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Old 1st March 2006, 12:36 AM   #1
wahooka
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Default Help setting up an LLC for the first time

Hi-

I want to setup an LLC but I am a little worried about doing something wrong. I have some questions I hope the helpful people here can help me with.

First a little background about my company...

I have a website which makes 100% of it's money through ads and affliate programs. We don't sell or ship anything but we help users find deals and we get a small percentage of the purchase if users buy the products.

As of now, it is all in my name and I am the only employee. I want to set it up as an LLC to protect myself and seperate business from personal. I also want to get the best situation I can with taxes.

So here are my questions:

• I am based in Rhode Island but I will be moving to Washington in about 7 months. I will still have the same address in Rhode Island available because family members live there, but I be living and working in Washington. Where should I setup my LLC? Which state?

I'm hoping the answer is RI is ok because otherwise I would probably have to wait 7 months until I became a Washington resident.

• I have read that I can select for my LLC to be taxed as a sole proprietorship, partnership or corporation. Partnership is out because I am the only member as of now. I am confused as what to pick between the others. Can someone explain the pros and cons of both? I cannot find this information online for the life of me.

• How do I get a Federal Tax ID number? Do I need to do this before setting up an LLC?

• How do I link the Federal Tax ID and the LLC?

• My site is something like: mywebsite.com. Should the LLC name be
related to my site name? Does it matter?

If you need any more details about my company or my situation please ask.

I really appreciate any help.

Take care

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Old 1st March 2006, 02:14 PM   #2
Ralph
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Lots of questions. I am neither an accountant nor an attorney, so take this with a grain of salt. Your state Sec of State is where you can find out your regs for a corporation. They are all different. They will have residency requirements in some states, business residence requirements, etc. Most Sec of state offices have a packet that gives you the gory details. If it is confusing, spend the dollars on your accountant to file for you. You can get that stuff on line. You could also pull one from Washington State if that’s where you are going from RI. If its DC, that is a different world and I have no clue.

Your tax ID you can get on line from the Soc Sec people.

I notice you say LLC, has that decision been made? There are benefits and restrictions on all types of corporations. Again that is a good discussion to have with your accountant.

What are you doing for state taxes and state and local sales tax? As a reseller, you may be exempted from paying sales tax to suppliers or not. I would think if you are in the mix between your supplier and client, you have to collect sales tax. Again everyplace has different requirement. Some services collect tax some do not. Ask your accountant.

What ever you do not get crossways with any of those folks. They all carry a big club and assume they are right…, as we all do.

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Old 15th March 2006, 09:22 AM   #3
Maverick
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Hi,

Sorry about the delay in answering your question but I've been traveling on a project and worked 29 straight hours without a break yesterday.

I recommend your visiting the website at http://nolo.com . They have a book written by the renown attorney Anthony Mancuso on LLCs. You need to know more about them.

Here's some basics to your question,

1. Personally, I would just operate under my personal name, and not a company, until I started making some $, using a Social Security number. Setting up any business is expensive, and affiliate marketing takes time to start generating income. You don't have a tax situation until you have earned income.

Since you don't have a brick and mortar business (office or storefront) you can wait until the right time to take on the complexities and expense of a LLC. This would limit your ability to work under your company name just now, but most affiliates work under the mini-website duplicated (made by the product supplier) anyway, so your company name isn't usually prominent.

I realize this goes against conventional wisdom, but it appears you are in a testing mode if you're new to affiliate programs and I believe in testing a program before jumping in all the way.

Matthew Lesko, the geeky fellow you see on TV selling books on how to get FREE MONEY from the Government even states in his book, that he doesn't bother filing fictitious business names, getting city businesses licenses and etc. until the project proves itself. That's when you have liability, when you have reasonable activity.

I'm not an attorney, so you should consult with one on his/her views (I have to state that to not have personal liability). By following the approach I've mentioned here, it doesn't matter which state you reside in.

If you are at the stage where you do need to go to the next level with an LLC, and feel you can't wait, then I would setup in Washington, not RI. You can file over the Internet. You will need to locate someone over the Net that can be your Resident Agent for that state. Since you're going to be moving there, you likely know someone over 18 that can be your temp Agent until you get there, then you can take that roll.

All a Resident Agent does is provide a physical address for your business (no PO box) and a live body to accept any legal paperwork for your company. They have no other responsibility. They are not an officer or employee of your LLC.

I've never seen residency a requirement for anyone to setup a corporation or LLC in any state. I just setup a couple of LLCs for clients in Florida’s and one just moved to Nashville, but still operates as his Florida LLC. It is better to live in the state of your LLC for a number of reasons. I'll let the book I referenced above explain those issues.

If you setup your LLC in RI and move to Washington, you will need to register in Washington again. This created additional expense and paperwork complexity. If you don't do so, it's possible to pierce your LLC protective veil, the reason you established it. Legal compliance is paramount if using one.

LLCs can be taxed as a sole proprietorship.

Here's a few links you may find helpful

http://www.llcweb.com/struc.htm

http://www.corporate.com/entity-comparison.jsp

http://www.instacorp.com/Nevada.html...+llc&ovtac=PPC

http://www.smallbizincorporator.com/...FSlMOAodvwJS7Q

www.nolo.com

http://muretcpa.com/entityselection.htm

There are many different ways of forming a company such as a sole proprietorship, a partnership or a corporation. Each has its own advantages and disadvantages. One major benefit of a sole proprietorship or a partnership is the flexibility in tax reporting of business income and expenses. Business profits and losses are passed through to the owners/partners who are then taxed at their individual income tax rates. The biggest disadvantage of either a sole-proprietorship or a general partnership is that the owners/partners are personally liable for all business debts and claims. Corporation, on the other hand, gives the limited liability protection to its owners but does not have the tax flexibility like a sole proprietorship or a partnership.

