Comparing Corporations to Sole Proprietorships

Comparing Corporations to Sole Proprietorships Comparing Sole Proprietorships  to CorporationsI’m asked all the time if a new contractor should be a sole proprietor (sole owner) or a corporation.

I’m currently a sole owner but have been incorporated in the past. I’ve been thinking of incorporating again for the possible tax benefits and personal liability protection and thought I’d do a little research. Below is an article I found on LegalZoom.com that compares the different types of business entities. I thought you might benefit from this information as well.

Comparing Corporations to Sole Proprietorships and Partnerships

Corporations enjoy many advantages over partnerships and sole proprietorships, but there are also some disadvantages to consider.

Advantages of a corporation versus a sole proprietorship or partnership

Shareholders in a corporation are not liable for corporate debts

This is the most important attribute of a corporation. In a sole proprietorship or a partnership, the owners are personally responsible for business debts. If the assets of the sole proprietorship or partnership cannot satisfy the debt, creditors can go after each owner’s personal bank account, house, etc. to make up the difference. On the other hand, if a corporation runs out of funds, its owners are usually not liable.

Please note that under certain circumstances, an individual shareholder may be liable for corporate debts, if, for example, a shareholder personally guarantees a corporate debt. Also, under certain circumstances, a court may determine that justice requires disregarding the corporate form and treating the acts and liabilities of a corporation as the acts and liabilities of the shareholders. This is sometimes referred to as “piercing the corporate veil.” Some of these circumstances where a court may decide to pierce the corporate veil include:

  • If personal funds are intermingled with corporate funds
  • If a corporation fails to have director and shareholder meetings
  • If the corporation has minimal capitalization or minimal insurance
  • If the corporation fails to pay state taxes or otherwise violates state law (like defrauding customers)

Corporations offer self-employment tax savings

Earnings from a sole proprietorship are subject to self-employment taxes, which are currently a combined 13.3% on the first $106,800 of income. With a corporation, only salaries (and not profits) are subject to such taxes. This can save you thousands of dollars per year.

For example, if a sole proprietorship earns $80,000, a 13.3% tax would have to be paid on the entire $80,000. Assume that a corporation also earns $80,000, but $35,000 of that amount is paid in salary, and $45,000 is deemed as profit. In this case, the self-employment tax would not be paid on the $45,000 profit. This saves you over $5,000 per year. Please note, however, that you should pay yourself a reasonable salary.

Corporations have continuous life

Unlike a sole proprietorship or partnership, a corporation does not expire upon the death of its shareholders, directors or officers.

Corporations make raising money easier

A corporation has many avenues to raise capital. It can sell shares of stock and create new types of stock, such as preferred stock, with different voting or profit characteristics. Plus, investors can rest assured knowing they are not personally liable for corporate debts.

Transferring the ownership interests of a corporation is easier

Ownership interests in a corporation may be sold to third parties without disturbing the continued operation of the business. A sole proprietorship or partnership, on the other hand, cannot be sold whole. Instead, each of its assets, licenses and permits must be individually transferred. Plus, new bank accounts and tax identification numbers are required.

Advantages of a sole proprietorship and partnership versus a corporation

Comparing Corporations to Sole Proprietorships and Partnerships

Corporations enjoy many advantages over partnerships and sole proprietorships, but there are also some disadvantages to consider. [Read more…]

5 Benefits of Becoming a Master Electrician

C10 Electrical California Contractors LicenseI found a great article on ElectricianTalk.com that discusses the benefits of becoming a Master Electrician. It provides some great advice and helpful information.

5 Benefits of Becoming a Master Electrician

Once you’ve worked as a journeyman electrician for a few years and gotten some skills under your belt, you may start to consider taking the tests to become a master electrician. The qualifying tests can be extremely difficult; some people take a month or more off work just to study for the tests.

Getting your license can seem like a full time job in itself, but it can definitely pay off in the end. The difference between journeyman and master can be seen on the job site, but the benefits of being a master also show before your first job as a master begins.

Professional Pride

If you take pride in a job well done, you’re probably the type of person who constantly tries to learn new and better ways to do your work. Leaning to do your job better can give you more confidence on the job. When you become a master electrician, you know you have the knowledge and experience to take on jobs most journeyman electricians can’t do. You can take pride in the knowledge that you’ve earned a special job designation and all its benefits through your hard work and gained knowledge.

