Do I need a LLC?

M

Midwest1

New Member
Jurisdiction
Colorado
I am starting a new Loan Signing Agent business here in Colorado.

I am curious about if I should become an LLC or operate as a sole proprietor. I will be the only employee. I have already secured 1 million dollars in Errors and Omissions insurance, so I want to be as well prepared to represent Escrows and Title companies in buying/selling/refinancing homes both from a legal protection standpoint as well as a marketing standpoint to gain new business.

Is an LLC the best (and needed) route for me to go? Why or why not? Thank you for your advice and assistance.
 
Midwest1 said:
Is an LLC the best (and needed) route for me to go?
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Probably not, unless you fully comprehend what an LLC is and if its required for your purposes.

It can't hurt to visit a couple attorneys in your county and see what you can learn after the initial free consultation.
 
Midwest1 said:
I am starting a new Loan Signing Agent business here in Colorado.

I am curious about if I should become an LLC or operate as a sole proprietor. I will be the only employee. I have already secured 1 million dollars in Errors and Omissions insurance, so I want to be as well prepared to represent Escrows and Title companies in buying/selling/refinancing homes both from a legal protection standpoint as well as a marketing standpoint to gain new business.

Is an LLC the best (and needed) route for me to go? Why or why not? Thank you for your advice and assistance.
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Exactly what will you do as a "loan signing agent"? It is important to understand the limits of what LLC (or corporation or other limited liability entity) would provide you in terms of liability protection. As a sole proprietor of a business you are personally liable for all debts of the business, even those that arise simply because you are the owner and not because of any fault on your part, e.g. damages done by the negligence of your employees, etc.

A LLC, on the other hand, protects you from liability for those debts that you would otherwise owe just from being the owner of the business. Thus, you are always personally liable for your own negligence. So it's good that you have the E&O insurance and you should ensure that you have any other kind of insurance necessary based on the details of how you plan to operate.

The LLC does protect you from personal liability for contract obligations of the LLC so long as you don't personally guarantee those contracts. Experienced lenders and other businesses will, however, insist on your personal guarantee of loans and other significant contracts when the business is a single member LLC that has few assets and provides personal services since the LLC itself would provide little security for the contracts.

Also note that as the single member of the LLC there are some things, like certain taxes of the LLC, that you would be personally liable for by statute. Also note that a single member LLC is treated as a sole proprietorship for both federal and Colorado income tax purposes. So there is no tax savings here one way or the other.

So depending on the exact details of your business and the sophistication of the parties you deal with in your business, it may be that the LLC won't give you a whole lot of liability protection here.

That said, I do recommend to most of my clients that they form a LLC rather than operate as a sole proprietorship. There is little downside to it and it may end up providing some valuable protection in some situations that you might not be able to foresee now. Forming and maintaining a LLC in Colorado is fast, easy, and cheap. If you want a recommendation based on your specific business plan, see a Colorado business attorney. Besides, to really do it right you'd want the assistance of a lawyer to draft your LLC documents for you anyway, which while it would to the cost, it still will still be fairly reasonable and having a good set of company documents can save you a lot of money and grief later on. You'd also want to discuss with your lawyer how to properly run the LLC to avoid any plaintiffs later succeeding in holding you liable for debts of the LLC through a doctrine known as "piercing the corporate veil".

The bottom line is that it may be that a LLC won't provide you all that much liability protection, but there are also really no downsides to using a LLC for your business. You can, by the way, start out as a sole proprietor and convert to a LLC later if you want, though doing that only helps you for debts incurred after conversion.
 
Tax Counsel said:
Exactly what will you do as a "loan signing agent"? It is important to understand the limits of what LLC (or corporation or other limited liability entity) would provide you in terms of liability protection. As a sole proprietor of a business you are personally liable for all debts of the business, even those that arise simply because you are the owner and not because of any fault on your part, e.g. damages done by the negligence of your employees, etc.

A LLC, on the other hand, protects you from liability for those debts that you would otherwise owe just from being the owner of the business. Thus, you are always personally liable for your own negligence. So it's good that you have the E&O insurance and you should ensure that you have any other kind of insurance necessary based on the details of how you plan to operate.

The LLC does protect you from personal liability for contract obligations of the LLC so long as you don't personally guarantee those contracts. Experienced lenders and other businesses will, however, insist on your personal guarantee of loans and other significant contracts when the business is a single member LLC that has few assets and provides personal services since the LLC itself would provide little security for the contracts.

Also note that as the single member of the LLC there are some things, like certain taxes of the LLC, that you would be personally liable for by statute. Also note that a single member LLC is treated as a sole proprietorship for both federal and Colorado income tax purposes. So there is no tax savings here one way or the other.

So depending on the exact details of your business and the sophistication of the parties you deal with in your business, it may be that the LLC won't give you a whole lot of liability protection here.

That said, I do recommend to most of my clients that they form a LLC rather than operate as a sole proprietorship. There is little downside to it and it may end up providing some valuable protection in some situations that you might not be able to foresee now. Forming and maintaining a LLC in Colorado is fast, easy, and cheap. If you want a recommendation based on your specific business plan, see a Colorado business attorney. Besides, to really do it right you'd want the assistance of a lawyer to draft your LLC documents for you anyway, which while it would to the cost, it still will still be fairly reasonable and having a good set of company documents can save you a lot of money and grief later on. You'd also want to discuss with your lawyer how to properly run the LLC to avoid any plaintiffs later succeeding in holding you liable for debts of the LLC through a doctrine known as "piercing the corporate veil".