The difference between a LLC and a regular corporation is that a LLC is recognized by the IRS as a “pass through” tax entity. It is not subject to corporate tax like a regular corporation. The profits and losses of the entity are passed through to its owners who then pay taxes at their own individual tax rates.

A LLC can also make an election to be taxed as a corporation by “checking the box” on the tax return. The owners should seek advice from a tax specialist in regards to selecting a “pass through” entity or a “tax paying” entity. Under certain circumstances, choosing a “tax paying” entity will result in the best tax situation.

The limited liability company structure has become very popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC.

Taxable Issues for an LLC

LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. Pass through taxation means that taxable income of the business will "Pass-Thru" to the owners individual tax return. Federal and State Tax Laws treat a LLC like a partnership; or for a single member LLC, like a sole proprietorship.

An LLC structure basically allows the owners or members of an LLC to recored their taxable income on their individual income tax returns like partners and sole-proprietors. However a LLC can be treated for tax purposes like a corporation by electing corporate tax treatment. We suggest that before electing to treat your llc as a corporation for tax purposes, you will want to speak with a local CPA in your area.

Limited Liability for an LLC

Similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Owners, or members, of an LLC are not personally liable for business debts or liabilities, in most situations. Personal legal liability protection is the same as that offered to shareholders of a corporation. In order to be afforded limited liability for your company, you will want to ensure that you follow all state and federal requirements for keeping your corporation in good standing. There should also be a distinct separation between your personal and business assets.

Should I Incorporate?

The single most important reason people incorporate their business is to safeguard the personal assets of the owners, the shareholders of the corporation. By incorporating or forming a Limited Liability Company (LLC), owners may engage in business without exposing their personal property to undue risk. Forming an LLC or incorporating your business is one of the best ways to protect you from personal liability.

Benefits of Incorporating or Forming an LLC

Corporations and LLCs are separate legal entities that provide some compelling advantages. By forming a corporation or LLC, you can:

Reduce your personal liability. While owners of a sole proprietorship or general partnership have unlimited liability for both business assets and personal assets, including their homes, cars and even savings, owners of corporations maintain separate business and personal identities. And that means you can limit the risk of losing your personal assets.

Save on taxes. Corporations are taxed at a lower rate than individuals. In addition, Incorporating or forming an LLC may enable expenses, such as insurance, travel and entertainment — for you and your employees — to be treated as deductible expenses of the business.

Improve your credibility. A corporate structure can send a powerful message to your customers, suppliers and other business associates about your commitment to the ongoing success of your venture. For many, "Inc." or "LLC" symbolizes permanence, credibility and stature.

Attract investors. Corporations may raise capital through the sale of stock. Investors may prefer to purchase shares in a corporation due to reduced personal liability.

Ensure a continuous life. Corporations are enduring legal business structures, with a life that extends beyond the illness or even death of its owners. Incorporating avoids the legal entanglements or, worse yet, termination of business that can incur if a partner or sole proprietor dies.

Transfer ownership. Incorporating allows you to transfer business ownership through the sale of stock.

Centralize management. In a corporation, your board of directors holds the power to make major business decisions and binding agreements, as opposed to a partnership, which puts this power in the hands of each general partner. So rather than worry that somebody could make a decision that could result in serious financial difficulty to you or your company as a whole, incorporating assures that all major players in your company stay on board and informed.

You don't get a Fed tax ID # until after you setup your LLC. To get it just go to the IRS website, get the appropriate phone number call and get you ID # over the phone, instantly and free. The tax ID # will be issued to your LLC so there's no linking to be done.

Try not to make your LLC specific to your website business when forming it. When asked your business category, state you are setting it up for ANY legal business activity in case you change your business focus.

Hope this helped you.

Regards,
Maverick

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Old 17th March 2006, 12:17 AM   #4
wahooka
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wow thanks a ton for the awesome response.

i've read it about 3 times and i'll read it again. it clears up nearly every question i had, thanks so much.

last question if you have time:
How do I decide whether to select to be taxed as a Sole-Proprietorship or a Corporation? I don't want to be double taxed and I am confused about the benefits of each. Pass-Thru sounds good (Sole-Proprietorship) but what would I gain by the Taxed-Entity (Corporation).

Thanks again so much! If there is any way to tip you for your help, let me know.

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Old 20th September 2011, 09:17 PM   #5
KevinSBH
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There will be some that may disagree, but based on what you are doing, I wouldn't bother with an LLC. If all you are doing is getting adsense money or through an affiliate promotion, I think an LLC is over kill. However, if you do I would choose to be taxed as a sole proprietorship. I'm pretty certain your accountant would agree.

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Old 12th October 2011, 06:02 AM   #6
brianwhitskey24
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Thank you so much Mr.Maverick for all the very detailed explanation of the topic, but i still have one doubt as wahooka asked in his post is it necessary to name or register the corporation similar to the name of website.. this is something i have been confused these days, example a very popular social networking site www.facebook.com is also registered its company in the name facbook LLC... so what is this do we have to register the company in the domain name of our website.

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Old 12th October 2011, 07:41 AM   #7
LFinkle
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I personally am a bit of a stickler for making sure I do everything correct from a legal and accounting standpoint. I would consult an attorney about your questions before proceeding. There is nothing more challenging than to find out you didn't set up your company correctly and you have either financial issues with the IRS as a result or legal factors that get in the way.

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