I am setting up an LLC in Maryland for a professional consulting business and am not sure whether it should be sole proprietorship or corporation. I do not plan to have other members or employees (at least not in the short term) or stockholders, partners, etc. What are the pros/cons of each? Does it have to be a sole proprietorship if you have no other members, partners, stockholders, etc.? If so, do you still need a EIN or FEIN?
If you are going to be a success in the consulting business (and you don't indicate what kind of consulting) you are going to need a team. On that team must be a CPA and an attorney. A thoroughly professional experienced insurance agent for liablity protection is almost always a good addition to that team. You can save money now and pay multiples of your savings later after your mistake.
There are benefits to each form of doing business and your particular facts, which Avvo attorney cannot know, will determine which is best for you. Your question mixes terminology (setting up an LLC .. should it be sole propreietorship or corporation - if you're an LLC you're an LLC) to the extent that professional customized advice is what you need.
An LLC and a sole proprietorship are two different entities -- the former needing to be organized by the formal filing of paperwork in the state of Maryland and a sole proprietorship needn't be. I think what you're really asking is whether you should form an LLC or a Corporation. It's hard to get into the pros/cons of each on a general website because it ultimately depends on your individual goals. You'd be wise to consult an accountant -- as each type of business has different tax implications -- and also an attorney to advise you as to the appropriate setup for your business. Once you set up an entity, you will need an FEIN.
If I understand your question, you are setting up a Maryland LLC. When you went to get your EIN from IRS you were asked if you wanted to be taxed as a sole proprietor or whether you wanted to be taxed as a corporation. If that is your issue, you need to speak with your CPA to determine which works best for you. If you are a one person LLC and Taxed as a sole proprietor, you will file a schedule "C"with your 1040 personal tax return. If you are taxed as a corporation you will file a separate tax return. Your CPA can explain the advantages and disadvantages of each. This really is not a legal question as much as it is an accounting question. there are certain deductions that you can take as a corporation that may not be available on your schedule C. Good Luck. If I can answer any other questions feel free to contact me. Joel Hoffman, Esquire 302-838-9100
You first need to consider the type of activity you will be involved with. Certain consulting services will be considered professional in nature (perhaps not yours) and may require that a professional entity be set up should you choose to operate with limited liability such as a PLLC or PC. But you have to first establish if that will be necessary and if not your options are the general types (LLC, S-Corp, C-Corp).
While you can certainly operate as a sole prop, this may not be in your best interest because it offers no legal distinction between you and the business. Even if you carry an insurance product that covers up to a certain amount (and I suggest you do), should the law suit demand an award beyond that coverage or should the ins co not be required to pay on that claim, then the plaintiff will sue you personally (as opposed to the business because there is no legal business entity) for the difference. But if you had a proper liability shield they will likely have to sue the company thus protecting you and your personal assets.
I will link you to a brief and general overview of entity types below and suggest that you reach out to a lawyer of your choosing (perhaps several) or a free phone consultation to get some specific guidance before jumping in.
There seems to be some confusion here on the language utilized. An LLC, Sole Proprietorship (SP) and Corporation are three (3) distinct legal entities. Each of them has their advantages and disadvantages.
Often times, Corporations are more expensive to file and maintain from a legal perspective, as well as a state fees perspective. They are a bit more burdensome than an LLC and SP. They also, namely with small business, are unnecessary. In Nevada, I most often recommend that my small start-up entrepreneurs form LLC's.
Depending on what Maryland law states, the entities will have different tax treatment, and as noted, be more affordable from a legal and state fees standpoint. It would be best to hire a Maryland-licensed attorney to run through the needs of your business before choosing an entity. Generally though, you will need an EIN in order to open a bank account and/or transact business. This can be obtained from the IRS.
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