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How to set up an independent culsulting firm for myself ?

Frank Sikuluzu
Ranch Hand

Joined: Dec 16, 2003
Posts: 116
In USA, I've been working for some IT consulting firms for a few years and I am sick of the middleman. I want to set up an independent consulting firm owned by myself. Without much knowledge of it, I would like to ask you the following questions in case you have the experience ---

Basically what I like to do is to use this home owned company to sign contract or sub-contract with other firms, and of course I myself will go to work as a consultant. In other words, I will still work as a "contractor" but a "contractor" for my own company for some tax benefits.

1. What type of company (S, C, LLC, or whatever) is suitable for this kind self-owned business ?

2. Do I need to go to county to register for it ? What kind of license is essential ? Is the license limited only to one state ?

3. Overall, do you have a rough idea about the fees for setting it up ?
griffith jones
Greenhorn

Joined: Jul 11, 2001
Posts: 18
Frank:

Been down this road myself; was incorporated as a "S" Corp in California for 9 years ...

Lots of paperwork and 2 sets of tax returns for an S Corp; C Corp is considerably more complicated, and probably not worth it for a small consultancy. LLC is simplest of all, and has most of the benefits of an S Corp, and you don't need a separate return for it, as far as I know.

Check your local regulations, but there is usually no license needed, beyond what you need to set up any small business, i.e., filing for a business name, fed tax ID, etc.

In California, there are internet sites that will set up an LLC or S Corp for around $400, including filing fees; you pay $800/yearly minimum to the state in tax. For a S corp figure $1000/yearly for a tax accountant. You'll probably want a payroll service too, such as Paychex or EDP. Another $400-600 yearly there.

Be advised that many major businesses work only with a select few vendors from a preferred list, you will have dificulty getting on this list. If you ever do get on the list, it can be a license to print money -- favored vendors are in a position to bring in their own people as a significant markup.

You'll definitely need business insurance, i.e. "Errors and Ommisions", so a talk with an insurance broker will probably be in your future.

Good Luck!

Griff Jones
Louis Tangolin
Greenhorn

Joined: Nov 13, 2004
Posts: 8
Originally posted by griffith jones:
Frank:

Been down this road myself; was incorporated as a "S" Corp in California for 9 years ...

Lots of paperwork and 2 sets of tax returns for an S Corp; C Corp is considerably more complicated, and probably not worth it for a small consultancy. LLC is simplest of all, and has most of the benefits of an S Corp, and you don't need a separate return for it, as far as I know.

Check your local regulations, but there is usually no license needed, beyond what you need to set up any small business, i.e., filing for a business name, fed tax ID, etc.

In California, there are internet sites that will set up an LLC or S Corp for around $400, including filing fees; you pay $800/yearly minimum to the state in tax. For a S corp figure $1000/yearly for a tax accountant. You'll probably want a payroll service too, such as Paychex or EDP. Another $400-600 yearly there.

Be advised that many major businesses work only with a select few vendors from a preferred list, you will have dificulty getting on this list. If you ever do get on the list, it can be a license to print money -- favored vendors are in a position to bring in their own people as a significant markup.

You'll definitely need business insurance, i.e. "Errors and Ommisions", so a talk with an insurance broker will probably be in your future.

Good Luck!

Griff Jones


I thought about the same thing but haven't really started it yet. What bothered me was ---- The economy has been recovered that well yet so I am afraid that I may not get any contract although I have some connection... If I register a 'S' firm but can't get any contract and I still have to work for another company as an employee, will that have negative impact or 'penalty' on the established 'S' firm ? Do I still have to pay those annual fees ?

Plus, since you say 'LLC' is better than 's' firm in many aspects, may I curiously ask why you chose 'S' corporation ?

thanks,
Louis
Warren Dew
blacksmith
Ranch Hand

Joined: Mar 04, 2004
Posts: 1332
    
    2
Frank Sikuluzu:

1. What type of company (S, C, LLC, or whatever) is suitable for this kind self-owned business ?

For a one person business, definitely go with an S corporation - you'll have a one page tax return and a simple one page tax form for your shareholders (yourself). A C corporation involves a lot more paperwork, and probably isn't worthwhile until you get a dozen or so employees.

