Ask HN: Starting Your Own LLC?
I want to start my firm in the USA to channelize my creative endeavors. What are the nuts and bolts of starting your own firm? I can register an LLC online, but what else should I know? e.g Filing taxes, choosing between different corporations etc.
What did you wish you knew , when you started yours? What are some good resources ?
113 comments
1) Doing taxes correctly as anything other than a sole proprietorship is a huge pain in the ass, especially if you're selling things across state borders, and doubly so if you're in California. I recommend finding a tax professional to handle that for you (the time it takes to do it yourself is generally not worth it). Also don't forget that if you're actually making money you'll need to pay estimated taxes quarterly.
2) Either learn basic accounting (if you don't already) and keep excellent records of all revenue and expenses business-related (ideally categorized into standard business categories) or find a CPA to keep your records straight monthly. A huge number of people get burned simply because they didn't keep proper records and then ran into tax or regulatory trouble later.
3) Definitely keep your business finances as separate from your personal funds as possible. Different checking account, different credit card, etc.
4) Think really hard before you hire anyone for anything, and if you do, make sure you're either doing 1099 correctly or get a professional to help with W2 stuff. Again, this is something that often comes back to bite people.
And lastly, remember that most businesses fail and that failing at business is not something to be ashamed of. If it's not working out, don't make yourself miserable and mortgage your future to try and save it indefinitely - walk away and try again with the lessons you learned.
2) Either learn basic accounting (if you don't already) and keep excellent records of all revenue and expenses business-related (ideally categorized into standard business categories) or find a CPA to keep your records straight monthly. A huge number of people get burned simply because they didn't keep proper records and then ran into tax or regulatory trouble later.
3) Definitely keep your business finances as separate from your personal funds as possible. Different checking account, different credit card, etc.
4) Think really hard before you hire anyone for anything, and if you do, make sure you're either doing 1099 correctly or get a professional to help with W2 stuff. Again, this is something that often comes back to bite people.
And lastly, remember that most businesses fail and that failing at business is not something to be ashamed of. If it's not working out, don't make yourself miserable and mortgage your future to try and save it indefinitely - walk away and try again with the lessons you learned.
Note that a single-person LLC can file taxes as a pass-thru entity, which is essentially the same as a sole proprietorship. You do still need to separate your finances/accounts/etc tho.
Being a single-person LLC usually doesn't give you any of the legal advantages of having an LLC in case you get sued.
I talked to a lawyer about this and the feedback I received was while technically they might be able to sue to try and receive compensation even from your personal assets if you are a single-member LLC as long as you can show you were acting in good faith and as an agent of the company (i.e. you didn't personally guarantee the work and sign your name instead of the company's and you maintain distinct records and finances for the business), then it is unlikely to get approved in a court of law.
So an example here might be that you were working for a client and work wasn't fully completed on time. You made a good faith effort to get the work done, so while the company you were working for might be entitled to compensation from your LLC they can't come after your house.
Finally, let me caveat all this by saying that the standards for "piercing the corporate veil" vary by state and as always you should consult with a lawyer before making a final determination. Also, another work around is to form a multi-member LLC and hold formal annual meetings. This is normally enough for most states to consider the LLC as a separate distinct entity and prevent piercing of the corporate veil.
So an example here might be that you were working for a client and work wasn't fully completed on time. You made a good faith effort to get the work done, so while the company you were working for might be entitled to compensation from your LLC they can't come after your house.
Finally, let me caveat all this by saying that the standards for "piercing the corporate veil" vary by state and as always you should consult with a lawyer before making a final determination. Also, another work around is to form a multi-member LLC and hold formal annual meetings. This is normally enough for most states to consider the LLC as a separate distinct entity and prevent piercing of the corporate veil.
I also discussed this with the SBA and multiple attorneys (attorneys make up most of my clients, btw).
Here in NY, piercing the corporate veil is a bit easier than in other states. More importantly, if someone attempts to go down that road, you have to spend the time and resources ($$$) to defend your position. In general you're best off just starting in the strongest possible position to start with, and usually that means splitting the decision making responsibility. If you want to avoid all that hassle, just go the SP route.
In my original comment I made the mistake of saying "any" instead of "all"
Here in NY, piercing the corporate veil is a bit easier than in other states. More importantly, if someone attempts to go down that road, you have to spend the time and resources ($$$) to defend your position. In general you're best off just starting in the strongest possible position to start with, and usually that means splitting the decision making responsibility. If you want to avoid all that hassle, just go the SP route.
In my original comment I made the mistake of saying "any" instead of "all"
I'm late to the party, but used to work for a collections attorney who specialized in SMB who were close to or are defunct. The biggest mistake anyone ever made (when setting up an LLC) was to mix personal and business funds. It made it trivially easy to go to the court and "pierce the corporate veil" as you so aptly put it.
The way you wan to do it is set up an LLC but then "loan" the business money and act both as it's owner but also it's creditor. This separates you in the eyes of the court.
The way you wan to do it is set up an LLC but then "loan" the business money and act both as it's owner but also it's creditor. This separates you in the eyes of the court.
Being a single person LLC absolutely does gives you the legal advantages of an LLC, provided you maintain separation of personal and business, eg keeping business bank accounts and routing all income and expenses through them, keeping proper accounting books, signing contracts as the LLC and not as yourself, holding company meetings w/ minutes, etc.
In practice this protection isn’t worth as much as it is for larger businesses because, for example, any bank lending to a new single person LLC will require a personal guarantee anyway, and most single person LLC don’t have a lot of situations where they might incur a life destroying liability, like an accident in a warehouse or something, but that protection still definitely exists for single person LLCs.
In practice this protection isn’t worth as much as it is for larger businesses because, for example, any bank lending to a new single person LLC will require a personal guarantee anyway, and most single person LLC don’t have a lot of situations where they might incur a life destroying liability, like an accident in a warehouse or something, but that protection still definitely exists for single person LLCs.
> holding company meetings w/ minutes
How do you hold meetings with minutes in a single person LLC? With clients/subcontractors/advisors maybe?
I'm not being sarcastic, my accountant wants me to form an LLC and if doing this helps with liability I'd be happy to go through the ceremony of it.
How do you hold meetings with minutes in a single person LLC? With clients/subcontractors/advisors maybe?
I'm not being sarcastic, my accountant wants me to form an LLC and if doing this helps with liability I'd be happy to go through the ceremony of it.
Write down your plans, decisions, and reflections. It's something you should probably be doing anyway.
The only silly part is calling it a meeting, but people do seem to agree that's the terminology the IRS wants to see.
Actually, I guess there are two silly parts, although the second is arguably more sad than silly: you must be 100% clear that you are engaging in these activities with a profit motive and not for the love of learning, doing, helping... and if the IRS decides that your motive is not sufficiently (im)pure, you will owe considerable back taxes, interest, and fees.
The only silly part is calling it a meeting, but people do seem to agree that's the terminology the IRS wants to see.
Actually, I guess there are two silly parts, although the second is arguably more sad than silly: you must be 100% clear that you are engaging in these activities with a profit motive and not for the love of learning, doing, helping... and if the IRS decides that your motive is not sufficiently (im)pure, you will owe considerable back taxes, interest, and fees.
Haha it is rather ridiculous, but you can formalize big company decisions in a sort of company secretary’s binder. Honestly though, keeping the finances and contracts separate will basically always be enough to avoid personal liability. Basically you just want everything to be partitioned enough that no one you do business with would ever think that they are dealing with you in a purely personal capacity rather than as a representative of your company.
Send an email to yourself? CC your accountant/company secretary.
How do you sign something as an LLC? Do you just write the LLC name?
Generally, anyone that a company has duly authorized to sign will be able to sign on behalf of the company. I'm just guessing at what the GP meant, but I think the most important thing is to just negotiate the contract as the LLC. I suppose it makes sense to be particularly clear on the signature page that you're signing as manager/agent of the LLC.
