We have a clear understanding now of your state’s requirements for becoming a locksmith. We know who your target market is. We have picked up our locksmithing kit, as well as our insurance. We must be ready to go out there and get our first customers now, right? Wrong. We still need to consider our personal liability. The general liability insurance only goes so far. To be really safe, we should consider incorporating your locksmithing business as a special type of company.
Now, I am not a lawyer. As such this isn’t going to be comprehensive, at all. You really need to talk to a lawyer to get a clear understanding of the ins and outs of each of these. I’m just going to touch on them, and give a brief idea of how I would use them.
In short: Don’t.
I mean, there are definitely times that you could use a sole proprietorship. For one thing, and this is one of those “talk to a lawyer” moments, you can generally just jump out there and start doing work as a sole proprietor without having to do anything else. That can be good when you’re just getting started, and need to get your business going before you can afford to do anything else.
The problem with it is if you ever get sued, you are putting everything at risk. I do mean everything. You are risking all of your personal assets because you are not separating your personal from your business assets.
Which leads us to…
Limited Liability Company (LLC)
This is probably what I would suggest for pretty much anybody starting a small locksmithing company. Limited liability companies do what it sounds like. They restrict your personal liability. What that means is that if Joe’s Great LockPickings, LLC gets sued, Joe Schmoe is not personally liable. That means he can keep his yacht safe from the greedy hands of the evil soccer mom. I mean, we all have yachts right?
There are a few things that are important to know about LLCs. You have to file taxes personally, not as your business. Sometimes you’re required to put down a date that you’re going to dissolve the LLC. Sometimes they close when a founding member leaves. Sometimes they close if you die. Talk to a lawyer. Speak to a lawyer. Seriously, call a lawyer.
Now we’re getting deeper into the area that I don’t know too much about. Full disclosure.
S Corporations are similar to LLCs in that they limit your personal liability, and pass through the taxes. S Corporations, on the other hand, have a board of directors. Directors elect officers. Officers run the company. S Corporations are also heavily restricted. Non-U.S. Citizens cannot be shareholders of S Corporations. S Corporations cannot be owned by C Corporations.
C Corporations are what most of us picture when we think of a corporation. First and foremost a C Corporation is taxed as its own entity. In fact, according to the Supreme Court of the United States of America, C Corporations are legal “people” where taxes and laws are concerned.
C Corporations are usually taxed lower than individuals, and they can deduct the cost of business expenses before they pay taxes. They are more expensive to set up, but they are also much more stable legal entities and are audited far less often. Further, you can sell stock from a C Corporation and have an unlimited number of shareholders. The majority shareholder of a C Corporation is the legal owner of that company and has the option of issuing different classes of stocks to different shareholders.
C Corporations have different requirements than the others, though. You have to maintain adequate investment of money in the company. You have to formally issue stocks to the initial shareholders. You have to hold regular meetings of directors and shareholders. Business records must be maintained separately from those of its owners.
So, how should you be incorporating your locksmithing business?
Personally, I suggest you go with an LLC. For most companies, this is all you will need. But it really depends on your goals. If you’re planning to launch a business that you can do while you are alive, and maintain until you retire, and then close down, then all you need is an LLC. If you want to start a legacy, you may be looking at C or S Corporation. This is where a lawyer comes in handy. They can ask you the right questions, and nail down exactly what your goals are, and what entity will best get you there.
Of course, just getting started all you need is a sole proprietorship. And you can always take the time to change your legal structure down the line. All I suggest is making sure that you talk to someone about it before signing any paperwork.