Increased Income

While earning more on the job isn’t the only reason for becoming a master electrician, the typical raise in pay can help almost any budget. On average, journeyman electricians earn a little over $22 an hour as of July 2015. Master electricians, on the other hand, average almost $26 an hour. Masters have more responsibilities and have a more varied work schedule, but the raise in pay can be well worth the time and effort it takes to get the license. Depending on your company and the average pay in your part of the country, your pay can be much higher if your specialties are in high demand.

Professional Respect

On most job sites, a person who knows more techniques and can get the job done better is respected by his fellow crew members, especially if he shares this knowledge. Just knowing how hard it is to pass the master electrician’s tests will automatically cause most journeyman to give you some added props on the work site. When it comes to clients or prospective clients, your expert rating will automatically place you higher in their eyes than the average workman. They’ll respect your opinion about the proposed project and will be more willing to go along with suggestions you might make for getting the job done more easily or with a better result.

Job Variety

Apprentice and journeyman electricians do a large variety of jobs, so the job isn’t as dull and boring as some. Eventually, though, you may want to take your work day to the next level. In addition to the basic electrician job duties, a master supervises all the other crew members on the job. He orders supplies, coordinates teams to make sure all parts of the job finish at the same time and ensures that everything and everyone on the job site operates as planned. After you become a master you’ll also acquire the following responsibilities:

• Pulling permits for the job site
• Purchasing and providing supplies, equipment and other inventory for the crew
• Working with the site manager
• Conduct business and consultations with the homeowner or project owner
• Ensure that all safety guidelines are met on the job site

You’ll have less hands-on electrical work to do and more management jobs, but the new challenges will add an additional spice to your work day.

Job Prospects

You may be perfectly happy with your current employment, but that may change in the future. Company ownerships change hands, families relocate on a regular basis and the economy rises and falls. Becoming a master electrician is one way of making your job prospects much more secure in the future. Despite the extra cost of hiring a master, companies are almost always more willing to hire someone with more knowledge and experience than less experienced workers, especially in positions of high responsibility. It just makes good business sense.

If you get tired of working for someone else and decide to create your own company, it’s easier to  go out on your own if you’re the expert. Every new company needs to have a master electrician to supervise projects from start to finish. As a master, you’ll not only save money you might otherwise have to spend, your increased knowledge of the trade will enhance your crew management skills.

End of article

If you are interested in obtaining your C10 Electrical CSLB Contractors License, please let me know. I’d be happy to answer any questions you may have.

EMPLOYMENT LAW FOR CONTRACTORS

The Green Law Group Presents:
EMPLOYMENT LAW
FOR CONTRACTORS

AUGUST 25, 2015
TOPICS:
  • The difference between exempt and non-exempt employees
  • When can project managers and superintendents be exempt from overtime
  • When can you use different wage rates for travel time
  • When do you have to reimburse employees for mileage to commute to project sites
  • When do contractors have to pay for commute time to and between projects
  • The insurance contractors need for their employees’ vehicles
  • Rules that restrict access to employee driver’s license records
  • Minimum wage requirements for piece work
  • Liability for undocumented workers
  • How cell phones, emailing and texting after hours can result in overtime claims
  • What happens when your supervisors don’t know the rules
  • Severance Agreements
  • Employment Arbitration Agreements
  • EPL Insuranc

 

DON’T MISS THIS SEMINAR

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IS ENOUGH TO DESTROY

A GOOD BUSINESS

WHO SHOULD ATTEND
CONTRACTORS, CREDIT MANAGERS, 
MATERIAL SUPPLIERS
 
WHERE
1777 E Los Angeles Ave
Simi Valley, CA 93065
WHEN
The Last Tuesday of Every Month
WHY
Knowledge is Power
TIME
7:00 a.m. to 8:30 a.m.
PRICE
FREE
 
RSVP
SPONSORS
The Green Law Group, LLP
Easy Law Construction Notices
The Blue Book
Ventura County Contractors Association
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Join Us for Our Free 
Monthly Seminars 
Aug. 25Employment Law for Contractors
7:00 am
to
8:30 am
Sept. 29Secure and Collect What You Earn
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Oct. 27Marketing and Resource Tools for Contractors
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Contact your State Representative

If you are having problems with the Contractors State License Board (CSLB), you should contact your State Representative.

Contact your State RepresentativeBelow is a letter I received from my Rep back in 2013 in response to a complaint I filed. As you’ll see, they contacted the CSLB on my behalf.

