My name is Taylor and I'm from Michigan! Now that's out of the way...
As my title says: What legal structure did you choose and why? Since I am working on my business plan currently, I wanted opinions from preferably, shop owners who have experience with the legal side of business.
Honestly, I am concerned about not only taxes, but personal liability when it comes to Sole Proprietorship, and I do not want a partnership unless my Husband is considered! Haha.
On the other hand, I have heard and read a lot about how Corporations can take a lot of funding to create. What has been the most beneficial to starting your business, and what will keep me from being personally liable if, god forbid, something fails? I don't want to lose everything I've already worked hard for!
Advice on what legal form may be best would be greatly appreciated, and thanks so much in advance!
I set up an "S" Corporation when I bought my coffee shop/roasting company. I was lazy and paid my lawyer to set it up. It cost me $1100. You can fill out all the paperwork yourself for minimal cost, but it was easier to have a lawyer do it.
Unfortunately you may always be liable. Almost all loans and landlords require a personal guarantee so if your business fails you can still be held responsible for the debt. Or, if someone is injured in your store or by a product of yours they can sue both your business and try to sue you personally. Don't skimp on insurance and have a great lawyer on your team of advisors.
Thanks Paul. I should look into S Corporation then to get started. I am just worried about liability still. I have worked in many places in the food industry, and I know one little slip up from either myself or my employees could cost a lot in the long run.
Do you receive any tax benefits/disappointments via S Corporation? You don't have to share, I am just curious if taxes are better with an S Corp.
S Corps have pass through taxation - that is, any profit/loss is reflected on your personal tax return. If you have a loss, which is likely your first few years in business, it will reduce your taxable income. You said you were married so if you file jointly it would help you get a bigger tax rebate. Conversely, you would pay taxes on any profit.
It's hard to escape the liability risk. A corporate structure limits your liability if only the company is sued. Like I said earlier, someone could always sue you personally. It is possible to set up a living trust and to put all your personal assets in that trust. I don't know the specific process, but that way you legally don't have any assets for people to take if they sue you. I got married this past summer and that is what my wife and I plan to do. You'd have to completely trust your husband, though. One spouse might be able to take control of the trust and leave the other with nothing.
Your risk will always be about the same and at the single store level your taxes are going to be the same. Small business that the government always talks about tax breaks for are companies that have revenue of over a million dollars.
I believe anyone who wants to own a coffee shop should actually work in one. I've seen many people who loved the idea of owning a café, but never actually worked in one. They sink their life savings into opening a store and then discover they don't like the long hours or even working the job itself. Consider getting a job as a barista. I've always loved the job, but you really should know what it's like before spending time and money on a business plan.
LLC. Easy to form online less than $100 (my State anyway). About same liability protection as S Corp. My biz insurance $2Mil liability. As far as being personally liable goes (leases, utils, vendors etc.) if you aren't willing to put your butt on the line don't go into business.
We are a LLC And we have the same as Mike.
@Paul Swanson: Thanks so much for your information. Especially about a living trust, that is an interesting point I didn't consider before! And thanks, I definitely know about working at it first before pulling the trigger. I also want to own a restaurant and I've done that kind of work too. So I've definitely went that route before in learning the ropes first and seeing if its something I truly want to do.
@Mike McGinness: Nice information as well! I definitely agree, if you are too fearful don't do it. But I wanted a realistic opinion on liability so I can see how other people feel and take action in prevention as well. Sounds like you know your insurance as well, something else I will have to shop around with! Good information and thanks so much for sharing!
So, S Corp and LLC seem to be the main things everyone has chosen. Thanks for everyone's time so far, I appreciate it.