How to form a LLC or S-corporation as Independent Contractor?

[foreverfree 0]

Wish to obtain information as to how to form your own LLC or S-corporation as Independent Contractor when working as Tandem or AFF Instructor or Jump Pilot in a DZ.
Any preferences as to which state is has certain advantages over others when registering your corporation in that particular state?
Also the residency requirements when selecting a Registered Agent for your own corporation in your home state or primary place of residence?
Those of us who frequently roam the various DZs in the country depending on seasonal requirements -any advice or suggestions would be well appreciated.

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[GravityGirl 0]

Do you plan on having people work FOR you?

I think that the minimum taxes for a corp might not be benefitial. a DBA (Sole Proprietorship) might be better.

Are you concerned with liability? Is that why you would prefer a corp?

You can do a search on www.aj.com There is a wealth of information there.

~~~~~~~~~~~~~~~~~
Peace and Blue Skies!
Bonnie ==>Gravity Gear!

[tdog 0]

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Wish to obtain information as to how to form your own LLC or S-corporation as Independent Contractor when working as Tandem or AFF Instructor or Jump Pilot in a DZ.

Here is my most boring post to date on DZ.com. I owe you all beer. I would never post something this boring if not asked by someone who wanted to know.

I have started a few LLCs and Sole Proprietorships. It takes about 15 minutes in Colorado to start a LLC. The paperwork is all done with the Secretary of States office. There are minor yearly fees, less than $100… One time I did it with about 1 hour notice. Never paid anyone to do it for me.

The year-end taxes for LLCs are filed on a partner tax return (K series) if there is more than one “member”. If there is only one member, the taxes can be filed on a Schedule C just like a sole proprietorship, or on the K-series. Either way, the taxes are pass thru, in that the members have to declare all the yearly profit on their personal tax returns, not a corporate return, regardless of if the cash was taken out of the company.

Delaware seems to have the best business laws (favors business), so a lot of companies incorporate or LLC in Delaware instead of their home state. Here is a cut and paste from a website of a company that overcharges to help the little guy make LLCs.

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Advantages of a Delaware Corporation or LLC:

Over 50% of all companies on the NY Stock Exchange are Delaware corporations. Delaware has a long heritage as a business-friendly state and may be a good choice if you intend to take your company public and offer publicly traded stock. Delaware has many other advantages, including low incorporation fees, low annual franchise taxes, and no state corporate income tax for corporations that operate outside of Delaware Furthermore, Delaware maintains a separate court system for business, called the "Court of Chancery." This Court is known for its well-established record of decisions and speed at which it handles disputes.

Can a Delaware Corporation or LLC Do Business in Other States?

Yes. Nearly half of the corporations listed on the New York Stock Exchange are Delaware corporations. These large companies conduct business throughout the U.S. and abroad. They must, of course, conform to the laws of any jurisdiction they enter. Many states require that any foreign (out of state) corporation qualify to do business in their state prior to actually conducting business there. Contact National Business Incorporators, Inc. to assist you in qualifying your corporation or LLC in any state you choose.

I am curious as to why you want a business other than a sole proprietorship (which doesn’t even require a business). Is it liability sheltering? Tax sheltering? It is my understanding that members of a LLC (the term for owners) – are sheltered from debts of the LLC unless they sign a personal guarantee. But, I have never seen any rule that says you can’t sue the member instead of the company for negligence. Lawyers will sue anyone and everyone they find to have pockets.

Quick story… Our company insurance agent told me that his customer, a port-a-potty vendor, was sued by a homeowner, because the roof leaked and damaged the property. The port-a-potty vendor never set foot on the property, but just delivered a unit to the property line for the contractors. The electrician, painters, drywallers, framers, landscapers, architect, general contractor, carpet installers, tillers, and plumber were sued too. The roofer was at fault, but he had bad insurance and was not sued. Each insurance company, including the port-a-potty insurance company, paid $10,000 to settle out of court, even though they were not at fault. Add it all up, and the homeowner got $80,000 to fix a $20,000 problem. The lawyer knew the insurance companies have a $10,000 “settle” benchmark and would settle before the trial, and decided to dig for money instead of think, “logically it is unfair to make this poor vendor pay for something he had nothing to do with.” He also knew the insurance companies wouldn’t talk with the other companies to realize they were being had – and if they did, they still had a $10,000 settle out of court benchmark because it is less expensive than going to court, even if you can win.

This story was told to me when I asked the question, “could I be sued for that?” and the insurance agent's response was, “I am gonna sue you for asking that stupid question, on the grounds you cost my company profit because you took me away from calling another customer, but will the jury believe you or me, or will your insurance company find it cheaper to settle, that is the question?” The point - well, I hate unethical lawyers and people, that is the point. But, I think there are limited ways to protect yourself from being sued, but there are a lot of ways to make sure you win.

