[nmmoooreland20]

For those of you who formed an LLC to sell your product online, how did you determine what state to file in? It costs over $1k all-in in my state, so I’d rather file in say, my parents state, but if I have to file as a foreign entity here anyway to “do business,” it’s moot. The problem is, I haven’t found a good definition online of “doing business.” With all the operations being online, it seems fuzzy. Do you have to register in every state you sell to?

Follow up: is forming an LLC in a state going to require filing taxes in that state? That would be an annoyance...


I would love to get legit legal and accounting advice on all of this, but that’s all obviously expensive. Fuck, the practicalities of becoming a first-time business owner blow....not really as straightforward as the lifestyle design preachers proclaim

[WestIndianArchie]

(04-03-2012 10:21 PM)nmmoooreland20 Wrote:  

Follow up: is forming an LLC in a state going to require filing taxes in that state? That would be an annoyance...

I would love to get legit legal and accounting advice on all of this, but that’s all obviously expensive. Fuck, the practicalities of becoming a first-time business owner blow....not really as straightforward as the lifestyle design preachers proclaim

Yes, whichever state you use to form your LLC will want taxes from your business. In some states, like NY, it's cheaper to create a corporation, than an LLC, because a place like NY has a publishing requirement, which is usually 4-5x what you paid the state to get the LLC formed. So 200 balloons 1,000-1500

Depending on your business, it's not always a good business sense to create an entity before you've made your first dollar. 200-1000 spent on getting the paperwork done is money you could spend for advertising.

And honestly, if some body decides to sue you, and you have no entity and no insurance, the question becomes what can they get from you. And no plaintiff's lawyer is going to sue anybody without any money. They call it judgment proof.

In my opinion, most "how to start a business" sites and books are a little llc crazy. LLC is the best option for a small business, but you kinda need to be a business for it to be valuable.

[highandtight]

The legal definitions of "doing business" are quite broad; if you are selling or offering for sale certain products or services online (sounds like you are) then you will surely meet this definition.

I would generally recommend that you simply file your LLC papers in the state where you live or spend most of your time. Yes, you will have to pay taxes in that state on corporate income, though with an LLC you can pass through profits and losses to your personal tax liabilities, which can be useful. For example, I am setting up an LLC simply to allocate costs towards it (like travel costs) then pass them through as a loss to serve as a deduction on my personal liability.

The above advice is not bad advice at all: you may want to just focus on getting the business up and running first. The primary benefit of the LLC is to avoid legal liability if a customer brings suit. It's important, but not so important in the very early stages when you are trying to get this thing off the ground and while you are cash poor. On this point: remember that your company can always be sued in the state of its incorporation. So if you live in CA but incorporate in DE, you'll have no defense to a suit brought in DE, and you'll have to show up to court in DE if you are sued there. May or may not matter to you, but if you're thinking about these things down the road this could be an issue.

[IVth_Element]

There are a lot of factors that determine when, where, and how to form your entity. It depends on your product/service (tangible or intangible), business model (affiliate based or direct to consumer), industry, federal and state laws regarding advertising/sales (many laws prevent taking funds prior to performing certain services and put caps on fees, and hosts of other guidelines), business risk profile, etc.

Personally, I am in a very high risk industry so I had no choice but to create LLCs in states such as Nevada that offer protection of public owner information with the use of Nominee officers and such.

Sounds like you are just now jumping into the pool, so feel free to send me a PM if you need a few pointers. I agree that it's probably best to put your seed money into advertising or further product development if you have very little in terms of assets.

[Clyde Rules]

^^^ this is a sales video so obviously it is biased but still it does make a decent case for Delaware. I also know Nevada is very good for this as well.

The major thing to remember when registering out of state (Besides if your sued you need to find a lawyer there to represent you) is that you need to form an agreement with a registered agent to send you all your business mail and forms in an expedient matter. It weird to think about, but there are lawyers in Delaware right now whose entire practice is based upon mailing out the mail they receive for their clients. I guess they all read the 4 hour work week. these agents usually charge between $70 - $120 a year but don't go cheap for the sake of being cheap. You need a reliable forwarder for that mail.

[nmmoooreland20]

I just may have to keep it a sole-prop until I start bringing in decent cash flows. Right now I’m just at the idea stage, but I wanted to have an LLC to conduct business with designers and file for patents. I also don’t want to run the freak risk of getting sued early on and getting taken for my personal life savings! But, as it was mentioned before, it’s over $1000 to form in NY. WestIndianArchie--good call on the Corporation tip. It’s definitely cheaper than forming an LLC; only problem is NYC doesn’t recognize S-Corps, so I’d have to deal with the corporation taxation bullshit.

(04-04-2012 08:31 AM)highandtight Wrote:  

Yes, you will have to pay taxes in that state on corporate income, though with an LLC you can pass through profits and losses to your personal tax liabilities, which can be useful. For example, I am setting up an LLC simply to allocate costs towards it (like travel costs) then pass them through as a loss to serve as a deduction on my personal liability.

I may be wrong, but I’m not sure that’s exactly legal...

(04-04-2012 03:17 PM)IVth_Element Wrote:  

Sounds like you are just now jumping into the pool, so feel free to send me a PM if you need a few pointers. I agree that it's probably best to put your seed money into advertising or further product development if you have very little in terms of assets.

Right on, I may hit you up once I get the ball rolling.