Not exactly...So for example say you owned a share of Apple, obviously you will not be liable for debts of the company by your nature as an owner and the company will not be liable for your personal debts as an owner. With the single member LLC you are still protected from the debts and liabilities of the company, but a creditor/judgment holder/lien holder could likely collect against the LLC and even potentially “foreclose” on your ownership interest and take over the company.
Best advice for anyone, especially a foreigner without SSN/ITIN, is to get a lawyer. Note for all foreigners, IRS changed their rules to get an EIN 5/10/19 and this is significantly delaying new foreign owned/controlled businesses.
Best advice for anyone, especially a foreigner without SSN/ITIN, is to get a lawyer. Note for all foreigners, IRS changed their rules to get an EIN 5/10/19 and this is significantly delaying new foreign owned/controlled businesses.
This is absolutely not correct.
The caveat, is you must operate like a business - including proper insurance levels. If you're not acting like a business, then you don't get business-like protections.
Source: Single member LLC who has discussed the issue with my lawyer.
The caveat, is you must operate like a business - including proper insurance levels. If you're not acting like a business, then you don't get business-like protections.
Source: Single member LLC who has discussed the issue with my lawyer.
In my experience, insurance levels are determined by the work you do and clients you have, not by your entity type. Most of my 1099 contracts these days come with a professional insurance clause that is independent of the kind of business I run.
What would be proper insurance level for typical SaaS?
This is like asking "what insurance do you have?" Some people will carry health, auto, life, home, flood, and earthquake insurance. Some people opt for some or none, depending on applicability.
An insurance broker will happily talk you through what each gives you, and what is most relevant to your co, but it will almost always include GL (general liability), E&O (errors and omissions), and some sort of "cyber" (to pay for resulting damage from hacking). Expect other flavors of insurance to also be applicable.
An insurance broker will happily talk you through what each gives you, and what is most relevant to your co, but it will almost always include GL (general liability), E&O (errors and omissions), and some sort of "cyber" (to pay for resulting damage from hacking). Expect other flavors of insurance to also be applicable.
Thank you for your response. I was just curious about other's best practices.
I am not a lawyer. But my understanding is that it does shield your personal finances to some degree.
Also not a lawyer but it seems unlikely. You can’t create a legal shell just to shield yourself from liability. There needs to be an actual entity. Or not, again not a lawyer.
Depends if you are keeping the entity and its finances separately. If you can demonstrate your finances are not commingled, they can be considered as separate and distinct even when reporting taxes as pass through.
So, for instance, document the seed money to the LLC, and any other money you put in, carry on the books. Similarly, pay yourself a salary or if doing “equity draw” again keep it full documented.
Never pay for personal things with company funds.
So, for instance, document the seed money to the LLC, and any other money you put in, carry on the books. Similarly, pay yourself a salary or if doing “equity draw” again keep it full documented.
Never pay for personal things with company funds.
Interesting. So what do you suppose the function of a Limited Liability Company with pass-through taxation would be?
This statement is obviously incorrect.
It’s literally the name of the thing, the two L’s stand for “limited liability”
It’s literally the name of the thing, the two L’s stand for “limited liability”
its limited, NOT absolute. If you are a single person LLC the claim can be made that the business is an alter-ego of the owner, and can then the corporate veil can be pierced.
I mean of course. But that’s true of all corporations.
If you conduct the business in a businesslike manner and keep proper separation of personal issues, and keep required records to document its corporate actions then you have the law’s liability protection.
That’s also true for a 2 or 200 member LLC.
If you conduct the business in a businesslike manner and keep proper separation of personal issues, and keep required records to document its corporate actions then you have the law’s liability protection.
That’s also true for a 2 or 200 member LLC.
This is exactly what I was advised about single-person LLCs by the SBA.
And my lawyer.
And my lawyer.
Citation?
The last point. I think its the number 1 thing every new founder should know. Getting success on the first try is tough and very rarely people achieve that. In fact, Microsoft was Bill's second business
All of these points are spot on! I learned some of this the hard way and wish someone told me these things years ago when I went from sole proprietorship to LLC. Spending money on a good Bookkeeper, CPA and accounting software is well worth the money.
I don’t like the tone of this advice. It’s very off putting.
Look, do what you want. If you want a business start it. You’ll need a CPA and a book keeper. These are easy to find and low cost. I pay my book keeper $200/month and my CPA a few thousand each year.
I literally have never bothered with taxes. I hand them to my CPA and just double check the numbers when he’s done. Same with my book keeper. I don’t deal with IRS letters and whatever I just scan them and forward them to him and he deals with it.
Tax/accounting/finance are the easiest part of a small business. These jobs are easy to outsource because they’re well commoditized. Tax/finance/accounting for a small business can be challenging for a lay person but it’s routine for these professionals.
Lastly, if you fuck up your taxes and accounting it’s not that big of a deal. The IRS is happy to have you sort it out and pay them what you owe with interest later. They’re very polite people. I should know.
The dirty secret about starting a small business is that everyone’s back office is a total shit show. Ask any freelance bookkeeper or CPA what state their clients were in when they acquired them.
Look, do what you want. If you want a business start it. You’ll need a CPA and a book keeper. These are easy to find and low cost. I pay my book keeper $200/month and my CPA a few thousand each year.
I literally have never bothered with taxes. I hand them to my CPA and just double check the numbers when he’s done. Same with my book keeper. I don’t deal with IRS letters and whatever I just scan them and forward them to him and he deals with it.
Tax/accounting/finance are the easiest part of a small business. These jobs are easy to outsource because they’re well commoditized. Tax/finance/accounting for a small business can be challenging for a lay person but it’s routine for these professionals.
Lastly, if you fuck up your taxes and accounting it’s not that big of a deal. The IRS is happy to have you sort it out and pay them what you owe with interest later. They’re very polite people. I should know.
The dirty secret about starting a small business is that everyone’s back office is a total shit show. Ask any freelance bookkeeper or CPA what state their clients were in when they acquired them.
Your comment amounts to the same advice as the comment you’re replying to: outsource your tax and overall finance management to a qualified 3rd party.
I’m not sure why you felt the prior comment was “offputting”; they don’t say not to start a business, they’re pointing out that financials are an area that a business owner needs to address, and that outsourcing it is often the correct route.
I’m not sure why you felt the prior comment was “offputting”; they don’t say not to start a business, they’re pointing out that financials are an area that a business owner needs to address, and that outsourcing it is often the correct route.
I wrote answers for a number of these questions for Stripe Atlas; c.f. https://stripe.com/atlas/guides/incorporation , https://stripe.com/atlas/guides/business-taxes, and the https://stripe.com/atlas/guides more generally.
If there are holes after reading them, we'd love to hear about them.
If there are holes after reading them, we'd love to hear about them.
Atlas customer here - I filed for an LLC myself in 2013 and then helped some entrepreneurs sign up through Atlas in 2018. While the up-front cost is higher ($160 for filing yourself vs $500 through Atlas) you get access to cheaper tax preparation and have no chance of being hit with pesky fines for not filing paperwork on time, and the cost is negligible compared to the minimum tax. Most importantly, you get access to some great support for all the ancillary stuff to running a business that is otherwise hard/expensive to come by on your own. If I had used Atlas in 2013 it would have easily paid for itself in time saved and fines avoided.
From your first link, the link to the WilmerHale [0] article is a 404.
[0] https://www.wilmerhale.com/uploadedFiles/Shared_Content/Edit...
[0] https://www.wilmerhale.com/uploadedFiles/Shared_Content/Edit...
