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LLC for Liability Protection


TaxmannEA

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We have a client who runs a business as a single-member LLC. He's getting ready to open a second location in another city. His business could have significant liability exposure (gun store and indoor firing range). He wants to know if he should set the second store up as a separate LLC to protect each store against any liability caused by the other.I was just curious if anyone here has had any experience with this type of situation.  I'm going to tell him to check with a lawyer to be sure. ( At least he checked with us before acting!)

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There is an LLC entity you can form that I believe is called a step LLC.  Each LLC is it's own LLC and has liability protection from the other LLC's but all LLC's are under one umbrella (maybe it is just one LLC but however you do the "step" part separates the liabilities.)  Since it is the same umbrella you could file only one Schedule C.  I know you can do this with a Delaware LLC.  I think you can now do this with a Missouri LLC.  You might be able to do it in other states.

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I would think that its a no brainer for many reasons.  I would also have him try and get it to be a non-single member even if his wife gets 1% just to keep it off of his 1040.  Even with Trump ending Operation Choke Point, gun stores still have a stigma to many people and I can envision a bank turning down the guy for a personal loan because of the schedule C on it.  Of course I am in NY where guns is a 4 letter word.  I would also have the LLC name being very innocent with a dba for the publics use.

I had a relative who owned a medical marijuana dispensary and couldn't refi his personal residence.  He changed the name and did as above and then he had no problem getting approved.

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For argument's sake - why wouldn't he set up corporations.  Then off personal return.  Then liability limits are established.  

I'm a grumbler mumbler when it comes to LLC's.  I tell most of my client's to create the corporation.  Seems a little more cut and dried.

Just want opinions on why choose an LLC.  

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10 hours ago, schirallicpa said:

For argument's sake - why wouldn't he set up corporations.  Then off personal return.  Then liability limits are established.  

I'm a grumbler mumbler when it comes to LLC's.  I tell most of my client's to create the corporation.  Seems a little more cut and dried.

Just want opinions on why choose an LLC.  

1. If capital invested, time actively involved etc are disproportionate, you can do special allocations of profit, loss and any of the other tax items specifically listed on the K - 1s.

2. If real estate is held inside a corporation it's distribution is at FMV, whiich may trigger unwanted gains.

3. Corporations are required to have annual Board Meetings and minutes while LLC are not.

The best of both worlds is to set up an LLC and elect to be taxed as an S Corporation.

Conversely, LLC case law is still a work in progress, so incorporating gives more certainty as far as risk and asset protection.

 

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actually I have a gun ffl store as a client and there are no employees, its a 1 man shop, mostly by appointment only.   Very small inventory and he mostly does transfers or helps locate hard to find weapons.

another that I frequently go to near my house is also a 1 man shop.  he does gunsmithing, transfers and only sells older rifles.

 

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With employees (assuming a separate entity is setup), make sure if there are any who work at both locations (will likely come up sometime, so prepare in advance), that they need to be "hired" by the other location, and they need to be treated completely separately.  Do not get caught using one paycheck for both places, not having separate paperwork (I9, new hire report, etc) at each location, etc.  Since they will want to have the two entities completely separate, they really need to be, including payroll processes.

Things to watch for/talk over: Garnishments (make sure to only apply it to the business which received it), OT (two businesses, employee could work 8 hours a day at each, with no OT), WC rates (if low at the existing shop, it will likely be more at the new shop), how the owner gets compensated from each, and so on.

--

I was going to spout on certain upcoming CA ammunition laws, but it gets me too riled up, so I try not to think about it...

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