Running the Business · Part 1
Sole owner vs. LLC vs. S corporation for a plumbing contractor: liability, tax, cost, and the small claims limit
The internet's answer is "form an LLC." For a one-person plumbing business in California that answer is often wrong, because the state charges an LLC $800 a year plus a fee on gross receipts, CSLB adds a $100,000 bond and a $1,000,000 insurance policy, and the liability protection is thinner for a contractor than for almost any other business. This lesson lays the three structures side by side on the four things that matter: what each protects you from, what each costs the state and CSLB, how each is taxed, and a detail almost nobody mentions, that a sole owner can sue a non-paying customer in small claims for twice as much as a company can.
What the full lesson covers
- Liability: no entity protects you from your own negligence on a job, from the bond indemnity you sign personally, from a personal guarantee at the supply house, or from CSLB discipline against the qualifier. What it protects is your personal assets from the company's contract debts and from an employee's negligence.
- State cost: an LLC pays $800 a year plus a fee starting at $900 once gross receipts reach $250,000; a corporation pays $800 minimum (waived the first year) or 1.5 percent of net income as an S corporation, whichever is more; a sole owner pays neither.
- CSLB cost: an LLC needs a $100,000 employee bond and $1,000,000 liability insurance; a corporation and a sole owner do not.
- Federal tax: a sole owner and a default LLC pay self-employment tax on all net profit; an S corporation pays it only on the salary it pays you, which is the entire reason S corporations exist for small contractors, and it only pays off once profit is well above a reasonable salary.
- Small claims: a natural person can sue for up to $12,500; a corporation or LLC for up to $6,250. A sole owner collects an unpaid $9,000 invoice in small claims; a company hires a lawyer or writes it off.
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More lessons in Setting Up the Business
- 1The entity is a one-way door: why you decide sole owner, LLC, or corporation before the license issues
- 2Sole owner vs. LLC vs. S corporation for a plumbing contractor: liability, tax, cost, and the small claims limitYou are here
- 3EIN, the business bank account, and separating the money: the first bookkeeping setup that survives an audit and a lawsuit
- 4City business licenses: every city you work in, the Los Angeles business tax, and the seven-day rule
- 5The insurance stack: general liability, commercial auto, the bond, and workers' comp. What each covers, what each does not, and who will demand it
- 6Sales tax for contractors: materials vs. fixtures. The CDTFA rule most plumbers get wrong
- 7Quarterly estimates, self-employment tax, deductions, and mileage: the tax calendar for a first-year contractor
- 8Hiring readiness: what has to exist before the first helper's first day
- 9Template: the business setup checklist, from pass letter to first invoice
- 10Template: the insurance requirements matrix. Who demands what, and the certificate that satisfies each one