Keep in mind that these are marketing materials for a commercial product. Grain of salt sold separately.
patio11, I have a bunch of questions about Stripe Atlas (sorry that this is long):
- Should a subsidiary of a foreign company be an LLC or C Corp? I've read https://stripe.com/atlas/guides/llc-vs-c-corp and if I were to own the company directly, I certainly would go for a C Corp to avoid having to report the company's taxes on my personal U.S. tax returns. But it's not clear to me whether it's better for a subsidiary to be an LLC or C Corp. (I'm leaning towards C Corp, but don't want to miss out on any benefits of having the subsidiary be an LLC.)
- Can I transfer 100% of my U.S. subsidiary's revenue to the foreign parent company, and write off the entirety of that amount as a business expense? So, my U.S. subsidiary's income would be zero, with everything that was repatriated to the parent company subtracted as a fully deductible business expense. Is this okay under U.S. tax law? Or would this be considered tax evasion? (Would the U.S. company even have to file a state or federal income tax return, since its income after business expense deductions is zero?)
(Note: The sole reason I want a U.S. company via Stripe Atlas is because Stripe is the best payment gateway out there. It makes receiving money from customers a lot easier, which is to put lightly, quite important.)
- If I directly own a C Corp, will I ever have to report anything connected to it on my personal U.S. tax returns? (I assume with a subsidiary I never would have to.) Also, will Stripe ask me to disclose my U.S. Social Security number, or would a foreign passport be sufficient? And, does Stripe Atlas transmit any data on company ownership to the federal government? Since temporary work/other visa holders are prohibited from running a startup on the side, there can't be anything (that's discoverable by the Dept of Homeland Security) tying me to the U.S. company. (It's just that people have been deported for selling apps, receiving ad revenue, among other things: https://www.murthy.com/2014/01/28/home-based-businesses-inad...)
- How does succession for intellectual property work for companies? If the company is shut down, can I designate myself as the "inheritor"/beneficiary of all the property that the company held prior to its dissolution?
- Can I convert a subsidiary into a normal company that is directly owned by me? There is a high probability that I will dissolve the foreign parent company once I get U.S. permanent residency (but that could take a few years).
- Do I need to use the Delaware registered agent that Stripe Atlas offers its customers for $100/year? (I want to use the one offered by VirtualPostMail instead: https://www.virtualpostmail.com/services/registered-agent)
Finally, patio11, is the email address info at stripe dot com the best email to reach out for further questions such as these?
- Should a subsidiary of a foreign company be an LLC or C Corp? I've read https://stripe.com/atlas/guides/llc-vs-c-corp and if I were to own the company directly, I certainly would go for a C Corp to avoid having to report the company's taxes on my personal U.S. tax returns. But it's not clear to me whether it's better for a subsidiary to be an LLC or C Corp. (I'm leaning towards C Corp, but don't want to miss out on any benefits of having the subsidiary be an LLC.)
- Can I transfer 100% of my U.S. subsidiary's revenue to the foreign parent company, and write off the entirety of that amount as a business expense? So, my U.S. subsidiary's income would be zero, with everything that was repatriated to the parent company subtracted as a fully deductible business expense. Is this okay under U.S. tax law? Or would this be considered tax evasion? (Would the U.S. company even have to file a state or federal income tax return, since its income after business expense deductions is zero?)
(Note: The sole reason I want a U.S. company via Stripe Atlas is because Stripe is the best payment gateway out there. It makes receiving money from customers a lot easier, which is to put lightly, quite important.)
- If I directly own a C Corp, will I ever have to report anything connected to it on my personal U.S. tax returns? (I assume with a subsidiary I never would have to.) Also, will Stripe ask me to disclose my U.S. Social Security number, or would a foreign passport be sufficient? And, does Stripe Atlas transmit any data on company ownership to the federal government? Since temporary work/other visa holders are prohibited from running a startup on the side, there can't be anything (that's discoverable by the Dept of Homeland Security) tying me to the U.S. company. (It's just that people have been deported for selling apps, receiving ad revenue, among other things: https://www.murthy.com/2014/01/28/home-based-businesses-inad...)
- How does succession for intellectual property work for companies? If the company is shut down, can I designate myself as the "inheritor"/beneficiary of all the property that the company held prior to its dissolution?
- Can I convert a subsidiary into a normal company that is directly owned by me? There is a high probability that I will dissolve the foreign parent company once I get U.S. permanent residency (but that could take a few years).
- Do I need to use the Delaware registered agent that Stripe Atlas offers its customers for $100/year? (I want to use the one offered by VirtualPostMail instead: https://www.virtualpostmail.com/services/registered-agent)
Finally, patio11, is the email address info at stripe dot com the best email to reach out for further questions such as these?
At the risk of seeming unduly negative, I'd like to take a swing at this last question of yours:
> is the email address info at stripe dot com the best email to reach out for further questions such as these?
I do not work for Stripe, never have, but I can state with near-certainty that the answer to this question is "absolutely not."
Stripe are not going to give you advice on how to violate U.S. immigration law and not get caught. If you are living in the U.S. on a visa that does not allow employment beyond the terms of your visa, you are asking Stripe to give you advice on how to break the law and there's zero chance that any business--especially one so deep into financial services like Stripe are--will be OK with doing that.
If you have to ask questions with a caveat like this:
> there can't be anything (that's discoverable by the Dept of Homeland Security) tying me to the U.S. company.
then you are playing with fire, particularly under this administration, running the risk of being deported and receiving a 10-year ban on reentry at all (to say nothing of destroying your chances at ever getting a work permit again) and I strongly suggest you reconsider what it is you are considering doing.
> is the email address info at stripe dot com the best email to reach out for further questions such as these?
I do not work for Stripe, never have, but I can state with near-certainty that the answer to this question is "absolutely not."
Stripe are not going to give you advice on how to violate U.S. immigration law and not get caught. If you are living in the U.S. on a visa that does not allow employment beyond the terms of your visa, you are asking Stripe to give you advice on how to break the law and there's zero chance that any business--especially one so deep into financial services like Stripe are--will be OK with doing that.
If you have to ask questions with a caveat like this:
> there can't be anything (that's discoverable by the Dept of Homeland Security) tying me to the U.S. company.
then you are playing with fire, particularly under this administration, running the risk of being deported and receiving a 10-year ban on reentry at all (to say nothing of destroying your chances at ever getting a work permit again) and I strongly suggest you reconsider what it is you are considering doing.
I've found out Stripe wasn't even necessary to begin with. There are plenty of payment gateways (double-digit number of them) in the jurisdiction where the foreign parent entity would be located. Moreover, Stripe is actually offered in a lot of countries besides the U.S.! The post https://hackernoon.com/stripe-atlas-is-not-for-everyone-cave... made some really good points, including this:
> Unless you have a really crappy situation with respect to payment processing, regulations etc., that are real roadblocks for competing internationally, I do not recommend setting up company for the romanticised notion of using a particular gateway.
I made that mistake of romanticizing Stripe. I was too hasty, and didn't bother to do some basic research. Customers just want an easy way to pay, and definitely don't care what gateway you choose to use. As far as setting up an American company/subsidiary goes, it's not worth the trouble. Reading https://stripe.com/atlas/guides/business-taxes alone was eye-watering and migraine-inducing. The plethora of complicated tax rules are absolutely not worth enduring just to use one particular payment processing system.
> Unless you have a really crappy situation with respect to payment processing, regulations etc., that are real roadblocks for competing internationally, I do not recommend setting up company for the romanticised notion of using a particular gateway.
I made that mistake of romanticizing Stripe. I was too hasty, and didn't bother to do some basic research. Customers just want an easy way to pay, and definitely don't care what gateway you choose to use. As far as setting up an American company/subsidiary goes, it's not worth the trouble. Reading https://stripe.com/atlas/guides/business-taxes alone was eye-watering and migraine-inducing. The plethora of complicated tax rules are absolutely not worth enduring just to use one particular payment processing system.
