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Old 5th May 2010, 09:26 AM   #1

Join Date: May 2010
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Default LLC Or Partnership For Website Business?

I'm starting a new website with a guy I know a little bit. We currently work together at our main job and this is a side project for each of us. I am a web designer and he is a programmer. Together our skills can make this website happen. This website will be a niche type of social network but we believe it could be very successful given enough time/effort.

We're hoping the site will bring in an income via adsense ads and membership fees for certain members. Later in the future we may consider even selling physical products. But that depends on if we can build the capital for that side of the business by first having successful ad revenues from the site alone.

Because there is money involved we both feel it best to make this an official business. Neither one of us have ever owned a business and neither one of us have any real money beyond a couple hundred dollars to invest in it initially. But being a website we don't really need a lot of capital to begin with. We just need to pay for the webserver(s).

I'm not sure which is a better choice for us, a partnership or an LLC. We would both like to split everything 50/50, from profits to major decisions. Because it's a social network I'm a little concerned about liability. Do to the nature of the site, members will be contributing content and interacting with each other. If it gets big enough to be profitable we aren't going to be able to monitor all of that content and interaction consistently. I'm not sure how much we would be liable for stuff our members do on the site.

We will of course have a terms of service agreement all members must agree to when signing up, but I'm not sure it this is enough to waive our liability should something occur that is a little outside our TOS. Like for instance something a member does in real life and then blames the site.

It seems like an LLC would be our best approach from the liability point of view. I'm not sure what benefits a partnership would have over an LLC. But maybe I'm missing something. For starters we won't have an accountant, lawyers or any other employees besides ourselves, we just can't afford it right now, but eventually we may.

Which do you think would be better for us?

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Old 5th May 2010, 10:19 PM   #2

Join Date: Apr 2010
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I would say an LLC would be best for maximum liability protection and then I think for tax purposes you want to be taxed as a Sub S corp so that you split the profits or losses on your own individual tax returns.

With respect to dealing with a partner below is a 3 part series I wrote on partnerships that I believe you will find interesting and applicable.




Michael Barbarita - Next Step CFO - CFO Services
Starting a Business
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Old 5th February 2011, 06:15 PM   #3
Referral Smart

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First off, the disclosure: I'm not an attorney (nor do I play one on TV). This is not legal advice, just my opinion.

With that said, I would never enter into a partnership with anyone on a business venture (except maybe my wife!). LLC's are relatively easy to form and maintain, and not very expensive from an accounting standpoint (I think a non-complex LLC return might cost about $300-500, or so, here in NJ). You might want to use an attorney on your first one, but if you are on a budget, there are several credible internet services that do it for under $200 plus the filing fee. Just make sure you are following your state's guidelines.

By the way, Terms of Service are not enough to to protect you from a lawsuit... anyone can sue for anything. Even if you're innocent, you still have time and legal expenses.

From a credibility, liability and overall personal risk standpoint, the LLC is the way to go. Just my $0.02.

Best of luck! I had similar decisions on forming my web business. Once you do it, though, everything is easier the next time you are faced with a similar decision. That's what creates experience!

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Old 7th February 2011, 03:55 PM   #4
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You say you can't afford a lawyer or an accountant... but I'd say you can't afford to NOT at least have a consultation with each. You don't have to put them on retainer -- just talk to one of each before you set up your business. Especially you want to chat with a lawyer about the best business organization, and have him/her look over any business agreements and your site's terms of service. They can find loopholes and ambiguous terms you might have missed that could come back to bite you in the future.

Unless you have significant legal and tax experience yourself, trying to DIY to save a few bucks is penny-wise and pound-foolish, IMO. A few dollars spent now for these consultations could save you thousands (or more) on down the line.

My , adjusted for inflation, less taxes.


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Whether you think you can, or that you can't, you are usually right.
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