you decide, wow, you know, I'd like to have a storefront and, Or a warehouse or a building with a sign on the side. You're going to need a business license. Because what they've done, well, a lot of cities and towns do, is the sign. There's certain gatekeepers, and some of those are the signage folks that say, oh, I can't create the sign for you. You need to include your business license in this form.

You got to get the hell out of California, man.

Dude.

Because that's not how it is here in New Hampshire.

If I want to put it.

If I want to put a sign, I am in.

What's the motto of your state?

Well, so the motto, it's. It's. It's more. It's not a choice. It's a command. It is live free or die. So you live free by the state of New Hampshire's definitions, or you die. It's not. This is. Yeah, we have plenty of regulations interpret that.

Yes.

Correct. Too many regulations here, but that's not one of them. It just so happens that my neighborhood is zoned as light commercial. There's one person on my street, she runs a bakery. She ran it in her home for a long time. It massively outgrew her home, so now she's got store frontage. But she hung a sign. I could hang a sign out front tonight that said business brain Podcast. And, yeah, like, no one would care.

You would do that. And then you would get a letter like a couple weeks after that says, hey, congratulations on launching your business. You need to come here and file this link and pay this fee and.

Pay a penalty for not having done that in the first place.

But anyway, yeah, I'm glad to see Randy and Rocklin. I'm assuming it's maybe. I don't know if it's Rockland, California or not, but, you know, look into those things. I wouldn't run out and get a business license either. I think the, the thing we'd like to do today is talk about the pros and cons of the LLC versus a sole proprietorship.

Yep.

And. And then you can make a decision on. On the best way to proceed for your own business.

Yeah, for sure. So I, I have run businesses both ways, sole proprietor and llc. I find as well, if you have a partner, and I know, at least based on Randy's description, he does not. If you have a partner that's not your spouse, an LLC is going to make things much cleaner for you and your partner to own. You know, to have joint ownership over something. And an LLC, you can, you can start online, you go to bizfilings.com or really, I mean, you don't even need to do that. Just pretty easy now. It's easy. Yeah. Yeah. Just pick the state that you want to file your. Your LLC in. Most of us, like Delaware, Texas or Nevada, but you can pick whatever state you want to form it. You might also need to file franchise taxes in your own.

Why is that, Dave?

That.

That those three states are.

Their fees are the least. Yeah, yeah, they're.

And I think also the liability protection for owners maybe a little bit better in those three states.

I think so Delaware has. I think Delaware and Nevada have the distinction of not overly publicizing the names of the members of the. The, the entity. If somebody sues you, they can find them out. It's not like it's. It's hidden and anonymous, but like the state of Texas, where I have a bunch of. My llc, because I happen to live there, just. I lucked out that I was in Texas when I formed these because it's a great state to form llc and, but that one, you could just go online, you'll see my name, my address, and you know, all that stuff. If you look up any of the companies that I have in Texas but Delaware, you could look up companies that you might think I have, and you will not be able to prove whether or not I have them, which could. Could be helpful. I don't know.

Could be. You never know. Yeah, I'm a big fan of that stuff, too. I have, you know, some Nevada LLCs that I do some things with, and I think it's a great. And I like it because I can drive there if I need to in a, you know, few hours. It's close and, you know, so I, I think that's great. And I. I think that while we're on the LLC topic, I think the biggest, you know, benefit is this kind of separate entity. And it also gives you protection as a separate entity if you keep your personal assets and your business assets separate. If someone comes after your llc, the LLC is going to be liable for whatever assets it owns, and those may be very little as you transfer them and take out, you know, revenue and that kind of thing.

It protects your house and, you know, your other stuff. Yeah.

Your other assets. And you just want to be sure, you know, you have separate checking accounts, separate bank accounts and other assets. And when you. When you file for an LLC online, either biz filings, legal zoom or rocket lawyers, another one that you'll get a bunch of details about the best way to structure it. And you can get help from your accountant and a lawyer if you need to, but most of those places will do that.

Yeah.

Give you that feedback. So.