I hope you realize that your post looks super sketchy. It seems like you are walking the fine line of potential tax evasion as well as potential immigration violation(s).
I strongly encourage you to see an accountant and/or lawyer -- it would strike me as cavalier if anyone answered your questions completely in a public forum such as this.
I strongly encourage you to see an accountant and/or lawyer -- it would strike me as cavalier if anyone answered your questions completely in a public forum such as this.
For more nuts and bolts: I'm a part-time law professor and do a fair amount of (pro bono) mentoring and lecturing for local academic institutions about "Startup Law 101." In lieu of handing out the slides, I maintain a Web page with summaries and links to further reading. [0]
(The page includes links to lots of HN discussions in this area; depending on how this discussion goes, I might add it as well.)
[0] https://www.oncontracts.com/startup-law/
(The page includes links to lots of HN discussions in this area; depending on how this discussion goes, I might add it as well.)
[0] https://www.oncontracts.com/startup-law/
It's also worth noting that you don't need an LLC to "channelize your creative endeavors".
You can take money from other people for goods and services you provide without any legal structure behind it. IRS has forms to report such income (and related business expenses).
A step-up is a DBA registration in your city hall. It's still just you, nothing changes from point of view of IRS, you can just use a name for your business that is different that your own.
An LLC is a significant step-up in terms of complexity and cost and many people cargo cult it (i.e. they think they need an LLC for reasons they can't put into words but it's something what other people are doing).
You can take money from other people for goods and services you provide without any legal structure behind it. IRS has forms to report such income (and related business expenses).
A step-up is a DBA registration in your city hall. It's still just you, nothing changes from point of view of IRS, you can just use a name for your business that is different that your own.
An LLC is a significant step-up in terms of complexity and cost and many people cargo cult it (i.e. they think they need an LLC for reasons they can't put into words but it's something what other people are doing).
LLC stands for limited liability company. What makes it different than a DBA is that a LLC gives you limited liability. If your LLC is sued, you're protected personally from losing assets. Regardless, many people don't need it and a DBA suffices until the liability gets too high.
> If your LLC is sued, you're protected personally from losing assets.
A lawyer friend once told me that anyone can sue anyone at any time for anything. A good lawyer will sue the LLC and the owner of the LLC. Even if the defendant is found to not be liable, it won't feel like a victory when the invoice from the defendant's attorney arrives.
A lawyer friend once told me that anyone can sue anyone at any time for anything. A good lawyer will sue the LLC and the owner of the LLC. Even if the defendant is found to not be liable, it won't feel like a victory when the invoice from the defendant's attorney arrives.
You also have to pay $800/year in franchise tax if you run an LLC in California, regardless of income. If OP is just making an etsy or something, he does not need an LLC.
While true, for solo LLCs in particular such "protection" can be incomplete. I'd advise folks to consult with a lawyer before embarking on anything risky.
If you have no assets then you may not have anything to protect and an LLC can be a waste. But if you have a family, a house, and some savings to protect, then it is very easy to put into words why an LLC is important. LLCs are cheap and easy insurance. Where I might agree about cargo cults is the Delaware Corp.
I've helped hundreds of creatives figure out their formation + taxes in the past couple of years. Here're my top learnings:
- LLC formation is not just filing the article of organization. Make sure to get an EIN, an operating agreement (Google operating agreement + your state for templates), get a business license, open a business bank account (https://www.azlo.com is great), make initial contribution (don't worry, it's your money). This makes sure that your LLC is set up right (some states won't give you limited liability, if you don't do it right).
- In most states, LLCs are pass-through entities, meaning you'll file your taxes via Schedule C and pay 15.3% self-employment tax. If you plan to make $60K or more in profit, consider filing for S Corporation (significant tax benefits)
- Get a decent bookkeeping software and do your books right from day one (it pays off). Quickbooks online is great. Connect your business bank account, categorize your expenses, close your books at least quarterly.
- Pay your quarterly taxes. Even though the penalty is not huge, you'll avoid getting a huge tax bill at the end of the year
- You may be able to manage doing your own taxes for a while, but if you're serious about this, find a tax preparer to do your taxes. If you pick SCorp route, definitely get one, as it's a separate tax return and a lot more involved (i.e running payroll)
- If you go SCorp route, make sure you get the reasonable compensation right. Run yourself regular payroll (https://www.gustom.com is great) and get K1 distribution every now and then. Pass your health insurance via your S-Corp
- Invest in Sole 401K. Investing in retirement is always a good idea and you'll save a lot in taxes.
- There are a couple of all-in-one services that can help with all. If you're doing freelancing/contracting https://www.hyke.me is great. If you're selling apps, doing ecommerce etc https://www.stripe.com/atlas is great.
Hope helps.
- LLC formation is not just filing the article of organization. Make sure to get an EIN, an operating agreement (Google operating agreement + your state for templates), get a business license, open a business bank account (https://www.azlo.com is great), make initial contribution (don't worry, it's your money). This makes sure that your LLC is set up right (some states won't give you limited liability, if you don't do it right).
- In most states, LLCs are pass-through entities, meaning you'll file your taxes via Schedule C and pay 15.3% self-employment tax. If you plan to make $60K or more in profit, consider filing for S Corporation (significant tax benefits)
- Get a decent bookkeeping software and do your books right from day one (it pays off). Quickbooks online is great. Connect your business bank account, categorize your expenses, close your books at least quarterly.
- Pay your quarterly taxes. Even though the penalty is not huge, you'll avoid getting a huge tax bill at the end of the year
- You may be able to manage doing your own taxes for a while, but if you're serious about this, find a tax preparer to do your taxes. If you pick SCorp route, definitely get one, as it's a separate tax return and a lot more involved (i.e running payroll)
- If you go SCorp route, make sure you get the reasonable compensation right. Run yourself regular payroll (https://www.gustom.com is great) and get K1 distribution every now and then. Pass your health insurance via your S-Corp
- Invest in Sole 401K. Investing in retirement is always a good idea and you'll save a lot in taxes.
- There are a couple of all-in-one services that can help with all. If you're doing freelancing/contracting https://www.hyke.me is great. If you're selling apps, doing ecommerce etc https://www.stripe.com/atlas is great.
Hope helps.
Through what context did you help out hundreds of creatives? Just curious. Do you do tax advisory for a living?
The Clerky handbook is worth a read: https://handbook.clerky.com/
They offer services for incorporation too. Never used them so cannot speak about their service level. Seems to be a preferred choice for some YC startups. Then of course there is LegalZoom. They are around since 2001.
They offer services for incorporation too. Never used them so cannot speak about their service level. Seems to be a preferred choice for some YC startups. Then of course there is LegalZoom. They are around since 2001.
I've skimmed through it, and it's a fine guide if you're starting a traditional startup that plans to raise money.
If you're starting any other kind of business it's a little over kill.
Generally registering an LLC, applying for a business license and then requesting a Tax ID number from the IRS is really all you need for a web based business of 1 person.
If you're starting any other kind of business it's a little over kill.
Generally registering an LLC, applying for a business license and then requesting a Tax ID number from the IRS is really all you need for a web based business of 1 person.
> applying for a business license
what is it for " a web based business"?
what is it for " a web based business"?
I guess I'm not really understanding your question.
In order to legally do business and report on your taxes (in washington state for example) you need to register your entity as a business with the state -- in the form of a business license.
I only used the phrase "web based business" assuming you have no physical property (retail) or employees which add additional licensing requirements and more complexity.
In order to legally do business and report on your taxes (in washington state for example) you need to register your entity as a business with the state -- in the form of a business license.
I only used the phrase "web based business" assuming you have no physical property (retail) or employees which add additional licensing requirements and more complexity.
