Sole Proprietor vs LLC: Best Choice for Your Assisted Living Business
Sep 05, 2024
Choosing between a sole proprietorship and an LLC is an important decision for anyone opening an assisted living facility, and we will get into it in today's blog. This is not just a formality; it has significant consequences for running your company, handling obligations, and making expansion plans. Establishing a solid foundation requires knowing the advantages and distinctions between each business form. In this blog, we will examine the crucial elements that can assist you in selecting the ideal legal structure for your assisted living business. Whether you're seeking protection or simplicity, we've got you covered.
Also, please note that I am not an attorney. Please DO NOT take anything in this blog as professional advice; I highly suggest you reach out to a licensed attorney for your specific situation to see what options are best for you.
Now, back to the blog.
Careful planning and thoughtful decision-making are necessary when opening an assisted living facility. One of the first and most significant issues you'll confront is picking the correct business structure. A sole proprietorship involves a large personal liability but offers simplicity and direct management. In contrast, creating an LLC entails additional complexity and regulatory requirements but offers potential tax benefits and legal protections. We'll break down these distinctions to help you understand what each decision means and how it can impact your organization in the short- and long-term.
Selecting the right business structure affects not just legal issues but also the expansion and flexibility of your company. An LLC might offer a more polished image, which is advantageous when looking for partnerships or financing. Furthermore, your personal assets can be protected by the liability protection provided by an LLC, providing you with peace of mind. After viewing this blog, you should better understand which business structure will work best for your objectives and situation, putting you on the road to success in the assisted living sector.
Check out the video too:
Understanding Sole Proprietorship and LLC
Sole Proprietorship
A sole proprietorship is the most basic business structure. It provides total control over business operations and is simple to set up. It also implies that the owner is directly accountable for all debts and liabilities. This degree of personal accountability might be especially risky in the assisted living sector.
LLC (Limited Liability Company)
An LLC, or limited liability company, acts as a safety net for owners, protecting them from being held personally liable for the business's debts and legal problems. It offers flexibility and security by combining aspects of a corporation and partnership.
Pros and Cons of Each Structure
Sole Proprietorship: Pros and Cons
The simplicity of setting up a sole proprietorship is one of its key benefits. A sole proprietorship is easy to establish and requires less paperwork so you may start your business immediately. Being the only owner gives you complete control over your company, allowing you to make choices without seeking input from shareholders or partners. Furthermore, pass-through taxation simplifies the tax process by reporting business income on your personal tax return (though you'll always want to consult with a CPA to confirm any tax implications) and is advantageous to sole proprietorships. Nonetheless, there are a lot of disadvantages to being a solo entrepreneur. One of the main disadvantages is personal liability. Any debts or legal troubles are your personal responsibility, which can be dangerous in the assisted living sector. Furthermore, having a structured business entity like an LLC often makes it easier to secure funding than it is for a sole proprietorship.
LLC: Pros and Cons
An LLC has several advantages, making it a desirable choice for many business owners. The main benefit is that there is less liability. Protecting owners from personal liability is essential in a sector with considerable legal risks. Like sole proprietorships, LLCs provide operational flexibility but with further protection. Enhanced credibility is an additional advantage. Operating as an LLC can improve the trust investors, partners, and customers have in your company. Also, LLCs have taxation options that may lower their tax obligations (please consult a CPA to understand the full tax implications for your situation). There are certain disadvantages to take into account despite these benefits. An LLC requires more paperwork and compliance standards to be set up and maintained than a sole proprietorship. In addition, there are costs involved with creating and managing an LLC, such as legal and administrative costs.
Which Is Best for Your Assisted Living Facility?
A sole proprietorship could seem like a good option for low-care facilities with a few beds because of its straightforwardness. However, it's likely not the right fit because of the significant personal responsibility risk, particularly in our litigious society. An LLC provides the security and legitimacy required to manage a larger or more sophisticated assisted care facility. For most business owners in this sector, an LLC is a superior option due to its added legal protections and peace of mind, even with the added complexity and expense.
Final Thoughts
Choosing the right business structure is critical in launching your assisted living facility. While a sole proprietorship offers simplicity, the protection and credibility of an LLC likely make it the superior choice for most aspiring operators. Always consult with a legal professional to ensure you make the best decision for your specific situation.
