We decided to create a Multi Member LLC (MMLLC). This structure gives a little more protection in the eyes of the courts since there are two of us making business decisions. Since we are married this isn’t always the case. You can imagine a court finding that because we are married we make decisions as one and are operating as a sole proprietorship. For this reason we will keep detailed company records of meeting minutes, agreements, and keep our finances separate.
This type of structure is taxed as a partnership. This means the company itself is not taxed, but any gains/losses are passed through to the partners based upon their ownership of the company. If you each have 50%, 50% of the gains and losses will be applied to each of your tax returns. There are additional forms for taxes with a partnership, but it’s not as onerous as a corporations filings. Saying that, you can elect to be treated as a corporation with the IRS. We didn’t choose this option so we’ll skip those details.
For filing we decided to start our LLC in Florida. If we do run a sailing school we will likely start our school in Florida. If we decide to relocate we can either file a Doing Business As (DBA) in another state or start a new LLC in another state, but we’ll tackle that when we get there. We are also going to be utilizing the St. Brendan’s Isle mail service. This will give us a FL residency and a FL address so it just makes sense for us to file in FL. Many people who are location independent, like cruisers, will file in places like Delaware or Wyoming. While they are not always bastions of seafaring people, in the WY case, they have very business friendly laws. There are great resources to find out all the benefits to each state.
With your business structure and location decided it’s time to figure out how to get registered with the state. You can do everything on your own and skip paying for the lawyer fees altogether. You can read how Two Fish did this on their own and filed in the state of Delaware. The big drawback to this is you have to interact with government employees. After 20 years of dealing with the outstanding customer service that is most government employees I opted to pay someone to do it for me. Many business lawyers offer this service, and if your business needs to be tailored for you and all options considered you might want to go this route. I just used LegalZoom. As long as my paperwork is filed correctly, and I have sufficient required business paperwork, like an operating agreement, I’m happy. With the LegalZoom option it’s fairly straightforward. You fill in a generic questionnaire with your personal and company information and they take care of the rest. They file with the state, get your EIN, and send you prefilled tax election forms to be mailed to the IRS choosing how to be taxed.
Finally you’ll get your paperwork back from the state. Congratulations you’re not even close to done. Now you need to search through the assortment of business checking options to select the one that’s right for your new boating business. You can get a lot of options with your business checking depending on how many transactions you think you’ll have and how much money you’ll be dealing with on a monthly basis. We decided to go with the simple online only Spark checking and savings account from Capitol One. We can’t go into a branch to deposit money and there are some other limitations over someone like Wells Fargo, but I don’t really think there are a lot of Wells Fargo branches where we plan on sailing anyway. We can always change later if we decided to grow the business. If you want your business to have good credit you should also open up a company credit card. The options are endless. Do you want miles? Do you want a low APR? Do you want no fees? We opted for the no frills, no fees card from Capital One. We really don’t plan on using it too much and if we do, we’ll pay it off every month. It’s mostly just to build good credit for our business.
That’s it for this installment. Be sure to follow along in the next one. Because, no you’re still not done setting up your business for success.