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Setting Up as a Business/Legal Entity?

by x3xsolxdierx3x
14 replies
I have been doing alot of research lately regarding setting up businesses as legal/business entities.

In general, does anyone have any experience with this?

More specifically, at what time in a business' growth is it feasible to consider forming a legal entity under something like an LLC? Immediately? Once you earn your first dollar? After you've hit a certain threshold?
#business or legal #entity #setting
  • Profile picture of the author Amer A
    Hi

    It should be done within 3 months of starting your business.

    Regards
    Amer
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    • Profile picture of the author Amer A
      Hi mrgoe

      There are no benefits but this is just how the system works.

      Thanks
      Amer
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  • Profile picture of the author x3xsolxdierx3x
    hm....interesting points....

    Seems, from the responses, there seems to be a divergence in views about the optimal time as to WHEN to set one up.

    I'm not a big fan of doing things, though, just because "that's the way they've always been done" or because "everyone else is doing it...".

    That never seemed to work out well for lemmings...lol
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    • Profile picture of the author Joe Mobley
      Howie,

      What type of business? Why are you forming your legal entity?

      Are you thinking about tax benefits/issues? You won't need your entity until you are making some money.

      Are you interested in asset protection? That will have a different impact on your decision.

      Let me suggest that you carefully define your reasons for creating a business entity. That may take some time and research as there may be issues you have not thought about.

      Let your desired results determine your actions. So many individuals get this bass-ackwards.

      Let us know what you chose to do and why. That will help others as they make similar decisions.

      All the best,

      Joe Mobley
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  • Profile picture of the author x3xsolxdierx3x
    I guess another approach to this with be: what has everyone/anyone's experience been with this?

    I'm sure there are others who have gone down this route....

    Did you set up your business as a legal entity at the $1,000/month mark? $10,000/month mark? etc....
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  • Profile picture of the author x3xsolxdierx3x
    Joe,

    I greatly appreciate your response here. I have this gut feeling that, whether they respond to this thread or not, that this is on ALOT of people's minds....

    In your opinion, does the actual "type" of business weigh into the formation of a legal entity, so much as the earnings? I guess my biggest concern is the protection of personal assets. I've heard that an LLC, at least by virtue of its name, would limit the liability to personal assets. That "seems" to be the best route to go.

    Have you found that people, with online businesses, generally gravitate towards forming LLCs?
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    • Profile picture of the author Joe Mobley
      I am not an attorney, financial or tax expert.

      Let me suggest that you contact several experts that are qualified to assist you with your situation.

      That's a bit of a cop-out but there are so many things to consider for each individual case.

      Originally Posted by x3xsolxdierx3x View Post

      Joe,

      I greatly appreciate your response here. I have this gut feeling that, whether they respond to this thread or not, that this is on ALOT of people's minds....

      In your opinion, does the actual "type" of business weigh into the formation of a legal entity, Heavily!

      so much as the earnings? Certainly a strong consideration.


      I guess my biggest concern is the protection of personal assets.

      Here we go. Also, just because asset protection is your main concern, that doesn't mean that you have to dismiss other priorities.

      I've heard that an LLC, at least by virtue of its name, would limit the liability to personal assets. That "seems" to be the best route to go.

      I am not qualified to answer that for you. I have been known to disagree with many attorneys on this.

      Have you found that people, with online businesses, generally gravitate towards forming LLCs?

      I don't know enough businesses to answer that for you.
      My biggest recommendation is to really think about WHY your are doing what you want to do.

      Again, let the results you are after determine the actions you take.

      Joe Mobley
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  • Profile picture of the author ronrule
    Originally Posted by x3xsolxdierx3x View Post

    I have been doing alot of research lately regarding setting up businesses as legal/business entities.

    In general, does anyone have any experience with this?

    More specifically, at what time in a business' growth is it feasible to consider forming a legal entity under something like an LLC? Immediately? Once you earn your first dollar? After you've hit a certain threshold?
    Before you earn your first dollar. Always accept any income other than your primary job through a company and never to you personally.

    Other than that, you should ignore everything everyone says in this thread and if you aren't versed in the corporate and tax laws in your state, consult an attorney in your state who can help you. Yes, you can "do it yourself" but if you don't know what the benefits and protections are to the different types of corporations (they are different in every state), an attorney in your state can help you with that. The laws are changing all the time - anything you read online, even if it's specifically directed to your state, may not still be valid.
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    Ron Rule
    http://ronrule.com

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  • Profile picture of the author Venturetothetop
    This is funny because I've seen you give this answer yourself in the past:

    'Go ask a professional!'

    You are only going to get a ton of differing opinions here, where there are tons of accountants out there who give free advice... go call a few and get an answer which won't get you in trouble and perhaps even more educated then anyone can here can give you.

    I know - silly advice as you were perhaps only seeking a general opinion but meh...
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    • Profile picture of the author x3xsolxdierx3x
      Originally Posted by Venturetothetop View Post

      This is funny because I've seen you give this answer yourself in the past:

      'Go ask a professional!'

      You are only going to get a ton of differing opinions here, where there are tons of accountants out there who give free advice... go call a few and get an answer which won't get you in trouble and perhaps even more educated then anyone can here can give you.