Yeah. Yeah. No, yeah. I. If you're running it on your own and you're not overly concerned about liability, and I will say I have run for brief periods my computer consulting business as a sole proprietorship. But you're working on people's computers. If you screw something up, and I'm not saying that Randy's not good at this or anything. Stuff happens. You know, you're. You're. Nowadays, I don't know how often we open computers to fix them, but, you know, in the old days, we did, and I. I fried a few computers unintentionally in my day, and, man, you know, thankfully, nobody ever sued me for that. I always smoothed it over whenever it happened. But you might find yourself in a scenario where. Where you're. You're getting sued A former.

Gotta be careful.

Yeah. Former partner of mine who was running a, you know, a similar business fixing people's computers, wound up fixing. Working with a very famous basketball player in San Antonio to warranty their hard drive and in. In doing so. No, they brought the computer with the dying hard drive into, you know, like, back to their. Their house or their shop or whatever. They took a drive that this was a storefront, I guess that they. That they had at this point, they took a drive off the shelf, cloned the drive in the failing drive to the drive off the shelf, sent the failing drive in to whatever company was, you know, going to replace it, Seagate or something. Seagate sends them the new drive, they clone the from the spare drive back to the new one and they put the drive back on the shelf. For those of you who are paying close attention, you notice that I didn't say they erased the spare drive before they put it on the shelf. So famous basketball player's wife, two weeks later gets a phone call from someone who bought a hard drive from my friend and says, I have your Quicken data, your contacts data. Obviously I have your phone number. I thought you might want to know. And there was a, I think a $2 million lawsuit filed. Right. So like, but this is an honest mistake. It wasn't, it was just, it was the wrong person. Like this was a high net worth person whose privacy really mattered to them and they obviously had the means to engage a high powered attorney. And it didn't crater my friend's business, but it almost did. So those are the things where it's like, yeah man, you know, take. We say beware the onces. Forming an LLC doesn't take very much. My feeling on it, and this is a gamble, is earn enough from the business to pay the filing fee. If you can't earn enough from the business, then it's not worth filing the llc. However, it is entirely possible that you will make your critical error while earning the filing fee, even though it's only a few hundred dollars. But that's to me, that's the gamble I always take is the business is going to pay for the business to exist and if it can't, then I don't have a business to worry about. That's always been my thing. Yeah.

And I think that's kind of talking about pros and cons. Sole Proprietorship llc. LLC can be a little more complicated. You got to do some stuff online, you got to pay some fees. In California, it's going to cost you 800 bucks per year. That's a minimum. And whether you do any business or not, you get the benefit of, of paying that. I also think the LLC can add credibility to your business if in your website, if you got the about us da da da da. So that, I mean some people may feel more comfortable doing that and, but obviously the biggest benefit is that, that liability protection that you're talking about, I, I, I love them but, but I wouldn't not do or I would get started first, just like Randy has done. Perfect. Get it going. Show I can make some money now. I need to make some decisions about how this works instead of trying to stress about where do I go, how do I file, where do I pay the 800 bucks?

Find the customers and find the money.

Yeah.

Then put the infrastructure together.

Yep, you got it. That's great.

But I wouldn't shy away from the llc. In fact, my approach to it is that the LLC is my default. Unless there's some scenario where I'm like, yeah, it's really, I'll be fine. Like my music. Dave the musician has never been an llc. That's always my sole proprietorship. And there have been like, there are scenarios where it would be better to have an llc, but they're far and few between for the way I do things. And so that just stays the sole proprietorship. But the rest of the things I do. All LLCs. Yeah, that's great.

Well, and Randy, we'll put some more links in the show notes up at BusinessBrain show that you can click into and read some more articles. We'll have some more data up there, but thanks for sending that in. We got you entered in to win a MacBook Air.

It's.

The odds are great. There's a handful of people in that contest right now, so send us a message. Feedback, BusinessBrain Show. Let us know your questions and your comments and if we feature them on the show, you'll be entered.

Absolutely. That's how it works. Folks, thanks for hanging out with us for the last 20 minutes or so. We'll see you next time. Make sure to send your questions in. Keep living that charmed life.