How Do I Set Up My Tree Service?
Many things go in to starting a tree service. A crucial factor that needs to be decided is what business entity type you will set up for your tree service. Consider the following types of business entity types and which will work best for you and your tree service.
Sole Proprietorship: Sole proprietorship is the easiest to form, as it is just you. You as the an individual and taxed personally. There are no special forms to fill out, but the down side is that the bank does not like to lend money to an individual person for business pursuits. Another downside to a sole proprietorship is unlimited liability, so all of your personal assets are dragged in to the business activity.
Partnership: A partnership is 2 or more people that are owner operators involved in the business. There is nothing legal that has to be set up as you are still taxed personally. Each partner has the authority to enter into contracts, take out business loans, and change the operations. Each of you will be held responsible for business activity. For a sole proprietorship and partnership, most use DBA (doing business as). There is a lot of personal liability for the business owner. A partnership is easy to set up, taxed personally but there is more liability on the line.
Corporation (C or S): A corporation is the most complex and structured of the business entity types. Whether it is a C Corporation or a S Corporation is dependent on taxation. A C Corporation is taxed as a business and you as an employee also get personally taxed. With a S Corporation, the business does not get taxed, but goes down to you as person. Which is right for your tree service is a question for your accountant. When you set up the legal liability structure correctly, your personal assets cannot be touched for a business decision. You will need a CPA to help set a C or S corporation up.
Limited Liability Company (LLC): A limited liability company is fairly easy to set up. There is less paperwork and if it is done properly, legal liability is separate from personal assets. You are taxed personally and not on the business side. A limited liability company is essentially a combination of all the business entity types.
You also have to consider workers compensation laws when it comes to choosing the correct business entity type for your tree service. Sole proprietorship and limited liability companies automatically exclude the owner in workers compensation. Corporations are the opposite, the owner operator is automatically included and you have the option to not include them.
Of all the decisions you make when starting your tree service, choosing the proper legal entity is one of the most important. This sets up how you will be taxed as a business, how much paperwork you have to file, and the personal liability you have while doing business operations
Do you want a free half hour consultation with a business attorney? Contact ArboRisk today to find out how!
Written by: Eric Petersen