      I know - silly advice as you were perhaps only seeking a general opinion but meh...
      Was your first line directed at me?

      If so, I concur....in 4,000+ posts here, it's likely that I've alluded to seeing a professional, as it relates to other areas that I don't have experience with.

      The legal arena has proven to be oftentimes confusing and murky waters for alot of people. There are professionals everywhere around us. I could be looking to buy a hamster, and anyone could direct me to a hamster raising professional. I understand having a professional opinion.

      There's a thin line between professional opinion and conveying simple experience. I guess I was looking for something more on the lines "I decided to personally do _______ . Once I hit the $_____ mark, it made sense to do that for me. I've been happy with that decision."

      I get all the mandatory disclosures. For the sake of this thread....and, the fact that I can see everyone's post beginning with "I am not a professional, etc....don't take my advice...."......I understand that. I'd encourage anyone reading this thread to not take action based on anything mentioned in this thread. As for me, I do intend on speaking to a professional....but, I also thought there would be some general experiences out there, being that this is an IM forum with, I'm assuming, alot of people who have gone down this route.
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  • Profile picture of the author scottncp
    There are a lot of considerations when starting a business as to the best structure to operate under. Those may include liability, audit rates (for example a schedule C is the highest audited form), financing, marketing, separating your personal and business credit, taxes... Keep in mind an LLC may be taxed in four different methods and you must have the correct operating agreement that matches the type of taxation and number of members. There are a lot of mistakes made in this area. We have been doing this type of work for 16 years and work with the best of the best. Let me know if we may be of service.
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    • Profile picture of the author kindsvater
      If your concern is asset protection then the question is whether you are a one-man shop or rely upon others who could create a legal problem for you . A business entity provides no legal protection for something you personally do wrong.

      Here is how it works ...

      Assume Joe creates a website and something goes wrong and there is a lawsuit. Joe is personally liable for any wrongdoing and damages.

      Now assume Joe creates a LLC or corporation, creates a website and something goes wrong and there is a lawsuit. Now both Joe and the business entity get sued and liability for any wrongdoing and damages. Joe's ability to get indemnity from the business entity is probably meaningless.

      Both face liability - Joe for personally doing something wrong, and the business entity that Joe was acting on behalf of.

      Now assume Joe creates a LLC or corporation, and an employee or a contractor creates a website for the business and something goes wrong and there is a lawsuit. Now Joe no longer has personal liability - only the LLC - because Joe was not personally involved.

      This is why when attorneys file lawsuits, or the FTC files its claims, both the involved individuals and their business entities are sued. Just take a stroll through the FTC website reviewing lawsuits if you want to confirm this for yourself.

      That said, there are asset protection strategies involving a LLC / Corp. that can be worthwhile. This will often require two entities as the one entity taking risky actions shovels assets and income to a separate entity that is providing some service.

      Talk to a local CPA who can also discuss the nuances about an LLC according to the law of your state.

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      • Profile picture of the author Joe Mobley
        I pretty much disagree with all of this. The caveat being do wrong. If we are talking about breaking the law, that's correct, your business will not shield you from legal action.

        If do wrong is a liability action, that's the whole idea behind forming business entities, to protect what is outside the entity.

        For instance, if Joe's Website Emporium is a foreign company but you don't want to go through the trouble of suing the company. You'll just sue Joe in West Palm Beach... Good luck!

        Again, I am not an attorney so I am not going to get into this. Make sure you are happy with the answers you get from your legal and tax professionals.

        Remember, whatever crap-sandwich they make, you may have to eat.

        Also remember, I could be wrong. :rolleyes:

        Good luck,

        Joe Mobley


        Originally Posted by kindsvater View Post

        If your concern is asset protection then the question is whether you are a one-man shop or rely upon others who could create a legal problem for you . A business entity provides no legal protection for something you personally do wrong.

        Here is how it works ...

        Assume Joe creates a website and something goes wrong and there is a lawsuit. Joe is personally liable for any wrongdoing and damages.

        Now assume Joe creates a LLC or corporation, creates a website and something goes wrong and there is a lawsuit. Now both Joe and the business entity get sued and liability for any wrongdoing and damages. Joe's ability to get indemnity from the business entity is probably meaningless.

        Both face liability - Joe for personally doing something wrong, and the business entity that Joe was acting on behalf of.

        Now assume Joe creates a LLC or corporation, and an employee or a contractor creates a website for the business and something goes wrong and there is a lawsuit. Now Joe no longer has personal liability - only the LLC - because Joe was not personally involved.

        This is why when attorneys file lawsuits, or the FTC files its claims, both the involved individuals and their business entities are sued. Just take a stroll through the FTC website reviewing lawsuits if you want to confirm this for yourself.

        That said, there are asset protection strategies involving a LLC / Corp. that can be worthwhile. This will often require two entities as the one entity taking risky actions shovels assets and income to a separate entity that is providing some service.

        Talk to a local CPA who can also discuss the nuances about an LLC according to the law of your state.

        .
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        Follow Me on Twitter: @daVinciJoe
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  • Profile picture of the author Bala Krishna
    Hi,
    I will suggest you to go through good consultancy where you will get services like Company Incorporation, Company Formation, LLP Registration or assisting you in starting your dream business.
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