The OP is not talking about starting an investor-bait C-Corp, though. That's what Clerky specializes in.
Unless there's something not mentioned in the OP, he doesn't need a board, he doesn't need shares, he doesn't have a partner. He needs a disregarded entity.
Unless there's something not mentioned in the OP, he doesn't need a board, he doesn't need shares, he doesn't have a partner. He needs a disregarded entity.
Pay attention to the annual filing fees in your state for LLCs. That makes it prohibitive in some states for small side-project type endeavors. (MA filing fees are $500 registration and $500/yr for the annual report filing.)
And if you end up close to the end of the year before filing, hold off until January to form the LLC if you can. Otherwise they’ll expect the annual fees ($800 in California!) for the partial year. And if you end up paying late, they’ll come for the penalty as well.
What would you fine people advice for a single guy making money through a website in Europe? What kind of corporation? At how much revenue do I need to think about that? How much money (and time) does it cost per year? How does it differ among EU countries? What do I need to take care of, when I take money from customers around the world?
Single member LLC wasn’t as hard as I thought to setup. 100 bucks online in Oregon, near instant approval too. Make sure you sign up with the IRS for an EIN.
Signed up for Azlo just recently after keeping money in my personal, no big deal just makes taxes a little harder.
Make sure you keep records of everything. Get yourself a good receipt scanner that does OCR, like neat. Keep the physicals around too.
I’m not bothering with a lawyer, CPA until I start having a lot more cash flow. Right now it’s enough for me to manage, but I will get professionals to manage in the future.
One thing I wish I did was not use my residence as the address. Oh well, too late for that.
Signed up for Azlo just recently after keeping money in my personal, no big deal just makes taxes a little harder.
Make sure you keep records of everything. Get yourself a good receipt scanner that does OCR, like neat. Keep the physicals around too.
I’m not bothering with a lawyer, CPA until I start having a lot more cash flow. Right now it’s enough for me to manage, but I will get professionals to manage in the future.
One thing I wish I did was not use my residence as the address. Oh well, too late for that.
Signed up for Azlo just recently after keeping money in my personal, no big deal just makes taxes a little harder.
That actually is a big deal.
https://www.nolo.com/legal-encyclopedia/personal-liability-p...
Commingling assets. Small business owners may be more likely than their larger counterparts to commingle their personal assets with those of the corporation or LLC. For example, some small business owners divert corporate assets for their own personal use by writing a check from the company account to make a payment on a personal mortgage -- or by depositing a check made payable to the corporation into the owner's personal bank account. This is called "commingling of assets." To avoid trouble, the corporation should maintain its own bank account and the owner should never use the company account for personal use or deposit checks payable to the company in a personal account.
That actually is a big deal.
https://www.nolo.com/legal-encyclopedia/personal-liability-p...
Commingling assets. Small business owners may be more likely than their larger counterparts to commingle their personal assets with those of the corporation or LLC. For example, some small business owners divert corporate assets for their own personal use by writing a check from the company account to make a payment on a personal mortgage -- or by depositing a check made payable to the corporation into the owner's personal bank account. This is called "commingling of assets." To avoid trouble, the corporation should maintain its own bank account and the owner should never use the company account for personal use or deposit checks payable to the company in a personal account.
I still don’t think it’s a big deal. Single member llc are taxed on your personal (unless you opt differently but then you should have someone else handle it). It’s the people that don’t keep good records that get in trouble. Separating accounts won’t fully protect you if you do something dumb either. You can still take an owner draw whenever you want, irs don’t care.
But yes, had I known azlo existed I would have signed up from the start. I just wasn’t about ready to pay a big bank a monthly fee when I wasn’t making money yet.
But yes, had I known azlo existed I would have signed up from the start. I just wasn’t about ready to pay a big bank a monthly fee when I wasn’t making money yet.
It’s only a big deal if someone sues you and wins. If you comingle assets there’s an increased risk you could lose them in a judgement. If you don’t comingle there’s lower risk of losing personal assets.
One tip that's not specific to LLCs but that I nearly missed: don't forget to check if the city you're based in has its own business licensing/taxing requirements. For example, in San Jose you need to pay $150/year for a "business license", even if you're just working from home by yourself.
i don't have any experience with Stripe Atlas. here are the highlights of their offering.
Enables founders to assign relevant IP to the company at formation, formalizing ownership of key technology.
Is designed to make conversion to a C Corporation as simple as possible. (We can connect Stripe Atlas users to a lawyer to manage the conversion process with discounted, flat-rate packages).
Provides a simplified process for adding members after formation.
Is organized in Delaware, the jurisdiction of choice for many new LLCs.
https://stripe.com/blog/atlas-llc
Enables founders to assign relevant IP to the company at formation, formalizing ownership of key technology.
Is designed to make conversion to a C Corporation as simple as possible. (We can connect Stripe Atlas users to a lawyer to manage the conversion process with discounted, flat-rate packages).
Provides a simplified process for adding members after formation.
Is organized in Delaware, the jurisdiction of choice for many new LLCs.
https://stripe.com/blog/atlas-llc
So 4 years ago, me and a couple of partners decided to start an online website selling vaporizers. Our supplier told us he was using Stripe and so we applied for a seller account. I stupidly put my personal information to get up and running quickly.
In the next few days, I get an email from Stripe that vaporizers are prohibited and they can't accept the payments. We were surprised but moved on since we couldn't do anything.
So we eventually scrape the project and I move on to a new website selling electronics. I signed up for a new Stripe account, but immediately got an email from stripe saying:
"our banking partners prohibit us from helping with payments associated with a business we've had to reject previously."
Has anyone faced this or had any recourse? This was 4 years ago and now I am pursuing building a SaaS using Stripe Connect and using Stripe Atlas. Whenever I reached out to Stripe back then, only response I got was decisions are final.
Are all those doors closed for me since I made a stupid mistake years ago?
So we eventually scrape the project and I move on to a new website selling electronics. I signed up for a new Stripe account, but immediately got an email from stripe saying:
"our banking partners prohibit us from helping with payments associated with a business we've had to reject previously."
Has anyone faced this or had any recourse? This was 4 years ago and now I am pursuing building a SaaS using Stripe Connect and using Stripe Atlas. Whenever I reached out to Stripe back then, only response I got was decisions are final.
Are all those doors closed for me since I made a stupid mistake years ago?
Since you used your personal information previously, can’t you use the business information this time?
From Stripe’s perspective (as well as your business’s), wouldn’t this application be from a different business though the owner/proprietor is the same?
EDIT: spelling
From Stripe’s perspective (as well as your business’s), wouldn’t this application be from a different business though the owner/proprietor is the same?
EDIT: spelling
Even if you put in your company’s info, they need a real person connected to the account.
Yes, they are generally very stringent about these rule. I would suggest you use another provider such as Braintree.
Isn't Delaware $300 a year to have an LLC there?
Shouldn't you pick a state that has little to no annual filing fee?
https://www.llcuniversity.com/llc-filing-fees-by-state/
Shouldn't you pick a state that has little to no annual filing fee?
https://www.llcuniversity.com/llc-filing-fees-by-state/
If you register your LLC in a different state from where you live, you need to hire a Registered Agent in that state for legal reasons, which adds a bit of cost (about $100-200 per year) and some complexity.
I hate how this information is so spread out so I will try to condense this:
(1) Register your domain name and setup email (GSuite is simple enough). I put this first, because it is nice to have all the business communications actually going to the business email, so you don't start intermixing with your personal email.
(2) Next, I'd recommend hiring a local lawyer for the LLC filing and paperwork, not because you can't do it yourself, but because they can do it a lot faster and will help find any mistakes throughout the entire process. (they do this all the time) You will basically end up using them to file the Articles of Organization, act as your registered agent (avoids having to put your name and address directly on file with the SoS office), and they typically have boiler plate Operating Agreements that you can use to bootstrap your own.
