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The Business of Knife Making A forum dedicated to all aspects of running, managing and legal operational issues relating to the custom knife making and custom knife selling industry. |
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#1
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What "TYPE" of business should knifemaking be?
Sole Proprietor, LLC or Corporation?
Each one has benefits and each one has expenses associated with it. What are others doing? What are the dangers of not being a business? |
#2
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Boy Bob did you bite off a big one to christen this forum with!
The various reasons to be any one of those three business types are wide and varied, but the most important difference for me is the liability risk. Not just in the insurance aspect which has a definite bearing, but in how liable are your personal assets. Tax burden is a whole nother kettle of fish and I will let some one more qualified handle that. (suggestion though do your own books, but work with a CPA when and where necessary - they are the pros and trying to keep on top of the Tax Laws yourself will cost you more in the long run). The following is very simplistic but does outline the major differences. Sole Proprietorship: everything you own is liable in case of bankruptcy, an insurance claim, or whatever LLC: is analogous to a corporation in so far as risk, but I've never worked with one directly so I can't give you the exact differences. Corporation: two types S or C with the main difference between them that your tax/bookkeeping in an S corp is handled as though you were a Sole Proprietor. Liability is limited to the assets of the business in most cases/states. I have had my own business under the name of Wild Rose Trading Co, for over 15 years now in three different states as a sole proprietorship. I should turn it into an S Corp (that's what my CPA advises anyway), but I just can't seem to get around to it(famous last words). Advantages for me are that I am above board and have the bonafides as a legal busines entity in all my dealings with both customers and vendors. I also get discounts and the ability to buy wholesale that I wouldn't get if I was a private party. Downside, I have to keep a good set of books (I'm a trained bookkeeper so not a problem) and I pay sales tax, but only on sales in Colorado. Should YOU (______fill in your name) be a business? Only you can really make that choice, but it's kind of like the old saw about a duck: if it walks and talks, etc. The dangers of not doing business are also going to depend on theapplicable laws of the state and in which you live. For me it was also a part of taking that BIG step from amateur status to professional. I put everything on the line and have had at times to earn money in other ways to ward off the wolves at the door, but I am still in business and it is now currently 95% of my income. No I'm probably not going to get rich monetarily but I'm doing what I want how I want. Chuck BTW My views and knowledge are colored by the fact that I was a small business bookkeper/management consultant for 17 years. __________________ Chuck Burrows Hand Crafted Leather & Frontier Knives dba Wild Rose Trading Co Durango, CO chuck@wrtcleather.com www.wrtcleather.com The beautiful sheaths created for storing the knife elevate the knife one step higher. It celebrates the knife it houses. Last edited by Chuck Burrows; 01-02-2003 at 06:46 PM. |
#3
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After spending quite a while looking into this I chose to go with the LLC. My first business was a biohazard removal company (that one taught me alot about bill collection) so I was really worried about the personal asset risk. The LLC seems to provide the best balance between asset risk vs taxation. You don't end up double taxed as with a corporation but your personal property is protected. It also has some benifits over a S Corp.
The very best thing to do when deciding is contact some of the small business development groups in your area. I have two available here in south Mississippi at local colleges( and we are defiantely not a mega site for new business growth) These are free and run by local business men that did it themselves. The SBA has a bunch of good info also. hope this helps and good luck. steve Double S Custom |
#4
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Being a sole proprietor is for part, part time makers.
The S Corporation has less paperwork so most CPA suggest this to the small business clients. My business is a C Coporation. Lots of advantages over an S or LLC. However, you need to have a decent knowledge of business. As you can plan tax strategies with this knowledge that will give you advantages. Newest Tax Cut on the books. If you bought a new SUV last year (2002) and you use this for business at least 50% of the time...You get a $24,000.00 tax deduction. That's right boys and girls...$24,000.00! I was a pretty happy camper upon hearing this. My new 2002 Suburban (at 0% interest) just became an even better value! As a knife maker or dealer. You want ti disassociate yoursel from your business as much as possible.). As a LLC, S or C corporation, you limit your liability to corporate assests. This then leads into the strategy of leasing as much as you can. If your coporation doesn't own anything, your liability is very limited. __________________ Les Robertson Custom Knife Entrepreneur Field Editor for Blade Magazine www.robertsoncustomcutlery.com |
#5
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LLC is a good compromise between an S-corp (or closely held) and the sole proprietorship (real liability trouble).
You don't need to show capitalization (as with a C-corp like Les) and an LLC dissolves after 30 years.. ergo, no winding down process, no distribution of assets as with S and C corps. Personal property is fully protected. LLCs are legal entities just like corporations. Vehicles, tools, etcetera can be purchased in the name of the LLC same as for a corporation. Ditto for employees-- if any. As an LLC, you are protected if an employee gets in a car wreck, say ... Cheaper, too. About 1500. to incorporate as an S-corp, about 500. to become an LLC. Taxed at the corporate rate. hey, law school wasn't a bad thing after all... I did learn something useful to making knives...... Trish |
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