Interested in starting your own assisted living facility but unsure where to begin? Download our Business Plan Checklist for a step-by-step guide on creating a successful business plan. This resource is designed to help you navigate the complexities of starting and running your facility.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:00
hey friend it is Brandon Gustafson welcome to Assisted Living investing I'm excited to have you here on the channel today our topic for today's video is going to be which is best a sole proprietorship or an LLC when you're starting your assisted living facility if you're interested in learning about that make sure you stick around for today's [Music] video hey friend it's Brandon gustofson I own and operate two assisted living facilities and I created this channel to help you people just like you learn the
00:00:31
ins and outs of investing in residential assisted living welcome to Assisted Living investing I want to thank you for being here on the Channel with me today we're going to be talking about so proprietor versus llc's for assisted living but before we get into that I want to remind you to get over to the website we'll link it down below Assisted Living investing. netal we can get our free underwriting calculator to help you along your investment Journey so make sure you get over to the website
00:00:57
now today we're going to be talking about sole Proprietors versus llc's inside of assisted living and which type of legal structure should you be going with now I'm going to Quant qualify all of this by saying I am not a an attorney I'm not a licensed professional I would highly suggest that you go and talk to an attorney if you are in this trying to figure out how you want to structure things um I I cannot give you that personal advice so just want to qualify everything that I say here in this video
00:01:27
by saying that let's talk about what a soulle proprietor should is and what an LLC is and kind of what the definitions are for each of those so a sole proprietorship is the simplest business structure in this setup the business and the owner are legally considered the same entity the owner has complete control over the business's operations but it's also personally liable for its debts and obligations so what that means is if something bad happens you are personally liable for that and here in the Assisted Living
00:01:58
World something you probably want to Ste clear of but we're going to talk about that here in a second so what is an LLC an LLC which stands for a limited liability company which provides a level of protection for the owners or the members of the LLC this means that the members or the owner are typically not personally responsible or liable for the company's debts or legal liabilities an LLC combines elements of a partnership and a corporation so the LLC is really just kind of there to give you a buffer
00:02:28
and I will say this I I follow a guy named Mark Kohler he's my um attorney my attorney's office and and CPA office actually he he does both um and he talks about this all the time llc's do not save you money um but they do help protect you in the event that that you have something in the event that something occurs where you need that that extra protection now let's talk about some of the pros and cons of each of these uh with a sole proprietor the the positives here is it's super easy to set up you're
00:02:59
already that entity uh you don't have to like go through much paperwork or anything like that you are you and and you have the proof of it and so it's going to help you out through the process there um it's super easy um to kind of move forward and say hey I'm a business I'm I'm doing this right now and it's inexpensive for you to establish that next is going to be you have full control as a sole proprietor you don't have any Partners um in in the deal you can do whatever you want you
00:03:25
have full decision making capacity and and you can do whatever you want next is going to be kind of Taxation so um it it just kind of works as a pass through any of the income that you have anything that happens there um this is my understanding again not a CPA um but it kind of passes through to you and so the profit or losses of those businesses um will be reflected on your personal tax return so just kind of there there's potentially some taxation benefits there now the cons of being a sole proprietor
00:03:54
is number one liability this is absolutely the biggest con for why you would not want to to do a be a sole proprietor starting your own assisted living facility um anything that happens to your residents anything that goes on there at the facility you would be personally liable for what has happened there and so that's why you would why you probably want to steer clear of being a sole proprietor when you're starting an assisted living facility the next one is going to be limited funding
00:04:23
now if you're a business and you've gone through the process of becoming an LLC and and having the bank account and all the paperwork and everything in place it is more likely that you're going to be able to get more funding for that um for the business than you would as an as an individual trying to go and do things on your own so that's a couple of the cons there for why you would not want to be a sole proprietor when you're starting an assisted living facility let's talk
00:04:47
about the pros of having an LLC the biggest Pro for having an LLC when you are running an assisted living facility is the liability um it's going to limit your liability as an individual all that liability will fall on the the facility on on the LLC itself um when you're going through these types of struggles um and it's going to just make it uh a lot easier for you if legal situations come up so you want to make sure that you're aware of that and probably the biggest reason why you would want to
00:05:19
