Extra Liability Protection in Just a Few Hours
Why Should I Consider Forming an LLC?
by Scott Verrett, General Manager, PROsource USA
For most oilfield workers, hard-earned paychecks are deposited into personal bank accounts after each two-week hitch. Consider the legal alternative of using a bank account that DOESN’T have your personal name on it. Instead, opt for one in the name of your personal LLC (Limited Liability Corporation),
Rather than collecting and cashing those paychecks as an individual, I’d recommend looking into establishing yourself as an LLC. This business form adopts characteristics from both corporations and sole proprietorships. The LLC avoids many of the requirements of a corporation while offering protection for the owner. They are authorized via the Secretary of State’s office and you’ll receive an EIN (Employer Identification Number) from the IRS.
Personal assets protected
The LCC’s biggest bonus is that owners have limited personal liability for the acts and debts of the business. Plus they have less paperwork and record-keeping than a corporation. Personal assets, like home, car, and personal bank accounts, are generally not “on the table” to pay business debts. That includes lawsuits. In the cyclical and often hazardous oil and gas industry, this is a benefit well worth considering.
When there is only one owner, the individual reports the LLC’s income or loss on your individual tax return. You pay your normal tax rates and avoid the double taxation that comes with forming a corporation structure.
Small price to pay
You will have to pay a small initial registration fee and the annual franchise tax. However, this can be small price to pay for the privilege of limited liability. According to LLCUniversity.com, $135 is average LLC filing fee across the US. The form can generally be can filed online for almost instant approval. Sole proprietorships are generally less costly than LLCs, but they don’t offer the same liability protections. If you’re in Texas, read more about this tax here: (https://comptroller.texas.gov/taxes/publications/98-806.php).
Keep it separate
With an LLC, you must keep records and funds separate from your own – which brings us back around to that bank account and where to deposit your paychecks. To create a separate entity for your business, you must have a bank account separate from your personal one. This also allows you the opportunity to have other business expenses and the tax deductions that come into play.
Remember to consult your accountant and your attorney to get more details and make a decision that’s good for you and your personal situation.
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