When planning how to start your business choice of entity considerations are very important.

QUESTION.
I am starting a financial counseling / financial planning small business. I want to get some advice on business structures and small business formation. In particular, I want to see if an L.L.C. is the best form for my business. If an L.L.C. is the best option, do I need to form a Professional L.L.C. (PLLC)? I'll be registering with the state of Texas as an Investment Advisor, but investment advice will only be one aspect of my services (i.e., I also plan to perform credit counseling and other non-investment related aspects of financial planning). I currently plan to own / operate the business alone, but I was wondering from a legal liability and accounting standpoint if it would make more sense to form the L.L.C. (if that form is the best option) with my wife as a second member. Are there any advantages with adding her and being treated as a partnership instead of a sole proprietorship for liability protection / tax reasons? If I form an L.L.C., should I set it up to be "member-managed" or "manager-managed?"

ANSWER.
You ask a lot of questions. I certainly can answer them all, but that's more trouble than I'm willing to go to in my capacity as a SCORE email counselor. Your questions merit a 1-hour face-to-face session with two SCORE volunteers in a SCORE chapter close to your home. The session would be free - and the counselor should be competent to advise you appropriately. Typically a profession that requires licensing is not allowed limit liability for the professional counseling they do under their license. This applies to doctors, lawyers, cpa's, architects, and engineers. CFPs are kind of a hybrid professional. I'm not aware of a license requirement - but there often times is a registration requirement. As such, I'm not sure you can't limit your liability regarding your services. You do the research and find out. If you can't limit your liability, then either the Prof'l LLC or Prof'l Corporation would be the ideal for you to form. Otherwise, I recommend you form an LLC and have it taxed as a C Corporation for tax purposes. It doesn't matter if you make your wife a shareholder since Texas is a community property state and she has half of what you have in any regard. Make yourself the sole owner and put both you and your wife on the payroll. Make sure to give yourselves bonuses at the end of the year so no income stays in the corporation. You want to be taxed as a corporation so you can write EVERYTHING off. That includes ALL healthcare expenses. You also want to be taxed as a corporation so you will be less likely to get audited. Consider getting a copy of "Structuring Your Business" by Michele Cagan (ISBN: 1593371772). And make sure to read the book review I wrote for it at Amazon. I hope my comments are helpful. Good luck! Regards, -Jeff

Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
www.jlippin.com