(3) Next, you (or your lawyer) need to file Articles of Organization with the Secretary of State's office and pay the filing fee. (Normally $100 or so) You'll typically have to renew this registration annually. Your lawyer can take care of it.
(4) You then need to decide how you will be taxed. Your basic choices are to be taxed like a sole proprietorship or as an S Corp. I would choose S corp, so that you can save on taxes. When you go this route you will select a "reasonable salary" for yourself to be paid. Anything you earn above and beyond your reasonable salary you can take as a distribution from the company, which is not subject to self-employment taxes. If you go the sole proprietor route it is simpler (you report income on your schedule c for the IRS), but everything is subject to self-employment taxes.
(5) If going the S Corp route you will want to obtain an FEIN(https://www.irs.gov/businesses/small-businesses-self-employe...) and file form 2553 with the IRS for the subchapter S election. You have a limited window to do this, so do it shortly after filing the Articles of Organization. If you have an accountant they can assist you or do this for you. (6) Next I'd recommend getting a payroll company to run your payroll if you've gone the S Corp route. (Something like Square Payroll https://squareup.com/payroll/) They take care of filing all the required forms with your state and will make it really easy for you should you ever add additional employees beyond yourself. What are some of these forms? They vary by state, but to give you an idea here is a look at the items for the state of Oklahoma (https://squareup.com/help/us/en/article/6319?utm_medium=web&...):
- Withholding Payment Coupon (WTH 10004)
- Wage Withholding Tax Return (WTH 10001)
- Transmittal of Wage and Tax Statements (OK W-3)
- Wage and Tax Statement (W-2)
- Employer's Quarterly Contribution Report (OES-3)
- New Hire Report
(7) This leads to the next item, which is you likely need to register for a state tax ID and a state unemployment insurance ID and then input those IDs into your payroll provider's system. Again this varies by state, but normally each state has some analog of this.
(8) Make sure you create an Operating Agreement. It is an important governance document for your LLC. Your lawyer can help bootstrap you here or you can find samples online. Although, not strictly required it is an important document in establishing your LLC as a legitimate LLC and not just an extension of yourself. It helps prevent "piercing of the corporate veil" in instances where you might be sued. (i.e. keeping your personal assets protected in the event of a lawsuit)
(9) Hire an accountant (if you haven't already) to handle the K-1s and taxes of the LLC. This saves you time and potential penalties that you might run into in making a mistake with filing.
(10) Use some software like Quickbooks Online or similar to track your accounting. Bonus here if your payroll feeds directly into your accounting software.
(11) Get a Small Business Credit Card like this one from AMEX (https://www.americanexpress.com/us/credit-cards/business/bus...). You are going to have expenses and you might as well get some points while you're at it. Also, easier to track expenses. The bonus with these too is if you add employees then their travel expenses are tracked and you get the points for them as well.
That's all the basics to get the LLC operational. Obviously there are things like business plans, industry specific compliance regulations and certifications(not typical of software companies though), health insurance, etc., but this is a basic list to meet the requirements of the federal and state government. Good luck!
(1) Register your domain name and setup email (GSuite is simple enough). I put this first, because it is nice to have all the business communications actually going to the business email, so you don't start intermixing with your personal email.
(2) Next, I'd recommend hiring a local lawyer for the LLC filing and paperwork, not because you can't do it yourself, but because they can do it a lot faster and will help find any mistakes throughout the entire process. (they do this all the time) You will basically end up using them to file the Articles of Organization, act as your registered agent (avoids having to put your name and address directly on file with the SoS office), and they typically have boiler plate Operating Agreements that you can use to bootstrap your own.
(3) Next, you (or your lawyer) need to file Articles of Organization with the Secretary of State's office and pay the filing fee. (Normally $100 or so) You'll typically have to renew this registration annually. Your lawyer can take care of it.
(4) You then need to decide how you will be taxed. Your basic choices are to be taxed like a sole proprietorship or as an S Corp. I would choose S corp, so that you can save on taxes. When you go this route you will select a "reasonable salary" for yourself to be paid. Anything you earn above and beyond your reasonable salary you can take as a distribution from the company, which is not subject to self-employment taxes. If you go the sole proprietor route it is simpler (you report income on your schedule c for the IRS), but everything is subject to self-employment taxes.
(5) If going the S Corp route you will want to obtain an FEIN(https://www.irs.gov/businesses/small-businesses-self-employe...) and file form 2553 with the IRS for the subchapter S election. You have a limited window to do this, so do it shortly after filing the Articles of Organization. If you have an accountant they can assist you or do this for you. (6) Next I'd recommend getting a payroll company to run your payroll if you've gone the S Corp route. (Something like Square Payroll https://squareup.com/payroll/) They take care of filing all the required forms with your state and will make it really easy for you should you ever add additional employees beyond yourself. What are some of these forms? They vary by state, but to give you an idea here is a look at the items for the state of Oklahoma (https://squareup.com/help/us/en/article/6319?utm_medium=web&...):
- Withholding Payment Coupon (WTH 10004)
- Wage Withholding Tax Return (WTH 10001)
- Transmittal of Wage and Tax Statements (OK W-3)
- Wage and Tax Statement (W-2)
- Employer's Quarterly Contribution Report (OES-3)
- New Hire Report
(7) This leads to the next item, which is you likely need to register for a state tax ID and a state unemployment insurance ID and then input those IDs into your payroll provider's system. Again this varies by state, but normally each state has some analog of this.
(8) Make sure you create an Operating Agreement. It is an important governance document for your LLC. Your lawyer can help bootstrap you here or you can find samples online. Although, not strictly required it is an important document in establishing your LLC as a legitimate LLC and not just an extension of yourself. It helps prevent "piercing of the corporate veil" in instances where you might be sued. (i.e. keeping your personal assets protected in the event of a lawsuit)
(9) Hire an accountant (if you haven't already) to handle the K-1s and taxes of the LLC. This saves you time and potential penalties that you might run into in making a mistake with filing.
(10) Use some software like Quickbooks Online or similar to track your accounting. Bonus here if your payroll feeds directly into your accounting software.
(11) Get a Small Business Credit Card like this one from AMEX (https://www.americanexpress.com/us/credit-cards/business/bus...). You are going to have expenses and you might as well get some points while you're at it. Also, easier to track expenses. The bonus with these too is if you add employees then their travel expenses are tracked and you get the points for them as well.
That's all the basics to get the LLC operational. Obviously there are things like business plans, industry specific compliance regulations and certifications(not typical of software companies though), health insurance, etc., but this is a basic list to meet the requirements of the federal and state government. Good luck!
That S-Corp trick, the "reasonable compensation" thing, is an audit flag; there is apparently a whole specialized kind of audit the IRS does for "reasonable compensation" claims (presumably because it's so easy to spot mechanically; your single-member firm made X, you claimed X-n income, X-n>threshold: audit). I wouldn't bother with it.
When I was a self-employed contractor several years ago my CPA did it this way for my LLC. 50% of the income went on a W-2 and 50% on a K-1. It's up to each person to decide their own risk level but my CPA was pretty confident it wasn't a big deal as long as the W-2 salary wasn't absurdly low, and my own googling at the time seemed to confirm that.
It's definitely worth it IMO since you're double-paying FICA taxes on your W-2 (i.e. paying both the employee + employer sides).
It's definitely worth it IMO since you're double-paying FICA taxes on your W-2 (i.e. paying both the employee + employer sides).
You're not "double paying" taxes. The employer portion of your taxes when you're an FTE isn't free money; it's part of your cost basis as an employee, and comes out of your comp.