start an LLC next is flexibility um and there's a lot of flexibility when it comes to llc's um there maybe not quite as much as there is with a a proprietor um but there's still a ton of flexibility especially when you compare it to corporations uh you can still kind of do whatever you want which is really nice um so the flexibility of having an LLC it's not that costly either um it's it's going to benefit you quite a bit there in addition to that liability coverage that it that it helps provide
00:05:47
you you're going to have a level of credibility by being an LLC by saying hey you know we're a business it's going to help you get insurance a little bit easier it's going to help you get your funding uh when you go and talk to to Residents or their families and things like that you can say hey we're a business and and here's the LLC and yada yada yada it's going to have a lot of that information in there it's going to give you some credibility in the way that you are running that facility now
00:06:12
what are some of the cons of having an an LLC number one is going to be complexity so there is some paperwork involved and there's you've got to keep up on the annual minutes and and things like that and make sure you're properly registered with the state and uh working with an attorney a good attorney is going to really help you out through that process I just highly suggest you do that it's going to save you headaches down the road but there is some complexity in there and the other one is
00:06:39
going to be costs there are costs associated with um setting up and maintaining an LLC um we pay our attorney's office to do a lot of that for us and and they do all of the things for us full service um all the registered agent services and um addresses and the way that things are structured and reporting to the the state and and all of those things annual minutes and and all of that process they have a thing in place and again we use KK lawyers is is who we have used to to do that so I'm going to give them a plug
00:07:11
because I I love working with them KK um is who we work with uh in in in that process so uh you know reach out to them and and have the the conversation with them if if you're interested in it um but there's cost associated with it but there's also the peace of mind that we have things set up correctly I have to worry about it um because I know that things are being done correctly with um proper attorneys that are trained in this type of of a process here the cost I'm not sure I I I have to look at what
00:07:41
we pay them I would say it's probably no more than $2,000 a year and when you're running a business that's kind of a drop in the bucket uh when you're generating half a million dollars um in in revenue from your assisted living facility 2,000 just isn't that much so it's it's definitely worth it and it's one of those things it's a professional expense and so it's going to help you out um from a taxation point of view as well um because you're paying for that
00:08:05
Professional Service and so that's an expense that can be deducted um for your taxes as you as you go through that process so the big question which of these is best for assisted living facilities now as a sole proprietor what I would say is it's probably going to be best suited if at all for a small Care Home type of a facility something that is two or three B it's very small very intimate in the way that you have it structured um and even then I I don't know that I would do it um but that's
00:08:38
probably the only situation where I would consider doing that it is a lot more common I would say among those that are running these small care home businesses and I would also say that it's probably something that um an older generation is probably doing at this point and that phase of of how people are are running that is probably going to phase out just because we live in this world that is so litigious and and wanting to to go after you and having you know having a soul proprietor it just leaves you open to so many um
00:09:11
occurrences that that could come up and so you want to kind of protect yourself now who's going to use an LLC IID say probably all of you honestly I think everybody should be using the LLC uh again I'm not a professional I'm not an attorney I highly suggest you call One have a conversation with them um but uh from my point of you having an LLC is something that you all should probably have if you're doing a partnership you want to have an LLC uh it's going to help protect you help protect your
00:09:37
partner having these llc's and and things in place is not going to be that expensive um despite the headache that it can be the complexity of keeping everything up to date it's really not that bad you can do it very easily doesn't take a lot of your time it's going to provide you some extra protection it's just going to be extremely beneficial for you you found this useful or if you you know have question questions about LLC or sole proprietorship or you use one of the two comment those down below I'd love to
00:10:04
hear what other people are doing and if you're doing a corporation um then comment that down below or if you want to hear the difference between an LLC and a corporation um that might be actually a really good one for you to to understand comment that down below and if that's helpful I will make that video for you and kind of walk you through the process there does residential Assisted Living sound interesting to you but you just don't know how to get started at Assisted Living investing. net we are
00:10:28
here to help you through the process start to finish if you have not already uh liked the video make sure you hit that like button like subscribe and ring the bell so you get notified every time we go and do these videos we're doing lives once a week we have the long form videos as well and uh get over to the Facebook group uh it's blowing up we're having some incredible conversations over there to help you through the process and also get over to Assisted Living investing. netal we'll link it
00:10:53
down below you can get access to your free underwriting calculator well thank you for watching and hope you have a great day [Music] okay
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