2. Do I need to go to county to register for it ? What kind of license is essential ? Is the license limited only to one state ?

You need to incorporate in your state. You may need to file a separate state tax return in each state you operate in.

3. Overall, do you have a rough idea about the fees for setting it up ?

It cost me a few hundred dollars to set up through The Company Corporation, and my company pays a little less than a thousand a year in various fees and taxes.

Note, however, that the middle man may be doing more work than you think. If you work for a consulting company, the company generally takes care of finding and bringing in the work (or pays you to do so); as your own company, you get to do this yourself, or work through headhunters who take their cut for matching up contractors with clients.
Billy Tsai
Ranch Hand

Joined: May 23, 2003
Posts: 1297
you can work as an independent IT contractor(like freelancer) for big companies but u must have very good references, qualifications, certifications, and lots of experience for the big company to pay u the same amount that they pay to consulting firms or software companies.
[ November 27, 2004: Message edited by: Billy Tsai ]

BEA 8.1 Certified Administrator, IBM Certified Solution Developer For XML 1.1 and Related Technologies, SCJP, SCWCD, SCBCD, SCDJWS, SCJD, SCEA,
Oracle Certified Master Java EE 5 Enterprise Architect
griffith jones
Greenhorn

Joined: Jul 11, 2001
Posts: 18
Louis:

Once you establish an "S" corp, the corporation is separate taxable identity, apart from you and any other stockholders. It owes any state or local taxes regardless of the income it produces. In my state -- California, an "S" corp pays $800/yearly to the state, minimum. Even if it has no income. You will also need to file tax returns, keep a separate set of books, etc.

When I incorporated in 1994, the "S" corp was the most popular form of business organiztion for small consultancies. The LLC has been gaining popularity in recent years, and had I been familiar with it I would have gone that route. With an LLC, you get protection of your personal assets from lawsuits tied to the business, same as an "S" corp. And the rules for maintaining the LLC are considerably simpler ...

Griff Jones
Louis Tangolin
Greenhorn

Joined: Nov 13, 2004
Posts: 8
According to griffith's msg, it seems LLC is better because it separates personal assets from any potential lawsuit tied to the self owned firm. Does anybody have real experience with such LLC ? Could you share some general information regarding the procedure, tax issue, business insurance, etc ?

Thanks,
Louis
Jeroen Wenting
Ranch Hand

Joined: Oct 12, 2000
Posts: 5093
Your best bet is your local chamber of commerce. They specialise in this and can help you get started.
They also have lists of things you need to do.
Plus they may have a good idea of whether it's a good step to take. How's the market? Will you ever get customers at all?

Also visit your bank and your insurance consultant. You're going to need them.


42
Tim Holloway
Saloon Keeper

Joined: Jun 25, 2001
Posts: 15957
    
  19

I founded MTS Associates as an "S" corporation back in '86, but these days, LLCs seem to be preferred. I disincorporated MTS 3 years ago, since there's not that much of a market for inexpensive software tools these days - Microsoft owns almost all of the commercial end and the rest of us get ours for free (FOSS). Plus the only other "Associate" who was willing to do any serious work died.

As far as making a go of independent contracting, I tried during the recession and that's when I learned about offshoring and the futility of trying to bid against people who could live on 20% of what I could. Many of the consulting resources I used back then have gone under.

Around here, if you're not on some company's contractor list, forget about them. The old contracting outfits like CSI, Keane, Robert Half, etc. don't even bother to advertise anymore. Then again, I know how Keane "gets IT done" and it doesn't seem to involve too many people in this town. Offshoring again.

However, I do know someone up near NYC who was an established contractor with existing connections (and much better people skills than I'll ever have) and he says that work has begun to trickle back in during the last couple of months.


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