My take-away from this letter is that they just repeated what the CSLB told the Rep’s contact person. And even though this was not the outcome I was hoping for, they still told the CSLB (in essence) that people are filing formal complaints. I should have pressed the issue more with the Rep’s office, but at the time the CSLB app process in place was new and there was no history to bolster my complaint.

It’s clear now that they are profiling applicants based on the classification they are applying for. I have learned in recent months that the CSLB is no longer using the term “critical classifications.” I believe they dropped the term because they know that it equates to an underground regulation.

Some people wonder that if by filing a complaint with your Rep, the CSLB will retaliate by denying your application. It would be illegal for the CSLB to do that, and they tend to fear the Legislature, so I think you should feel comfortable filing such a complaint.

Bottom line, if you’re having trouble dealing with, getting answers from, being harassed by the CSLB, you should contact your State Representative. Click here to find out who your Rep is.

Cooley ltr_a

Cooley brochure

Starting a Construction Business

Starting a construction businessStarting a construction business isn’t easy by any means. There is a lot of planning and steps to take. I’m going to attempt to break it down to the basics.

First, what business entity to choose. If you choose a corporation or LLC you’ll want to file your articles of incorporation with the Secretary of State (SOS). This is a service I offer, but if you prefer to use an online company click here.

Next you’ll want to obtain a Federal Employer ID number. You can get this number from the IRS using their online system. It will provide you with the FEIN in just minutes.

You will need to apply for a business license in your city or county. Here is a page of helpful information regarding business licenses.

If you are going to use a fictitious business name (FBN) you’ll need to apply for it in your city or county. Generally, the same government office that issues business licenses will also handle the FBN filing.

Opening a business bank account. You’ll need a copy of the filed FBN statement with you when you open the bank account. Unless you are using your personal name as your business name, the bank will not open a business account for you unless you have the filed FBN statement.

After the SOS has issued your corporate number, you can then apply for your contractor’s license. I offer a full range of license application services. Whether you need me to complete all of your documents for you, or just a review of the documents you’ve prepared, I’ll be happy to assist you.

If you are applying for a sole owner (sole proprietor) license, you can apply for your contractor’s license at any time. If you use your personal name for the business name on your contractor’s license, you will not need to file a FBN with your city our county.

Here is something that many new corporations miss… the SOS will notify the Franchise Tax Board (FTB) when the corporate number is issued and you will need to file a tax return, even if no business was conducted or if the contractor’s license was never issued. I have heard from people who formed an S corporation, received their contractor’s license number, but never conducted any business. They did not file a return with the FTB and they failed to pay the corporate taxes when due. When they tried to renew their license they discovered that the corporation was suspended at the SOS by the FTB for overdue taxes and penalties. I highly recommend finding a reputable CPA to help you.

To break it down….

  • Choose your business entity type
  • Submit your articles of incorporation with the SOS (if you’re forming a corp)
  • Apply for an FEIN with the IRS
  • Open a business bank account
  • Apply for your contractor’s license

As I said at the top, this is a basic list of what you need to do to start a construction business. It’s obviously more involved than this, I just wanted to give you the basics to get you started.

As always, I’m available to answer any questions that you may have. Everybody’s situation is different and I’d be happy to help you navigate through this process. Feel free to email your questions to me at ContractorLicenseService at gmail.com.

Report Unlicensed Activity

CSLB Unlicensed Contractor stingThe Contractors State License Board (CSLB) states that unlicensed contracting is part of California’s estimated annual $60 to $140 billion dollar underground economy. These individuals and businesses do not pay taxes, have general liability insurance or license surety bonds. The CSLB also believes that it is not unusual for them to be involved in other illegal activities as well.

What can you do if believe that an individual or business is contracting without a license? And can I report unlicensed activity?

File a complaint using this CSLB Advertising Complaint for Unlicensed Contractors form.

What is illegal contractor activity?

It is illegal for an unlicensed person to perform contracting work on any project valued at $500 or more in combined labor and material costs. Besides being illegal, unlicensed contractors lack accountability and have a high rate of involvement in construction scams. Unlicensed contractors are also creating unfair competition for licensed contractors who operate with bonds, insurance, and other responsible business practices.

What should you do if you know that an individual or business is using someone else’s license number illegally?

File a complaint using this CSLB Advertising Complaint for Unlicensed Contractors form.

