Sole Proprietor or LLC business

[Sergio Fabian]

Hello you guys I am new to this forum I want to thank anyone for the advice they give me and appreciate it so much. I am having difficulties with the way I should start my business. I want to open up a small car dealership with an automotive shop but I am not sure if I should start it off as a sole proprietorship or an LLC. I have read about both of the differences between these two but I am still having difficulties with my decision. I figure maybe I can start by asking here thank you again.

[Freelancier]

Just because of the automotive shop, you should have the liability shield to protect your other assets from, say, a car on a life falling on someone's head.

Sole Props are fine for small businesses with little liability exposure. Once you get into doing things that involve heavy objects, electrical parts, pretty much everything with an automotive shop, you want that shield to protect your assets... and you might even talk with an attorney about how to protect your inventory in case your shop has a liability issue. You might really want 2 LLCs, one to hold and sell inventory and another to run the shop and maybe even a third if you purchase the property where you will be doing your business. All because something bad WILL happen, so plan for it. Work with a local attorney and a local insurance agent to make sure you're protected.

[BIZDEV]

Do speak with an attorney. Most business owners opt for an LLC because they are under the false impression that an LLC will protect their personal assets. This is not entirely true. It is very easy to "pierce the veil" of protection and render the "protection" null. If cost is a concern find an attorney that allows for free initial consultations and ask about this issue.

[Osprey]

Hello you guys I am new to this forum I want to thank anyone for the advice they give me and appreciate it so much. I am having difficulties with the way I should start my business. I want to open up a small car dealership with an automotive shop but I am not sure if I should start it off as a sole proprietorship or an LLC. I have read about both of the differences between these two but I am still having difficulties with my decision. I figure maybe I can start by asking here thank you again.

Limited Liability Corps do offer some protection; however, you need to speak to a attorney to do that. One way to do it is go to Chamber of Commerce networking events and chat up attorneys there.

One thing to keep in mind here is the branding side of it. Car dealerships and mechanics are hit with the shady generalization brush. Does having an LLC vs Sole Proprietor change the perception of someone driving by? I don't believe anyone drives by and says, oh....they are a sole prop....keep driving. But maybe subconsciously, there is something. Not sure...but I would think about that too.

[Business Attorney]

Do speak with an attorney. Most business owners opt for an LLC because they are under the false impression that an LLC will protect their personal assets. This is not entirely true. It is very easy to "pierce the veil" of protection and render the "protection" null. If cost is a concern find an attorney that allows for free initial consultations and ask about this issue.

I agree that the idea that an LLC will protect personal assets is not entirely true but it is NOT because piercing the corporate veil is "very easy." Quite the contrary. If it were easy to pierce the veil of the entity, that would undermine the legislative intent that a member of an LLC (or a shareholder of a corporation) ordinarily is not liable for the debts of the entity.

While I believe that piercing the entity's veil is NOT easy, there are many other ways that an owner of an LLC might end up with liability. See How Limited is Limited Liability? (http://www.limitedliabilitycompanycenter.com/how_limited_is_limited_liability.html)

For a one-person business like a consulting practice, the end result is that an LLC probably only provides protection from contractual liabilities (even then, only absent a personal guarantee) since any claim based on negligence is probably due to the owner's own negligent act or omission. No one is shielded from the responsibility for their own actions. As soon as a business has employees or independent contractors, that changes. Then, the business can be liable for actions even though the owner himself did nothing wrong.

I agree that it makes sense to talk to an attorney, but there is so little additional cost of forming and maintaining an LLC in most states that it is nearly a no-brainer that the business should be operated through an entity. The big question for most small businesses is not sole proprietorship versus LLC but whether a corporation may be better under the circumstances.