Q: Hello, my wife and I operate a small market garden under a simple DBA in Oregon.
We would like to know if it would be advantageous to create a LLC that would make us employees with regular paychecks instead of using profits as personal income. Thank you for your help.
A:
Generally, the answer is yes - from a liability standpoint. To shield your personal assets from claims against your business, at a minimum you must form an entity separate from yourselves as individuals. That's usually an LLC, but it could also be a corporation. The DBA alone is not enough for this purpose; you must make a separate registration for the entity. (At that point you can consolidate your registrations.) I should point out that at the moment you may be operating as a general partnership by default, which would mean that not only are your personal assets reachable, but also that you are each personally liable for the problems the other individual creates. Forming a separate entity, and following other corporate formalities, greatly limits this exposure.
The issue of drawing regular paychecks gets to the issue of tax planning. You can take money out of the company in a number of ways, such as draw, or you can set yourself up as a formal W2 employee and draw regular salaries, or both. Other compensation options are available as well. The best person to advise you on on how to structure your total owner compensation package is a (licensed) CPA. I'd recommend that you reach out to a CPA to help you walk through this analysis. It will be time well spent.
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