The bottom line is that it may be that a LLC won't provide you all that much liability protection, but there are also really no downsides to using a LLC for your business. You can, by the way, start out as a sole proprietor and convert to a LLC later if you want, though doing that only helps you for debts incurred after conversion.
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Thank you very much for the information and explanations. The type of business I would be handling would be acting as a registered Colorado state notary notarizing typical financing and refinancing of most types of residential homes that varying in price of course. My job duties are to simply to be certain the documents they are signing and notarized according to law, I am just guaranteeing that they did indeed sign the documents and they are who the state they are and are the person/s listed on the documents requiring signatures. By law I cannot advise the signees about the contents of the documents, simply state they should contact thier lender for any clarifications or desired changes. I just validate that they signed what is requested and make certain they sign in the correct areas, nothing further,
 
In other words, you'll be a notary. Likely a mobile notary, picking up the papers, bringing them to the borrower for signature and returning the papers to your client.

An LLC might be advantageous from a marketing standpoint as some of your potential clients may prefer to engage a business entity instead of an individual and avoid any issue regarding employee vs independent contractor.

You'll be doing a lot of driving so you'll want to have your car insurance adjusted for business use. You don't want to be accused of concealing your business use if you have an accident. You'll pay more for it but part of the premium will be deductible along with other car expenses based on either a percentage related to business miles or the rate per mile.

Since you are just starting out I suggest you go to the IRS website. There's a Tax Guide for Small Businesses. Also get Schedule C and Schedule SE and their instructions so you can learn how to keep proper records. You may have to pay estimated tax so get 1040-ES and instructions. There are also forms and instructions for depreciating your car if you don't want to just use the business mileage rate. Planning ahead for taxes is better than finding out next April that you got it wrong.
 
Midwest1 said:
Thank you very much for the information and explanations. The type of business I would be handling would be acting as a registered Colorado state notary notarizing typical financing and refinancing of most types of residential homes that varying in price of course. My job duties are to simply to be certain the documents they are signing and notarized according to law, I am just guaranteeing that they did indeed sign the documents and they are who the state they are and are the person/s listed on the documents requiring signatures. By law I cannot advise the signees about the contents of the documents, simply state they should contact thier lender for any clarifications or desired changes. I just validate that they signed what is requested and make certain they sign in the correct areas, nothing further,
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Why do you refer tot his as being a "loan signing agent," rather than simply referring to yourself as a "notary"?
 
My wife is a mobile Notary as a side gig. 2020 was her best year ever. Low-interest rates + lots of people sitting around the house = lots of refis.


ETA. She never paid anyone $475 to become a Loan signing agent.
 
PayrollHRGuy said:
My wife is a mobile Notary as a side gig. 2020 was her best year ever. Low-interest rates + lots of people sitting around the house = lots of refis.


ETA. She never paid anyone $475 to become a Loan signing agent.
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She married you, which is an indicia of her intelligence and wisdom.

She is too smart to be scammed.
 
zddoodah said:
Why do you refer tot his as being a "loan signing agent," rather than simply referring to yourself as a "notary"?
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My (California) notary school offered an additional course for more information related to notarizing loan documents. This, combined with the cost of the original course, would be right in the $475 range, as I recall.

Many title agencies/lenders will require that the notary also be trained (and screened) as a "signing agent".
 
Zigner said:
My (California) notary school offered an additional course for more information related to notarizing loan documents. This, combined with the cost of the original course, would be right in the $475 range, as I recall.

Many title agencies/lenders will require that the notary also be trained (and screened) as a "signing agent".
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The NNA (https://www.nationalnotary.org/)provides all of that plus many benefits including adding you to their search by location directory. Many closing companies require NNA certification anyway so if one is paying anyone other than the State to become a signing agent they are probably getting screwed or at the best charged twice for the same thing.

(Does not apply to those states where many hours of training are required like Louisiana. Hell, a notary can do lots of things that would be considered the practice of law in other states.)
 
PayrollHRGuy said:
Many closing companies require NNA certification anyway so if one is paying anyone other than the State to become a signing agent they are probably getting screwed or at the best charged twice for the same thing.
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NNA is a private organization, not a governmental entity.
 
You know what I mean. There is no reason the NNA couldn't start subjecting members to regulations and sanctions should they violate them.
 
PayrollHRGuy said:
You know what I mean. There is no reason the NNA couldn't start subjecting members to regulations and sanctions should they violate them.
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I would say that the NNA is closer to UL than it is to any BAR associations. Another analogy would be that of a Realtor.
For example, there is no requirement whatsoever that I become a "member" of the NNA, nor would I be subject to anything they might have to say.
 
PayrollHRGuy said:
Yes, sort of like the BAR Associations.
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Huh? In some states (including mine) a "bar association" is a private, voluntary organization that has no regulatory authority. In my state, the "State Bar" is a governmental organization that a lawyer must be a member of in order to practice law legally, and which has both regulatory and quasi-judicial power. However, in many other states, the governmental entity with power is called a "bar association."
 

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