Incorporating Your Business – Painting Contracting Business

0 comments

in General

GD Star Rating
loading...
GD Star Rating
loading...

When you start your own business, it is a good idea to incorporate it as a separate entity.  This way,  your own personal assets are protected.   There are several ways that you operate your own business.  They include:

?  A Sole Proprietorship

?  A Limited Partnership

?  An LLC

?  A Corporation

Of all of these, an LLC and a corporation give you the most protection.  There are pros and cons about operating a business under all of these different options.  Here is a little bit more about them:

A Sole Proprietorship

This is an ideal way for an individual to get started in their own business without having to spend any money on organizing.  You can pay your taxes for the business using a Schedule C on your personal income tax form.  It is also ideal for anyone who is working on the basis of cash payments.  Those who are only accepting cash for jobs can get around the income tax man for a while, but are also putting themselves into personal jeopardy.  A sole proprietorship is easy to start up – just get started and say that you have your own painting company.  Many people with small companies do just that.  They start out a little business of their own, get some cash on the side and do very well at trying to make ends meet.  The problem with this sort of business is that you have no protection against your personal assets.  If, for some reason, some accident should occur, a customer should not pay or you suffer a loss or get hurt, you are not protected.  If someone working for you falls off their ladder and gets injured, they can decide to sue you directly.  This means that you can lose your home and other personal assets.

A sole proprietorship works best for those who are just planning on doing the work themselves, or with family members.  You do not have to do anything to start up such a business and can pay your taxes at the end of the year.  You should take some money from each job and put it aside for your income taxes as Uncle Sam will surely want to get a piece of whatever you are making.

If you just want to accept cash jobs, you should know this is illegal, although plenty of people are resorting to this sort of option because they cannot get by with what they are making.  It does limit you with regards to the customers you will get, some of whom will balk at paying cash, and you can also get in trouble with the IRS if someone is disgruntled and reports you.

A Limited Partnership

This protects against your personal assets, has to be formed by drawing up papers to form the partnership and filing them with the State.  This is ideal if you have a partner in the business and both of you are willing to take a cut.  It does not afford you the same protection against personal assets as a LLC or corporation, however.  It also makes you liable for some of the actions performed by your partner.  If you are going to go through the trouble of forming a Limited Partnership, you should consider better options such as an LLC or corporation, both of which are easier to form and can even be done so without an attorney.

LLC

An LLC is a limited liability company.  This is preferred by those who do not want to issue stocks and who also may have company heads who are not Americans.   Those who form corporations must be American Citizens.  Those who form an LLC do not have to be citizens.

It costs more to form an LLC than a corporation.  There is a lot less paperwork in this type of organization, however.  But if you are just working a small business, you can easily complete the necessary paperwork (annual meetings of shareholders and officials) within a few minutes on your own computer.  It costs about $300 to file Articles Of Company for an LLC.

Like a corporation, an LLC is a separate entity.   If someone gets hurt or sues you because of your painting business, your personal asserts are protected.   You pay quarterly taxes with the LLC like you do with a corporation, but you cannot issue stock.  You are limited as to how your business can grow with this sort of company and many banks would rather lend money to companies that are fully incorporated rather than those who are limited liability companies.    If you form an LLC, you have to put the initials LLC after the name of your business.

Corporation

A corporation is a complete entity.  When you create a corporation, it is like you are creating a person.  The corporation can open bank accounts, get loans, sue people, get sued, buy cars, buy equipment and do anything (just about) that a person can do.   There are two types of corporations – An S Corp and  C Corp.  Most small businesses charter under the S corp.  This puts a limit on the amount of stock that you can sell (you can only sell 100 shares) .  However,  if your business decides to grow, you can regroup as a C corporation.

Creating a corporation is easy and many people do this without an attorney.  You have to get an FEIN number from the IRS. You can get this online.  You also have to file Articles Of Incorporation with the state in which you are operating in.  The amount that you pay for this depends on the state in which you are working.  In most cases, it is about $100.  Once you do this, you will receive quarterly income tax information that you have to pay.  You can also opt to pay annually, if you so choose.  Many people who form a corporation will use an accountant to figure out their taxes.

A corporation totally protects you not only from liability, but also protects your identity.  The owners of the corporation are the shareholders.  The principals of the corporation, such as the President, Vice President, Secretary and Treasurer, are listed publicly, but do not have to be the same people as the shareholders.  You only need a President and Secretary to form a corporation and they can be the same person.   You can issue stock to others (up to 100 shares) to get some financing for your business.

You have to have annual meetings of shareholders and  principals, although you do not need to purchase expensive company books or a seal.  You can just write down the results of a meeting as “no action taken” state who was present (you and whoever else was at the meeting) and the date.

If you form a corporation, you will be issued Articles of Incorporation by the state.  You can bring these and the FEIN tax number to the bank and open a bank account under the name of the corporation.  Your personal assets are protected, but you must be sure that you keep your business assets and personal assets separate. You can pay yourself a salary from the corporation, you can purchase business insurance from the corporation and even get credit under the name of the business in this manner.  This keeps your personal assets totally protected.

If you are planning on starting a house painting business and hiring others to help you, you should protect yourself by forming a corporation.  If you are just planning on doing indoor painting, you can operate on your own, although you should realize that you do incur a risk to your personal assets should some accident occur, you break something valuable or there is some sort of litigation over payment or work.

Leave a Comment