Post: #1

I'm currently in the process of researching on starting a business. For those of you that are actually business owners I'm curious to know what sort of structure you chose for your startup. This applies to guys living in the U.S.

Did you have a sole proprietorship, partnership, LLC, C or S corporation?

I'd likely be starting as a sole proprietorship but would like to move on to an LLC in the future since it protects liability and avoids the double taxation that comes with a C corporation, and no need to worry about meetings and minutes that a corporate charter imposes. Still need to research the laws in my state regarding LLCs but that structure looks best for me in the intermediate future.

What about you guys? And any advice for a new startup in general?

Post: #2

LLC as pass-through, same as sole propriet. when it comes to taxes, but with liability

Post: #3

It really depends on quite a few factors. There is no one easy answer as each has advantages over the other. If you don't want to pay for professional help and want to make it as easy and cheap as possible, just stick to a sole proprietorship.

Post: #4

this is an 'it depends' answer. It depends on your state, TN for example has some big reasons to be a sole proprietor. Also, it depends on how much liability there is in your business, what kind of business it is.

Also don't buy into the double taxation of a C corporation bullshit. Depending on how much money you make dividends from a corporation are taxed at zero percent federally so you're singly taxed on the corporate side. There is also the issue of self employment taxes that people tend to forget about when doing the double tax math.

My advice is get an idea from whats on the internet and the pay some money to do a consult with a lawyer, you'll learn a lot that is specific to your own situation and get some options. You can still then file everything on your own if you want to stay cheap and accept the pitfalls of doing so

Post: #5

I have an S Corporation where I am 100% shareholder. If you are setting up a corporation and you will be the only shareholder and will not sell shares then there is no reason to do a C Corporation. With a C Corporation you will face double taxation, once for the corporation and again in your personal taxes if you pull money from the corporation.

S corporations are better in that you don't face double taxation but there are other side effects. If your S Corporation makes money then you will need to pay yourself a "reasonable" salary for your work otherwise the IRS will come down on your ass. You will also have to pay taxes on the profits from the S Corporation in your own taxes. So if the corporation makes $100,000 a year and your personal tax rate is 25% then you personally have to pay the $25,000. You will also have to have some salary, maybe like $30,000. You can do a distribution from your corporation to help cover the taxes but not too much otherwise if the IRS reviews it they can say it was a salary disguised as a distribution. The downside of course of paying it all as a salary is that the salary is taxed an addition 15% for FICA/SS/Medicare. That is why most people divide it up between a salary and a distribution.

I've had my S Corporation for almost 10 years now, if you have any questions I will gladly answer them.

Post: #6

Spend no more than an hour on this question, and spend the rest of the time figuring out how to make money. You can always change corporate structure later, especially if it's just you involved and you don't need consent from partners.

Just go with LLC. Taxation is not crazy, and you're protected from liability.

Post: #7

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Post: #8

I agree with WIA that liability insurance is a far better tool for protection than a business entity. I just did a real estate deal where I witnessed the always excepted truism of "put it in an LLC" create a liquidity and tax clusterfuck upon sale. It boils down to what kind of business is it, and how much do you have to lose? If it is a service business where you don't have any hard assets to protect, you don't need it as much.

But I don't understand why you need an operating agreement for a single member LLC?

Post: #9

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Post: #10

You sound like me a few years ago.

Something I would highly recommend (almost insist upon) that helped me A LOT is to take a "SCORE" workshop in your city: http://www.score.org/localworkshops

They hold all kinds of business related workshops, but I took their "Simple Steps for Starting Your Business" class. It was 2.5 hours every morning for 5 days, and costs about $125.

They bring in various presenters to inform you on every aspect of business formation, financials, insurance, legal, etc. The most valuable part for me was that the presenters are all local service providers: lawyers, insurance agents, accountants, etc., and you're free to ask them everything and anything you want. Having that access to those people was worth the price of admission alone.

Figuring out LLC vs. Sole Proprietorship is just the tip of the iceberg, you're still going to have a million more questions once you decide on your structure. Trying to figure all this shit out on your own, on the internet, is a recipe for frustration, and you're likely to run into misinformation at some point along the line. So that is why I recommend checking out some of their workshops, it will save you headaches in the long run.

Post: #11

For anyone other than Americans I'd have recommend a Hong Kong or Singapore limited corporation. These countries are much more business friendly and take out all the annoying crap that goes with bureaucracy in other countries. Not in the least tax reporting. If you live outside Hong Kong, you pay 0% on your company income.

Post: #12

(10-09-2013 02:22 PM)username Wrote:  I've had my S Corporation for almost 10 years now, if you have any questions I will gladly answer them.

The biggest question I have for an S corp is how you handle appointing corporate officers/minutes/meetings, etc. if you're just one guy. My father is a single-man S corp and he's pretty much done none of it.

(10-10-2013 02:46 PM)BlurredSevens Wrote:  You sound like me a few years ago.

Something I would highly recommend (almost insist upon) that helped me A LOT is to take a "SCORE" workshop in your city: http://www.score.org/localworkshops

They hold all kinds of business related workshops, but I took their "Simple Steps for Starting Your Business" class. It was 2.5 hours every morning for 5 days, and costs about $125.