I don’t think forming company is the magic wand that will make sure you win a lawsuit, from what I have been told – I think the proper contracts and written documents are the key, along with your actions every day of your life. You don’t want your best friend called up on the stand, and under oath, have to admit you were known for taking risks, lets say while driving to the drop zone, because the jury will start to wonder if you were taking risks on the DZ too.

Anyway, that is my experience from owning a few companies over the last 10 years and having to deal with a couple insurance claims.

Oh, and I just thought of one other thing. I have personal liability insurance (thru my homeowner policy) which says if I am riding my mountain bike down the sidewalk and run over a grandma – they will pay for her medical bills, as long as my riding is not business related. (This applies to skydiving too.) If I were a newspaper delivery boy and rode for profit, they would not pay if I were on the clock. But I could argue I was just riding for fun while it happened (fun jump)… But, if I added a company to the mix, “bike delivery, LLC” – the insurance company might say, “you were riding a company owned asset, doing the core competency of your company. It is not personal.” Relate this to skydiving… If you own “great freefall, LLC” and it owns your gear, and you have an incident on a fun jump, your insurance company might start to ask who owned the gear and who trained you for the jump. I don’t know if this is a factor or not… You could probably get around it by setting up creative rental contracts between yourself and your company. Perhaps it is time to talk to a lawyer, which by the way - is not I.

Oh, and one last thing, since you say you might travel. You owe income taxes to the state in which you work, even if you travel. If you think I am crazy, a major NFL team is in collections by Colorado for the taxes on the money the football players earned in Colorado while playing the Broncos… One game, one night. Now, there is a lot of money to be had, so it is worth it. Do I think Colorado is gonna go after a guy who coaches some skydiving for a weekend… Probably not, especially if you paid taxes to your home state… Also, a good friend works the X-Games as the sound engineer. He has to file income tax returns in every state he works in, as that is where ESPN withholds the money. Sucks for him. Will a LLC or Corporation fix that?

A quick Google search for “limited liability company advantages” will educate you a lot, it did me. Many websites have matrixes that explain the benefits of each type of business.

Sorry for being so boring.

[LouDiamond 1]

There is a rather informative book out there called dummies guide to business. It's one of the dummie series type of books that they put out. It comes with a CD that provides a good deal of forms and documents. The information in it gives you specifics on all aspects of businesses but in no way gives you legal advise or guidance on which state may be beneficial to your specific situation but it does help you figure out what type of business you may need and why. It also explains the playing field in an easy to understand manner.

"It's just skydiving..additional drama is not required"
Some people dream about flying, I live my dream
SKYMONKEY PUBLISHING

[lawrocket 3]

I think your transaction costs for traveling state to state to do business as a corp may not make sense. I mean, you'll have to register your corporation in each state you go to, get your fictitious business statements, and have an appointed agent for service of process in every state you've worked in.

I think it may be a bit too much of a hassle for something like that.

My wife is hotter than your wife.

[TomAiello 25]

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I am curious as to why you want a business other than a sole proprietorship (which doesn’t even require a business).

LLC's and S corps offer much greater liability shielding than sole proprietorships. In a high risk environment like parachuting, especially if you have things to lose (for example, you own a home), this is pretty important.

There are also numerous tax advantages to S corps (like creating a defined benefit plan to save pre-tax money).

I agree with LawRocket that the extra effort of qualifying in each jurisdiction you travel to may be onerous.

Delaware has fairly good rules, especially for large corporations. But in my opinion, Nevada is even better. Nevada doesn't even collect some information (including, in some circumstances, corporate ownership), so that information can't be subpoenaed out of the state records--it simply isn't there. For this reason, some business strategists recommend creating a nevada corporation to act as the owner in your local state LLC (where you can act as the manager), so that even if the underlying Nevada LLC is sued, it will be difficult to trace ownership back and attack your personal assets.

I recommend grabbing a copy of Own Your Own Corporation, by Garrett Sutton, which is a very useful, and practical, guide to creating corporate entities for tax and liability sheltering purposes.

-- Tom Aiello

[email protected]
SnakeRiverBASE.com

[AggieDave 6]

I had talked to someone at one point about setting up "trusts" type corporations. He said that if a lawsuit is pending he can move his assets around the different trusts, leaving $1 in the trust that's being sued (i.e. his skydiving instruction corporation) and the other trusts are safe from that individual lawsuit (they can be sued seperately). He did that to protect his assets and livelyhood (stuff like his truck, his house, etc).

Is an LLC basically the same thing as described here or what should I start doing research on?

I've been toying with this sort of idea now for a little while, now that I'm out of school and starting to do "real life" things and I want to take extra steps to protect myself and my family from possible lawsuits.

--"When I die, may I be surrounded by scattered chrome and burning gasoline."

[foreverfree 0]

Your comment does make sense.
But what then are the options available if one wishes to pursue Skydiving Instruction full time and one is forced to travel due to change of season?

