Forming your own LLC and doing contract work

[BigRichard]

I put in my resignation late last week. It was suggested today I might be able to do some contract work for them remotely which has me intrigued. Who on CP has formed their own LLC and done some contract work. Any suggestions on how to handle it? Would you go some other route?

[Amnorix]

Originally Posted by BigRichard

We may be moving states fairly soon and it sounds like the LLC you have to reregister in your new state. Do you know if you have to do that with the S Corp?

No one has handled this question that my skim of the thread revealed so...


You may form your entity in any state. Under most circumstances, you want to form the entity in the state in whch you live and do business. There can be reasons to organize elsewhere (often Delaware), but none that will apply for a single person entity offering IT services.

So if you're definitely moving to New State, you probably want to form the entity in New State.

If you're moving to New State next year, but working in Old State this year, you're in a bit of an awkward spot. Your options:

1. Form entity in Old State, then next year when you move you can either form a new entity in New State and merge the Old State entity into the New State entity, or foreign qualify the Old State Entity in the New State. The latter is simple, but unfortunately means you're paying annual fees to BOTH states, which sucks. The former (merging the old into the new) is moderately complex, and I wouldn't advise it without a lawyer or unless you feel pretty savvy/comfortable with this stuff.

2. The option I would go with if you're definitely moving -- Form entity in New State, and foreign qualify the entity in Old State. Once you move, you can let the foreign qual lapse, which means the annual fee will also lapse. You pay fees in both states for just the period in which qualified to do business in both.

[Amnorix]

S corp vs. LLC -- ask an accountant, but I must say that at least, like 8 times out of 10, it won't matter. There can be tax reasons or governance reasons driving the decision, but many times they don't apply and you're left in about the same spot.

Note -- if you do decide to go with an LLC, if it's a single member LLC, as someone (Buehler?) said, you don't HAVE to have an operating agreement. Just file the Certificate of Formation and be certain to set up the accounting correctly.

Make sure every contract you sign identifies your entity, and not YOU, as the party providing the services.

[Amnorix]

*General caveat: Free legal advice over the internet is worth what you paid for it.

[kccrow]

Originally Posted by Amnorix

No one has handled this question that my skim of the thread revealed so...


You may form your entity in any state. Under most circumstances, you want to form the entity in the state in whch you live and do business. There can be reasons to organize elsewhere (often Delaware), but none that will apply for a single person entity offering IT services.

So if you're definitely moving to New State, you probably want to form the entity in New State.

If you're moving to New State next year, but working in Old State this year, you're in a bit of an awkward spot. Your options:

1. Form entity in Old State, then next year when you move you can either form a new entity in New State and merge the Old State entity into the New State entity, or foreign qualify the Old State Entity in the New State. The latter is simple, but unfortunately means you're paying annual fees to BOTH states, which sucks. The former (merging the old into the new) is moderately complex, and I wouldn't advise it without a lawyer or unless you feel pretty savvy/comfortable with this stuff.

2. The option I would go with if you're definitely moving -- Form entity in New State, and foreign qualify the entity in Old State. Once you move, you can let the foreign qual lapse, which means the annual fee will also lapse. You pay fees in both states for just the period in which qualified to do business in both.

Agree.

Generally, and I'm speaking a bit off cuff because it's been some time, he won't have much to worry about other than the entity formation in each state as you said. That and the complication of state income taxes that will result, but a CPA can help him with that and it becomes relatively moot.

Now, if he were making sales of goods and subject to sales and use taxes, he'd need to consult Nexus laws in both states, if he intended to do business in both states concurrently, but that doesn't seem requisite given his criteria.

As for entity formation, he shouldn't have to meet any special licensing guidelines that I know of.

[HolyHat]

Originally Posted by BigRichard

I put in my resignation late last week. It was suggested today I might be able to do some contract work for them remotely which has me intrigued. Who on CP has formed their own LLC and done some contract work. Any suggestions on how to handle it? Would you go some other route?

I don’t want to paint with a broad brush here, but every single contractor in the world is a miserable, incompetent thief. – Ron Swanson