What happens if you don’t renew you license on time?

You will be considered unlicensed until your renewal is processed. During this period you may not enter into any new contracts.

How does CSLB process complaints against unlicensed contractors?

When the Board receives a complaint against an unlicensed contractor, it may issue an administrative citation or file a criminal action with the local district attorney’s office. In some cases, it may initiate injunction proceedings against the non-licensee through the Office of the Attorney General or the district attorney.

Citation

The Registrar may issue a citation to an unlicensed contractor when there is probable cause to believe that the person is acting in the capacity of a contractor or engaging in the business of contracting without a license that is in good standing with CSLB. The citation includes an order of abatement to cease and desist and a civil penalty of up to $15,000. Unless the board receives a written appeal within fifteen (15) working days after the citation is served, the citation becomes a final order of the Registrar. The civil penalty is paid to CSLB.

If the citation is appealed, a mandatory settlement conference may be held to resolve the citation. If the matter is not settled, the appeal will be heard before an administrative law judge. The administrative law judge submits a decision to uphold, modify, or dismiss the citation. The decision is sent to the Registrar for adoption. If the cited unlicensed contractor continues to contract without a license, the Registrar may refer the case to the local district attorney for criminal action.

Criminal Action

CSLB may refer investigations to the local prosecutor to file criminal charges. If criminal charges are filed, the unlicensed contractor appears in local court, which renders a final decision on the case. The court may order a fine, probation, restitution, a jail sentence, or all of these.

Injunction

The Registrar may apply for an injunction with the superior court of either the county in which an alleged practice or transaction took place or the county in which the unlicensed person maintains a business or residence. An injunction restrains an unlicensed person from acting in the capacity or engaging in the business of contracting without a license that is in good standing with CSLB.

If you are unlicensed and need help with your application or you need study materials, the License Guru is here to help.

CSLB Gestapo Tactics

The CSLB may be taking notes (knowingly? or unknowingly?) out of Germany’s Gestapo playbook.

CSLB Gestapo TacticsWikipedia says, in part: http://en.wikipedia.org/wiki/Gestapo

“The basic Gestapo law passed by the government in 1936 gave the Gestapo carte blanche to operate without judicial review—in effect, putting it above the law.[13] The Gestapo was specifically exempted from responsibility to administrative courts, where citizens normally could sue the state to conform to laws.”

Here we are in 2015, and the CSLB has been acting in the same manner for years.

They create their own rules, laws, and regulations, none of which are subjected to judicial review. In effect, putting it above the law.

In a previous post I pointed out that the CSLB Spring Newsletter stated requirements that are not written in the law. Specifically, business name advertising.

In another post I discussed where the CSLB has been requiring out-of-state applicants to have their certifier’s signature notarized. Not written in the law.

Then of course there is the infamous “critical classifications” list. A list of specific classifications that are targeted and/or profiled and are subjected to additional review. The CSLB managers have told their staff that they can no longer use the term “critical classification.” Hmmm, I wonder why?

They continue to pursue this profiling by using the law that requires them to pull a minimum of 3% of ALL applications received for secondary review.

Pulling ALL “critical classification” applications is not a random sampling of ALL applications received. This is a prime example of the CSLB twisting the law as written in order to fit their needs.

The difference between the Gestapo and the CSLB is that there is no law that specifically gives the CSLB carte blanche. It’s worse than that…. they chose to enact these unlawful requirements on their own. No authorization by the legislature, nothing put to a public vote, No, they just make these rules as they go. Clearly, a State office that is out of control and in desperate need of being reigned in.

How long will the CSLB continue operating like the Gestapo of the 30’s and 40’s? Sadly, there is no crystal ball to provide that answer. All we can do is hope that someday the CSLB will stop using Gestapo tactics and will operate with transparency and within the law.

CSLB Spring 2015 Newsletter Part 2

In this edition of the CSLB Spring 2015 Newsletter part 2 I’ll discuss advertising rules for contractors.

On this page of the newsletter the CSLB discusses advertising rules. What caught my eye were two things.

Polar Solar CSLB newsletter1) The image they used in the article was taken in front of the CSLB headquarters building. I looked up the business name and found one company called Polar Solar Inc. located in Tarzana, Ca.