He wasn't implying it was free money. He simply means you're paying the employer's portion as well when you are self-employed. There is no reason to do this on excess income once you have paid yourself a reasonable salary. To determine a reasonable salary simply examine what you would make if you were employed in that same job function by another company. If you are ever audited you can show you made a good faith effort to determine reasonable salary and you will be fine. Many people set it lower than typical industry rates and are never even audited, because frankly the IRS has better things to do. It typically needs to be dramatically below what you would make in industry for you to be audited. Talk to any CPA and they'll tell you the same thing. Taking excess profits from an LLC as a distribution is an entirely legal and appropriate thing to do.
If you're filing as an LLC, I don't believe any of your income, distribution or otherwise, is exempt from self-employment tax.
There is no such thing as "filing as an LLC". When you form an LLC by default the IRS considers the LLC a disregarded entity and will tax you just as if you were a sole proprietorship. (i.e. you will report your income on schedule c) You can however elect to have your LLC taxed as an S Corporation. In which case you have to pay yourself a reasonable salary and then you can take a distribution on any excess income above your reasonable salary. When you take a distribution from an S Corp it is only subject to ordinary income tax. You do NOT pay self-employment tax on distributions. If you don't believe me you can read it on TurboTax's website (https://turbotax.intuit.com/tax-tips/small-business-taxes/ho...) or any number of websites for that matter.
Well your belief is dead wrong. Distributions are not subject to payroll taxes.
Spending money on legal entities for is an expensive way to find out you have no know idea what you are doing (speaking from personal experience here). My guidance is worry about driving revenue. If you have a customer that wants to give you money, that is a great time to figure out what you actually need. Everyone will take your money and sell you something that sounds like what you wanted. It doesn't take that long to set up a legal entity, and even paying more for a rush job will be cheaper than starting the wrong legal entity now.
[deleted]
I used to work at a company that did incorporations so I may simply be parroting the company sales pitch here, but I did get the honest impression that finding a company that helps you incorporate can really save you some huge headaches later on. The state where you incorporate can have a huge impact on a number of things and a company that specializes in this can steer you clear of some minefields. It will cost more but I think it's very likely to be worth it.
Sounds like you want a Single Member LLC. This is the easiest to start. From a tax perspective you can file as a Disregarded Entity, which means you'll report taxes your (the owner's) personal tax return.
I've started a few different business this way and the nicest thing about a disregarded entity is that if you need to sell or fold the business, you won't have any complicated forms to fill out with the IRS. You just stop reporting the following year.
I've started a few different business this way and the nicest thing about a disregarded entity is that if you need to sell or fold the business, you won't have any complicated forms to fill out with the IRS. You just stop reporting the following year.
Don't use LegalZoom. I've been a customer of them for years, but I'm trying to transition off of them. Stripe has a project to replace them, I think.
Hopefully this provides a good intro to LLCs to you https://medium.com/@parissathena/what-the-hell-c-is-an-llc-l...
Pariss is also talking about LLC on Twitter you might want to follow her
Pariss is also talking about LLC on Twitter you might want to follow her
Here is a good blog post that goes through all the various options for legal structures for starting a business
https://www.toptal.com/finance/interim-cfos/c-corp-vs-s-corp
https://www.toptal.com/finance/interim-cfos/c-corp-vs-s-corp
A) learn enough accounting so educated and motivated crooks couldn't take you for a ride so easy.
B) Check point A
C) Check point B
D) Try to find reasonable person that can do payroll,taxes etc for you,as otherwise you'll be a full time accountant for your own business in no time..
Get a lawyer and get an accountant. Don't do your own taxes. Don't try to file paperwork for business things if you're not 100% confident that you'll do it completely correctly. The $300 you spend on a lawyer to file something will save you thousands in the long run.
If you are open for a full solution (formation + taxes) these guys did an amazing job for me - www.hyke.me
I don’t see the point of an LLC if you plan to have an outside investor. The LLC will have to be converted to regular corporation (typically. C Corp) anyway.
The LLC makes it easy to pass profits through but if you don’t have any yet...what’s the point?
The LLC makes it easy to pass profits through but if you don’t have any yet...what’s the point?
A Delaware LLC can be easily converted to a Delaware C. During early stages, an LLC is easier to manage with less reporting and paperwork. An LLC gives limited liability and a receptacle for IP rights. While taxes at this point won't be an issue, they're simpler.
https://www.nolo.com/legal-encyclopedia/converting-llc-corpo...
https://www.delawareinc.com/blog/how-to-convert-your-llc-to-...
https://www.nolo.com/legal-encyclopedia/converting-llc-corpo...
https://www.delawareinc.com/blog/how-to-convert-your-llc-to-...
Even if you're pre-investment & zero profit, the LLC gives limited liability to owners, usually at less cost than a corporation.
And if you need to convert, it will be easier to convert an LLC to a Del. C. than to create a Del. C. based on your co-mingled personal and business records.
And if you need to convert, it will be easier to convert an LLC to a Del. C. than to create a Del. C. based on your co-mingled personal and business records.
I made a simple website to walk you through the nuts and bolts of starting an LLC or S Corp: https://www.startmybusiness.us/. Let me know if you find it useful!
I would think that an LLC would be the simplest thing to manage during early formation. It is simple and low maintenance. Then convert that to a Delaware C which has greater reporting overhead, ..., when necessary.
Any downsides to that approach?
Any downsides to that approach?
Add to your list to research corporate structures because LLCs are not always the best choice. A lot of people assume LLC is right for them based on advice from friends, but it’s something to think through.
For a solo operator an LLC is probably always the best choice. LLCs can elect to file taxes as S-Corps (your accountant is going to do this for you when you get to the point where your taxes are complicated enough). Sole proprietorships have all the downsides of an LLC and none of the potential upsides. C-Corps are complicated and are useful primarily when you have investors; if you take investment from an actual fund, they're going to want to rip up and re-do your corporate structure anyways.
I've used LegalZoom twice. Once for a corp, another for an LLC, it was easy both times. Other than that, I'd say it's helpful to have a good CPA.
Please don't use these sorts of services. Even if you technically can be savvy and avoid all their fees and things, they're dishonest and try to tack them on constantly for things you may or may not need (eg. for making them a registered agent, unnecessary credit checks, etc.). Even if it is possible to make it work and avoid most of this, don't support their business model. Chances are you'll pay more in hidden fees than just learning to do it yourself (which is probably find if you're just filing an LLC, not fine if you need advise on whether an LLC is the right business vehicle for you) or the few hundred dollars a lawyer will charge you to file an LLC.
Just want to give a shout-out to all the other sole proprietorships out there. It's a nice route to follow if you hate paperwork and legal fees.
One lead-in question: are you in the USA? If not, most advice is going to be fraught as hell. Assuming you are: this is a well-paved path these days.
A few things as they come to mind (and, disclaimer, I am not an expert, I've just done this before):
- Any advice you read here, including mine, should be immediately superceded by that of your tax professional or your lawyer. If you do not have a tax professional, I strongly advise at least getting a consult even if you elect to do your taxes yourself (and if you're a single-member LLC, see further down, this is not unreasonable). It is not merely a "strongly advise" to have a lawyer on tap. Get a lawyer and make sure they're the kind of lawyer who is comfortable telling you when you are a dumbass. That kind of lawyer is invaluable.
- Corporations and LLCs are not the same thing. You can elect, as an LLC, to be taxed as a corporate entity, but that's a question between you, your deity of choice, and your tax professional (who I encourage you to think of, in this venue, as your deity of choice).
- IANAL, IANYL, and TINLA, but you will notice that many don't-dig-for-gold-sell-shovels outfits like Clerky will tell you you want to be a C-Corp because, as their website says, it's the best for "high growth startups". I assume you are not a "high growth startup". I would look at LLCs long before I looked at a C-Corp and an S-Corp long before a C-Corp. Minimize your hassles as best you can because otherwise it'll bite you in the ass later; IMO and IME, this means "default to an LLC".
