Could Incoorporating Be Good for My Laundry and Me?

Most coin and card operated laundries in the western states are operated and function as some kind of sole proprietorship. Some of them are partnerships of one form or another.

There are, however, some inherent risks in those styles of business control.

The first major risk is personal liability by the owners for any untoward event that occurs in their coin laundry that runs in excess of the insurance they carry. With court judgements being what they have become in recent years, it could mean that sole owners and partners will have to pay off personally if their laundry insurance policy doesn’t cover the damages.

Another negative is the impact on one’s personal credit rating when income cycles downward because the laundry debts are under the name of the proprietor.

Corporations that are properly organized and capitalized remove most of the liability risks, but can be more expensive.

The first, most obvious benefit of being incorporated, if it is formed, operated and capitalized correctly, is that it protects the personal assets of the stockholder owners from the liabilities of the corporation. There may also be some tax benefits. (Check with your tax professional.)

What is meant by being capitalized correctly is that enough money is placed in the business to cover contingencies that should have been anticipated by those doing the incorporating.

In some states there are legal entities called limited liability corporations. These LLCs cap the liability of the stockholder to the amount of their investment they have made in starting up the business. In theory, the legal obligations are limited to the amount of investment that is made by the stock holders. Exceptions to that include intentional fraud.

Although it is possible in most areas to self incorporate without an attorney, it may not be wise to do so. What good is having a corporation if the paperwork leaves loopholes that make the process incomplete? Most use an attorney and that costs money. Usually one or two thousand dollars.

Some will self incorporate by using computer programs designed to do just that. It is a lot less expensive, but one size fits all paperwork may leave hidden problems. The filing process is simple and fairly inexpensive.

Corporate taxes are a consideration as well. Usually states charge a minimum tax each year. For an example, you pay six to eight hundred, whether or not your coin laundry is profitable. These taxes provide a legitimate business expense, and thus are deductible.

For most business owners the reason for forming a corporation is the protection it offers from liability. A secondary reason may be that it’s easier to sell your business with a transfer of stock rather than the sale of personal property. In states that charge sales tax, sales of stock are generally not subject to sales tax.

In many cases, an escrow might not be necessary in the sale of an incorporated coin laundry. But to do that, make sure you’ve checked with an attorney. In other cases a tax free exchange of stock could save a sophisticated seller taxes on capital gains.

Our suggestion, before you decide, talk with an attorney first.

 

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