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[lawrocket 3]

An LLC is a "limited liability corporation." It's only for small corporations with only a few shareholders. To form an LLC, in most states, at least, you need to have two or more shareholders.

Setting your assets into trust is not the same as a corporate model. Corporations are their own entity, and if the corporation gets sued, the shareholders can only lose their investment and not their personal property.

My wife is hotter than your wife.

[lawrocket 3]

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Your comment does make sense.
But what then are the options available if one wishes to pursue Skydiving Instruction full time and one is forced to travel due to change of season?

Sure it makes sense. Corporations are controlled by states. If a corporation does business in a state (or has ever done business in a state), the corporation needs to contact the Secretary of State and let it know who the corp's agent for service of process is. Failure to do so is a big no-no.

If you are forced to travel all the time, and could be in five or six states, these additional transactions are difficult. That's why multistate corporations are typically BIG corporations that can get more money from expansion into other markets than it would cost to expand.

Personal services are not like that. The more places you've worked asa corporation, the more overhead you've got, with no additional income. It's usually best just to get hired on.

My wife is hotter than your wife.

[AggieDave 6]

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Setting your assets into trust is not the same as a corporate model. Corporations are their own entity, and if the corporation gets sued, the shareholders can only lose their investment and not their personal property.

Ok, could you point me in a direction for reseach?

--"When I die, may I be surrounded by scattered chrome and burning gasoline."

[lawrocket 3]

The best thing to do, Dave, is to find an attorney who offers free consultations. Right now I'm not ure if you know what you want, and it would be a good opportunity to narrow your choices.

Also, unless you have any assets worth protectign right now, there shouldn't be a need for that stuff for the time being. Honestly.

My wife is hotter than your wife.

[AggieDave 6]

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Also, unless you have any assets worth protectign right now, there shouldn't be a need for that stuff for the time being.

Ha, you called out on that one, as of now I don't have anything, but in the next year or two I'm going to be looking at buying a house, stuff like that. I tend to long range plan so I know what I want/need when I get to where I'm going..

--"When I die, may I be surrounded by scattered chrome and burning gasoline."

[lawrocket 3]

Long range planning is smart. just take a look around. If you are going into business on your own, then you may want to consider incorporating. If not, then keeping yourself well insured is probably a better way to go about it.

I mean, considering your business, you could get a commercial general liability policy fairly cheaply. You'd want to have one regardless of the charater of your business. If you only have a couple hundred thousand in assets, there is no reason why a half million dollar insurance policy shouldn't be fine.

Another thing to think about with trusts is that it certainly complicates anything you want to do. You put your house in a trust. Then in ten years you want to refinance it. Well, take your plans and extend them out since there's a lot of paperwork to do.

I'm telling you, insurance is much easier than going into all of these corporate forms..

My wife is hotter than your wife.

[LouDiamond 1]

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Ok, could you point me in a direction for reseach?

Check out that book I mentioned above, get an idea what all is entailed then do what Lawrocket mentioned and go see a lawyer for state specifics.

"It's just skydiving..additional drama is not required"
Some people dream about flying, I live my dream
SKYMONKEY PUBLISHING

[JohnnyD 0]

Check out a CPA before a lawyer. They do this stuff far more frequently, cost less, and usually have better advice and info.

[AggieDave 6]

Thanks to everyone who posted and the person that started this thread. I learned a lot in this thread and learned where to look to learn more.

--"When I die, may I be surrounded by scattered chrome and burning gasoline."

[foreverfree 0]

thanks for your prompt reply and a wealth of information that you submitted.

According to www.legalzoom.com any practice that requires a professional license must be started as a Professional corporation or " P.C"

Can a Tandem Master or a Jump Pilot qualifiy as a licensed professional in order to start a Professional Corporation?

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[foreverfree 0]

Yes I do plan on having people work for me .

Examples of such people would be :

1. a rigger
2. a packer
3. a videographer
4. a AFF instructor
5. a tandem master

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[foreverfree 0]

What is the solution for such a situation when one does freelancing instruction as skydiving instructor from state to state.

Is skydiving instruction business a personal service corporation or a professional service corporation?

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[GravityGirl 0]

So your business would be more of a sub-contractor than you being an independant contractor?

If you are forming a corp of any sort, be certain to maintain your accounting records in auditable form at all times. And try to estimate what your projected revenue would be, so you can determine if the minimum taxes imposed on your corp are going to be beneficial compared to your self-employment tax.

Unlike LawRocket, I would tend to lean toward the LLC or other corporate structure in this industry. (But then I come from an accounting background ).

I would need to see more of a detailed business plan to have an opinion one way or the other.

Nevada is always a good place to set up shop.

