So I'm finally getting around to actually registering my little woodworking side gig (mostly custom shelves and small furniture) and I've been reading for two days straight. I was about to file as an LLC but then someone told me I should "incorporate" instead. My understanding was LLC and Inc were just two names for the same thing? Now I'm seeing stuff about double taxation and boards of directors and I feel like I'm back in high school civics. Do I actually need a board of directors to sell a bookshelf?
Business Structure
I thought llc and inc meant basically the same thing
No board. Def no board. LLC for a one-person woodshop is the normal move.
They are not the same thing, but I can see why it feels that way since both give you liability protection. The big practical difference is that a corporation (Inc) is a separate legal entity with shareholders, and an LLC is more flexible. But you should really look at your state's rules and talk to a CPA, because the details matter. Im not a lawyer, just someone who's registered both.
Marla said it better than me. I'll just add: the "double taxation" thing scared me off Inc too. LLC by default is pass-through, so profits just show up on your 1040. For a sidee gig it's way less paperwork.
Wait, back up. If I form an LLC do I get to call myself CEO? Because I would like that on a muug.
You can put whatever you want on a mug, Sam. That's the beauty of America.
Ha. But honestly the title thing is a good example of the confusion. In an Inc, officers have actual legal roles spelled out in bylaws. In an LLC you're a "member" or "manager" and it's whatever your operating agreement says. But yes, the mug is unregulated.
I have a counterpoint. I run a small craft business and I went with an S-corp election after a couple years. It was worth it oncw profits got consistent, because of self-employment tax. But at the very start? LLC all the way. The double taxation only really bites C-corps that keep profits in the company.
The thing nobody told me: an Inc means annual meetings, minutes and filings that you can actually mess up. LLCs are more forgiving. Also registering in a different state to save money is a trap for small shops. Just register where you live.
Pete is right about the out-of-state thing. I spent a whole weekend reading about Delaware and then realized I sell birdhouses at a farmers market in Ohio.
lol. "Incorporated in Delaware, headquartered in a shed."
One more thing nobody said: if you're the only owner, an LLC is basically just you with a liability shield. The tax stuff is identical to a sole prop unless you elect otherwise. People overthink this for months and then still still sell shelves. OP, you're a woodworker, not a board of directors
Agree with Glenn, mostly. Though I'd add that "just you with a liability shield" is exactly why it's worth doing. The shield is the whole point if a client's shelf comes off the wall.
Also insurance. Even with an LLC you'll want liability coverage. The LLC is not a magic bubble. i learned that from a very expensive conversation.
Okay but can the LLC own the mug?