I thought, why would a SoCal contractor be at the CSLB HQ building. So I blew up the image and could see they used a fictitious phone number and a license number of 123456. I’m assuming they did this just as an example of the font size required by law. But I think they should have used an actual contractors vehicle ad to give a real world example. Perhaps they chose not to because they felt they were giving free advertising to an actual contractor. Either way, I think a real world example would have been more appropriate.

____________________________________________________________

I was recently asked by an applicant if he could advertise his business name (John Doe Construction) as JD Construction. This brings me to the second topic

2) The article states: “Also, remember that licensees must list the name of their business exactly as it appears in CSLB records for any advertisement, bid, or contract. Name style variations are not allowed. Contracts must be in the same form and type as specified in B&P Code section 7159.” I did not add the bold text, that’s exactly how it was printed in the newsletter.

I remember looking up advertising rules for the applicant mentioned above and I thought… “exactly as it appears”?? I don’t recall reading that in the law. So I did an extensive search of my contractors license law pdf using the search terms “exactly as it appears”, “business name”,  “advertising”, and “name style” and could find nothing that states the licensees business name had to be “exactly as it appears.”

B&P Code section 7059.1 Misleading or incompatible use of name styles, does not use any language that refers to “exactly as it appears.”

The above statement references B&P Code section 7159, that section also does not use the language “exactly as it appears” anywhere in the section.

So maybe the hour + I spent doing research wasn’t enough, maybe I somehow missed something, or maybe the CSLB is once again attempting to enforce something that doesn’t exist in the law as written. If it is in the law somewhere, and you find it, please share the law, regulation, or code section with me.

If you are a new follower to my blog or a long time reader, I may come across as overly critical of the Contractors State License Board. I don’t want to mislead you… I am! I am because the CSLB is overly critical of profiled applicants, of it’s employee’s, and of the industry overall. Somebody has to call it like it is.

If you want to read the entire CSLB Spring 2015 Newsletter, click here.

I’ve uploaded the Contractors License Law pdf here if you’d like to read it as well.

CSLB Spring 2015 Newsletter

The CSLB Spring 2015 Newsletter was sent out today.

Here are my highlights… or lowlights.

CSLBs Illegal Critical ClassificationsIn the Chair’s opening statement he said: “You can expect CSLB to continue its vigorous regulation of California’s construction industry, and to aggressively pursue unlicensed contractors and unscrupulous businesses through sting operations, construction site sweeps, and other strategies. We want to build more partnerships with licensees, industry groups, and government agencies to present a united front against individuals and businesses who try to hide from state laws or take advantage of consumers.”

Once again, they’re missing the bigger picture. Cause and effect, if you will. “…vigorous regulation of California’s construction industry, and to aggressively pursue unlicensed contractors…” The Contractors State License Board is playing a HUGE part in creating the large amount of unlicensed contractors with their “vigorous regulations.”

For over two years now they have been putting applicants through the wringer with their “profiling” of specific applications. They continue to quote the regulation that requires them to perform a secondary review of at least three percent of all apps received. What I’m hoping/praying will happen is that the State Legislature or an attorney will finally call the CSLB to the mat on this.

They are not randomly selecting applications as the law states, they specifically profiling and targeting these classifications. Last week I was told by a CSLB employee that they should no longer use the term “critical classifications.” I guess they realized that using this term was illegal. DUH!!! They can’t just decide on the whim of a single power hungry CSLB employee to profile specific individuals.

That’s all for now. More later.

Sumner Insurance Services Review

Sumner Insurance Services Bad ReviewDo NOT use Sumner Insurance Services in Upland California!

Sumner Insurance Services Review

They do not cancel policies after receiving a signed written request. They cancel policies they have no authority to cancel. They continue to collect premiums and fees on policies they were suppose to cancel. Their communication with clients is pathetic.

After I found out they didn’t cancel my renters policy in December 2014 when I bought a home and purchased a homeowners policy, I then received a letter (yesterday) stating they cancelled my HO policy (notifying my mortgage company) instead of the auto policy I requested to be cancelled (with a specific, signed faxed letter).

The shear incompetence of this agency is astounding! Collecting premiums and fees on a policy that was supposed to be cancelled 4 months ago is a violation of California law. I will be filing a complaint with the Dept. of Insurance insurance.ca.gov.

I spent 45 minutes on the phone with a very nice rep at Allied insurance. She was able to un-do everything this bumbling group of idiots managed to create.

Do yourself a favor, find another agency or deal direct with the insurance company!