- Formation is a moderate pain in the ass. I used Harvard Business Services for registration and continue to use them for registered agent services. No relationship, they just work fine and I don't have to think about it much. https://www.delawareinc.com
- Single-member LLCs are the easiest way to manage your stuff, if not the most tax-advantaged way. (I do this because I optimize for simplicity.) Effectively you just file a Schedule C with your personal income taxes.
- Once you've formed, get an EIN immediately. You can do it online, it takes like ten seconds. It will help with the next point.
- Regardless of how you do it, it is incumbent upon you to do some real careful management of funds. The second you get that LLC, go to your bank and open a business checking account. Route everything business-related through it. Eventually you will, if you're successful, want to take money out and that's fine--but having this structure to start will make it a lot easier to, if in the worst case, demonstrate enough separation to retain your limited liability if you get sued into the ground.
- Relatedly, I like QuickBooks Self-Employed for keeping track of revenue and expenses. It's free if you use TurboTax.
- If you're successful, get ready to file taxes quarterly. QuickBooks Self-Employed has helped me deal with that stuff, too, and if you make enough to have to file quarterly then it'll help you with reminders, etc. about that.
A few things as they come to mind (and, disclaimer, I am not an expert, I've just done this before):
- Any advice you read here, including mine, should be immediately superceded by that of your tax professional or your lawyer. If you do not have a tax professional, I strongly advise at least getting a consult even if you elect to do your taxes yourself (and if you're a single-member LLC, see further down, this is not unreasonable). It is not merely a "strongly advise" to have a lawyer on tap. Get a lawyer and make sure they're the kind of lawyer who is comfortable telling you when you are a dumbass. That kind of lawyer is invaluable.
- Corporations and LLCs are not the same thing. You can elect, as an LLC, to be taxed as a corporate entity, but that's a question between you, your deity of choice, and your tax professional (who I encourage you to think of, in this venue, as your deity of choice).
- IANAL, IANYL, and TINLA, but you will notice that many don't-dig-for-gold-sell-shovels outfits like Clerky will tell you you want to be a C-Corp because, as their website says, it's the best for "high growth startups". I assume you are not a "high growth startup". I would look at LLCs long before I looked at a C-Corp and an S-Corp long before a C-Corp. Minimize your hassles as best you can because otherwise it'll bite you in the ass later; IMO and IME, this means "default to an LLC".
- Formation is a moderate pain in the ass. I used Harvard Business Services for registration and continue to use them for registered agent services. No relationship, they just work fine and I don't have to think about it much. https://www.delawareinc.com
- Single-member LLCs are the easiest way to manage your stuff, if not the most tax-advantaged way. (I do this because I optimize for simplicity.) Effectively you just file a Schedule C with your personal income taxes.
- Once you've formed, get an EIN immediately. You can do it online, it takes like ten seconds. It will help with the next point.
- Regardless of how you do it, it is incumbent upon you to do some real careful management of funds. The second you get that LLC, go to your bank and open a business checking account. Route everything business-related through it. Eventually you will, if you're successful, want to take money out and that's fine--but having this structure to start will make it a lot easier to, if in the worst case, demonstrate enough separation to retain your limited liability if you get sued into the ground.
- Relatedly, I like QuickBooks Self-Employed for keeping track of revenue and expenses. It's free if you use TurboTax.
- If you're successful, get ready to file taxes quarterly. QuickBooks Self-Employed has helped me deal with that stuff, too, and if you make enough to have to file quarterly then it'll help you with reminders, etc. about that.
I'm not sure what the benefit of an S-Corp is over an LLC these days, because LLCs are simpler and can elect to file taxes as an S-Corp. It might be more straightforward to issue equity to employees as an S? But our legal (Grellas Shah) was emphatic that anything we wanted to do w/r/t/ employee equity compensation was going to be doable in an LLC if we wanted it that way.
Neither am I. My understanding is that it's more of a pain to deal with equity distribution for an LLC, but it is doable (the other LLC I own a bit of has done it a couple times to add new members).
S before C is more the amount of nonsense involved in a C-Corp unless you're getting investor money.
S before C is more the amount of nonsense involved in a C-Corp unless you're getting investor money.
Are you in the US?
Yes , I am in the US.
Just wondering, does it make a big difference?
Ask a simple question, get a simple answer: yes.
Simplest possible illustration: Japan's equivalent of an LLC costs +/- $10k in running costs for most HNers and doesn't do pass-through taxation, which might counsel sole proprietorship for longer here than it would in the US.
Simplest possible illustration: Japan's equivalent of an LLC costs +/- $10k in running costs for most HNers and doesn't do pass-through taxation, which might counsel sole proprietorship for longer here than it would in the US.
He was asking about an LLC from USA... not an LLC from Japan...
And I was asking about the cost difference for an LLC created in the USA by an outsider VS an American citizen...
I guess it was not so simple after all... (you just misunderstood the simple question).
How about candies? Do they poison people?
And I was asking about the cost difference for an LLC created in the USA by an outsider VS an American citizen...
I guess it was not so simple after all... (you just misunderstood the simple question).
How about candies? Do they poison people?
He used an example of Japan as an illustration of why it is important to know the location of the person asking the question.
You seem to be new here (73 days). Note that 'patio11 has been here for 11 years and is one of HNs top posters. Not that longevity makes someone right, but 'patio11's posts have been high quality for many years, and one should assume that he is probably not pulling a reply out of his ass when he does reply.
While not every poster on HN posts high quality replies, most people here reply with a clear purpose. This is not Reddit -- I encourage you to assume that most replies are actually substantive. If you are not sure, check the poster's history -- this will help you get a feel for the potential quality of their posts.
Welcome to HN, and good luck with your endeavors.
You seem to be new here (73 days). Note that 'patio11 has been here for 11 years and is one of HNs top posters. Not that longevity makes someone right, but 'patio11's posts have been high quality for many years, and one should assume that he is probably not pulling a reply out of his ass when he does reply.
While not every poster on HN posts high quality replies, most people here reply with a clear purpose. This is not Reddit -- I encourage you to assume that most replies are actually substantive. If you are not sure, check the poster's history -- this will help you get a feel for the potential quality of their posts.
Welcome to HN, and good luck with your endeavors.
I didn't know that all countries used the LLC term (or more then one)... specially not Japan which I expected them to use Japanese characters... I guess that they have been successfully Americanized. Sorry for the confusion.
BTW I know that this is not reddit but there is about as much censoring, if not more (there is just more users on reddit).
Also, I see that your account was created in 2013... did you create any throwaway account since then? (this account, for me, is a throwaway account)
Conflict: do you work for the economist.com ? most of your submissions appear to point there
but thanks for the insight as to why I get all the downvotes...
BTW I know that this is not reddit but there is about as much censoring, if not more (there is just more users on reddit).
Also, I see that your account was created in 2013... did you create any throwaway account since then? (this account, for me, is a throwaway account)
Conflict: do you work for the economist.com ? most of your submissions appear to point there
but thanks for the insight as to why I get all the downvotes...
I have started a Delaware LLC several years ago and abandoned the use of it, never got a chance to file reports or close it properly. It now shows thousands I owe in annual fees. Is anyone here in the same position?
The state of Delaware will continue assessing your LLC franchise taxes until it puts your LLC in a "void" status after 3 years of non-filing of the annual report / payment of the tax.
https://delcode.delaware.gov/title6/c018/sc11/
If you need to make a decision based on this information I'd recommend calling up any practicing business attorney; it's a question they will likely be able to answer even in the free consultation.
https://delcode.delaware.gov/title6/c018/sc11/
If you need to make a decision based on this information I'd recommend calling up any practicing business attorney; it's a question they will likely be able to answer even in the free consultation.
Why the downvote for asking a question ?