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My Thoughts on ...

Do I need a Sole Proprietorship or LLC for my food vending business?

11/10/2017

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Interesting question for someone just getting into street and event vending. Ask that question on a Facebook group or a forum page and you will get answers on both sides with compelling arguments for each.
The most common argument in favor of LLC is the owner is not held personally responsible for company debts. Meaning if the street vending business fails the personal property of the owner of the LLC is protected from being taken to satisfy debts the business assets don’t cover. Considering the failure rates of small businesses this is a smart move if you plan on financing equipment like a truck or cart. Even purchasing inventory on credit could stymie cash flow and cause a business collapse putting personal items at risk if not for LLC protection.
 The next most common reason to form an LLC is ease of raising capital. No, not getting loans, but raising money from selling membership interests with voting or profit incentives. A new member’s personal property is protected in the same manner.
The next most common reason is the ability to sell the business as a whole. All the contracts, permits and licenses are in the LLC name and go with the business when sold rather than having to transfer them individually to the new owner.
Those three reasons alone are compelling enough to encourage most folks to opt for a LLC. I am sure you are convinced, too!
BUT…
It does cost more to form and operate a LLC. Fees are higher for formation and filing paperwork, as well as, annual state fees. These fees are party off set with lower insurance rates, but it still is less money in your pocket overall.
There are more rules to follow and more paperwork with an LLC than a Sole Proprietorship. Paperwork translates into time and how much is your time worth?
Still want a LLC? Seems like the protection is worth the expense, right? Your car and house are safe and if you screw up the business at least you will have a roof over your head. So, take the plunge!
Wait, wait, I forgot to mention one thing. LLC protection is not ironclad. Most cart and truck owners are first time business people, prone to mistakes of naiveté or excitement. Those mistakes include:
  • Offering a personal guarantee for a loan or credit line. Since the business is new it has no credit history and out of excitement or necessity you offer a personal guarantee. Guess what LLC protection is forfeited.
  • Personal funds co-mingled with business funds. Small business owners do this too often, saying “it’s all my money anyway”. Guess what LLC protection is forfeited.
  • LLC fails to pay state taxes or breaks other state laws. If you are in trouble of failing the first most common thing not to get paid is… you guessed it, taxes.  Guess what LLC protection is forfeited.
Get a LLC for the right reasons for you and your situation or go the Sole Proprietor route because it is the best fit for you. Consult an attorney in your state and be honest about your needs and business experience. You will get a far better-informed answer than asking a group on Facebook. 

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    Bill M

    I have had a passion for helping people since an early age back in rural Kentucky. That passion grew into teaching and training managers and owners how to grow sales, increase profits, and retain guests. You’ll find a ton of information here about improving restaurant and food cart/trailer operations and profits. Got questions?  Email me at Bill_Moore@live.com

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