~~~~~~~~~~~~~~~~~
Peace and Blue Skies!
Bonnie ==>Gravity Gear!

[GravityGirl 0]

Oh. And here is a cool site that is a wealth of information.

http://www.entrepreneur.com/

http://www.entrepreneur.com/article/0,4621,299774,00.html

~~~~~~~~~~~~~~~~~
Peace and Blue Skies!
Bonnie ==>Gravity Gear!

[lawrocket 3]

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What is the solution for such a situation when one does freelancing instruction as skydiving instructor from state to state.

That's like asking, "What is a better car for me - a pickup truck or an economy car?"

My wife is hotter than your wife.

[AggieDave 6]

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That's like asking, "What is a better car for me - a pickup truck or an economy car?"

Well that's obvious. Get a very large pickup, diesel 3/4 ton 4x4 with atleast a 4" lift and 35" tired.

Ok, sorry, couldn't resist.

--"When I die, may I be surrounded by scattered chrome and burning gasoline."

[LouDiamond 1]

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That's like asking, "What is a better car for me - a pickup truck or an economy car?"

Well that's obvious. Get a very large pickup, diesel 3/4 ton 4x4 with atleast a 4" lift and 35" tired.

Ok, sorry, couldn't resist.

And the equivelent (business)response to that would be: you could do that but you'd end up wasting money on something that really doesn't do anything beneficial for you, costs you more money to maintain and could potentially get you into trouble with the law(IRS), just be able to say, YEP, I GOT MYSELF A 4" lift (CORP)

"It's just skydiving..additional drama is not required"
Some people dream about flying, I live my dream
SKYMONKEY PUBLISHING