(04-04-2012 06:22 PM)Clyde Rules Wrote:  

The major thing to remember when registering out of state (Besides if your sued you need to find a lawyer there to represent you) is that you need to form an agreement with a registered agent to send you all your business mail and forms in an expedient matter. It weird to think about, but there are lawyers in Delaware right now whose entire practice is based upon mailing out the mail they receive for their clients. I guess they all read the 4 hour work week. these agents usually charge between $70 - $120 a year but don't go cheap for the sake of being cheap. You need a reliable forwarder for that mail.

The major issue there comes back to the problem of having to register as a foreign entity in any state you do business in, even if you form your LLC/Corp out of state. They’ll get you for the fees either way. Still looking into what exactly constitutes “doing business,” especially for online businesses with no real “operations” so to speak...

[Clyde Rules]

(04-04-2012 07:52 PM)nmmoooreland20 Wrote:  

I just may have to keep it a sole-prop until I start bringing in decent cash flows. Right now I’m just at the idea stage, but I wanted to have an LLC to conduct business with designers and file for patents. I also don’t want to run the freak risk of getting sued early on and getting taken for my personal life savings! But, as it was mentioned before, it’s over $1000 to form in NY. WestIndianArchie--good call on the Corporation tip. It’s definitely cheaper than forming an LLC; only problem is NYC doesn’t recognize S-Corps, so I’d have to deal with the corporation taxation bullshit.

(04-04-2012 08:31 AM)highandtight Wrote:  

Yes, you will have to pay taxes in that state on corporate income, though with an LLC you can pass through profits and losses to your personal tax liabilities, which can be useful. For example, I am setting up an LLC simply to allocate costs towards it (like travel costs) then pass them through as a loss to serve as a deduction on my personal liability.

I may be wrong, but I’m not sure that’s exactly legal...

(04-04-2012 03:17 PM)IVth_Element Wrote:  

Sounds like you are just now jumping into the pool, so feel free to send me a PM if you need a few pointers. I agree that it's probably best to put your seed money into advertising or further product development if you have very little in terms of assets.

Right on, I may hit you up once I get the ball rolling.

(04-04-2012 06:22 PM)Clyde Rules Wrote:  

The major thing to remember when registering out of state (Besides if your sued you need to find a lawyer there to represent you) is that you need to form an agreement with a registered agent to send you all your business mail and forms in an expedient matter. It weird to think about, but there are lawyers in Delaware right now whose entire practice is based upon mailing out the mail they receive for their clients. I guess they all read the 4 hour work week. these agents usually charge between $70 - $120 a year but don't go cheap for the sake of being cheap. You need a reliable forwarder for that mail.

The major issue there comes back to the problem of having to register as a foreign entity in any state you do business in, even if you form your LLC/Corp out of state. They’ll get you for the fees either way. Still looking into what exactly constitutes “doing business,” especially for online businesses with no real “operations” so to speak...

It depends if your in New York state and then say you live in NYC its usually a $1000 charge to publish you business existence (whatever lobbyist came up with this idea was an evil genius). However the application for authority in NY is just $225 added to the fee for the creation of the LLC of about 300 dollars in Delaware and your looking at paying $525 compared to about $1300 - 1500. A S corp would cost less however then you have to make sure to perform all the tedious duties that go along with the running an S Corp.

[highandtight]

Yeah dude, there's of course a little more to it than what I said above, but I'm not going to share all of my secrets with you a$$ho!e$ : )

Looks like you're getting pretty good advice in this thread, so I won't say too much more about the LLC formation. On the patent front: you should just file in your name. You have to list an inventor (which I assume is you). You can later on assign the patent to your LLC, once you form that entity. It's fairly easy to do. You should also eventually record your assignment with the USPTO, but these are all things you can do later on, down the line.

I will say, thought, that you should get your patent application filed as soon as possible. This is big business these days; you may find your idea preempted in pretty short order unless you move fast. Also keep in mind that it can take about three years to receive your issued patent, but as long as you have a filed application you should feel confident entering into discussions with potential buyers (you'd be able to sue them for infringement (once your patent actually issues) if they try to steal your idea).

[nmmoooreland20]

(04-04-2012 08:06 PM)Clyde Rules Wrote:  

It depends if your in New York state and then say you live in NYC its usually a $1000 charge to publish you business existence (whatever lobbyist came up with this idea was an evil genius). However the application for authority in NY is just $225 added to the fee for the creation of the LLC of about 300 dollars in Delaware and your looking at paying $525 compared to about $1300 - 1500. A S corp would cost less however then you have to make sure to perform all the tedious duties that go along with the running an S Corp.

Yup. Terrible law for small biz. Unfortunately, to do business in NY, even if you form in Delaware, you still have to pay the ~$200 NY filing fee + the publication requirements. So, in the end it’d be even more expensive than just filing in NYC.

(04-05-2012 02:07 PM)highandtight Wrote:  

Yeah dude, there's of course a little more to it than what I said above, but I'm not going to share all of my secrets with you a$$ho!e$ : )

Looks like you're getting pretty good advice in this thread, so I won't say too much more about the LLC formation. On the patent front: you should just file in your name. You have to list an inventor (which I assume is you). You can later on assign the patent to your LLC, once you form that entity. It's fairly easy to do. You should also eventually record your assignment with the USPTO, but these are all things you can do later on, down the line.

I will say, thought, that you should get your patent application filed as soon as possible. This is big business these days; you may find your idea preempted in pretty short order unless you move fast. Also keep in mind that it can take about three years to receive your issued patent, but as long as you have a filed application you should feel confident entering into discussions with potential buyers (you'd be able to sue them for infringement (once your patent actually issues) if they try to steal your idea).

I see. Well played man.

Actually, I’m hiring a free lancer to make the designs for my product. Hoping I can use Work for Hire to keep file a patent in my name.