Should a watch dealer form an LLC?

Most people who start dealing watches as a business end up forming a limited liability company. It's worth understanding why, what it costs, and what it doesn't do, so the decision is yours rather than a default. This is general information, not legal or tax advice, and it's exactly the kind of decision worth ten minutes with an attorney or accountant.

What an LLC is for

An LLC is a separate legal entity that owns and runs your business. Its main attraction for a small dealer is that business debts and liabilities generally belong to the company rather than to you personally. If a deal goes wrong in a way that creates a claim, the goal is that the claim is against the business, not your house.

It also makes the business look like a business: a separate bank account, contracts and invoices in the company name, and a clearer line between your dealing and your personal finances. Some banks, payment processors, and suppliers expect that.

What it doesn't do

An LLC isn't a force field. Protection can be weakened if you treat the company's money as your own, so keep business and personal accounts strictly separate. It doesn't replace insurance for the watches in your care, and it doesn't reduce the licenses, reporting, or tax registrations your business needs; those apply whatever structure you choose.

What it costs to form

Formation fees are set by each state, and they vary a lot. Two examples from our research:

• Texas: an LLC's Certificate of Formation is filed with the Secretary of State for $300.^[1]
• Arizona: Articles of Organization are filed with the Arizona Corporation Commission for $50.^[2]

States may also charge ongoing fees or require annual reports, so check what continuing costs come with the entity, not just the formation fee.

Trading under a business name

If you trade under a name other than your own legal name or your company's registered name, many states require you to register that trade name. Arizona, for example, registers trade names with the Secretary of State for $10, good for five years.^[3] The state guides note each state's requirement.

Sole proprietor or LLC?

Starting as a sole proprietor is simpler and cheaper, and plenty of dealers do it while they test the business. The case for an LLC grows as the value of the watches you hold and the number of deals you do grow, because the potential size of a problem grows with them. A reasonable approach many people take:

• If you're buying and selling occasionally, a sole proprietorship with good records may be enough to start.
• Once you're holding meaningful inventory, dealing with the public regularly, or taking consignments, an LLC deserves serious consideration.
• Either way, open a separate business bank account from the first deal.

If you form one, run it like a company

The protection an LLC offers depends partly on treating it as a separate business. That means signing contracts and invoices in the company's name, keeping its money in its own account, recording what the business pays you, and keeping its required filings up to date. A company that exists on paper but is run as a personal account offers much less separation than one that is kept distinct.

Questions to settle with a professional

• Which structure fits your income, plans, and risk?
• How will the entity be taxed, and should you make any elections?
• What annual filings and fees will your state require?
• What insurance do you need for watches in your possession, including consigned pieces?
• Does anything in your city's licensing depend on the business structure?

Once the structure is settled, naming the business and business banking are the next steps.