They bring in various presenters to inform you on every aspect of business formation, financials, insurance, legal, etc. The most valuable part for me was that the presenters are all local service providers: lawyers, insurance agents, accountants, etc., and you're free to ask them everything and anything you want. Having that access to those people was worth the price of admission alone.

Figuring out LLC vs. Sole Proprietorship is just the tip of the iceberg, you're still going to have a million more questions once you decide on your structure. Trying to figure all this shit out on your own, on the internet, is a recipe for frustration, and you're likely to run into misinformation at some point along the line. So that is why I recommend checking out some of their workshops, it will save you headaches in the long run.

Yep. I've been to a couple of SCORE events. They have some good stuff. I went to a seminar last month about starting up but not an extended class like that. Will look it up.

Another question- how have you guys handled your market research?

Post: #13

(10-10-2013 03:01 PM)scandibro Wrote:  For anyone other than Americans I'd have recommend a Hong Kong or Singapore limited corporation. These countries are much more business friendly and take out all the annoying crap that goes with bureaucracy in other countries. Not in the least tax reporting. If you live outside Hong Kong, you pay 0% on your company income.

Could you clarify the other than Americans part? Just that the US government taxes income globally? Or something else? Thanks!

Post: #14

(10-11-2013 09:05 AM)Libertas Wrote:  The biggest question I have for an S corp is how you handle appointing corporate officers/minutes/meetings, etc. if you're just one guy. My father is a single-man S corp and he's pretty much done none of it.

You're overthinking this. Figure out how to make money, and worry about corporate structure later. (This is assuming you don't plan to go public or take on investors.) Just do an LLC then change later if you need to.

To answer your question though: you have a meeting with yourself and take minutes.

Again - focus on how to make money. I see so many potential entrepreneurs who focus on the minutiae at the expense of the big picture. Who cares if you have the perfect corporate structure and stellar accounting books if you have no revenues?

Post: #15

(10-11-2013 10:59 AM)samsamsam Wrote:  Could you clarify the other than Americans part? Just that the US government taxes income globally? Or something else? Thanks!

Sure, if I leave Denmark and take up residency in another country and fill out some stuff online declaring this, then I am no longer eligble for tax in Denmark. So I could live all around the world and have my HK corp pay zero tax and not pay any income tax either in many cases (such as waiting to withdraw money for one year - at which point overseas income is tax free in Thailand).

But Americans get taxed even if they have no fixed address in the US and the IRS are some massive douches who will pursue you to the end of the world. Many banks won't even open accounts for americans anymore.

Worst comes out of it, in my country, tax evasion in a limited scope might give 4 years (2 years good behavior), in the US could probably be double or tripple.

I am not telling anyone to cheat in taxes, just for people to start understand the idea that taxes is no different than paying the mob boss protection money. If the taxman really wants to fuck you over he can, particularly the IRS. So one takes his precautions.

Some money in HK corp, some in a trust fund in the Seychelles, a whole bunch in small gold bars or coins in a bank vault.

So for me, I don't see the pros outweighing the cons for most americans. Of course, you can use a strawman director, but there always risks.

I am not an expert on american tax law though, so make your own conclusions based on what info is out there.

Post: #16

Can anyone with experience in this matter provide advice?

I have an idea I want to carry out, and am deciding on how to start out. I don't know the first thing on how to go about doing it. Mainly I'd like to protect myself legally and write off everything I possibly can. Should I

a) First hire a tax attorney to take care of everything
b) Start reading books on structuring an online business, legal requirements of starting and declaring a new business, etc. If so, does anyone have recommendations?

I'd be willing to pay someone whose already been through the process via paypal or some other preferred method if they're willing to run me through it.

Post: #17

^^ For most cases, start executing on the idea ASAP without any of that.

Keep track of who you pay and who pays you, do not give out any equity, keep it under your name or use a simple DBA so you can receive money under a better name. Default as sole proprietor and take the Path Of Least Resistance, administrivally speaking.

Your hours are far better spent on honing the product, pitch, first few customers, and finding the right contractors / eventual employees / eventual partners. Don't "pre-cum" equity on people -- either pay them for their time or for IOU on revenue. What's the essence of your business? Nail the beginnings of that and the administrivia will come later.

Caveat Time
If the idea has high liability or touches more regulated areas (food, chem, manufacturing), then disregard my "fast track" advice. Though with food, I've seen people do a word-of-mouth hustle (i.e. delivering high end grilled cheese sandwiches out of an East Village apartment, getting hype, then going legit with a food truck -> restaurant -> chain).

Otherwise, wait until you start making some consistent revenue, and then shift everything into an appropriate entity and consult a lawyer and accountant.

Too many other caveats to list, just food for thought.

My personal bias: I hate losing steam on the admin side of things, giving me more time to start questioning the underlying premise. If the premise is good, just get that first close using duct tape if need be.

Post: #18

(12-28-2015 02:56 PM)456 Wrote:  ^^ For most cases, start executing on the idea ASAP without any of that.

Keep track of who you pay and who pays you, do not give out any equity, keep it under your name or use a simple DBA so you can receive money under a better name. Default as sole proprietor and take the Path Of Least Resistance, administrivally speaking.

Your hours are far better spent on honing the product, pitch, first few customers, and finding the right contractors / eventual employees / eventual partners. Don't "pre-cum" equity on people -- either pay them for their time or for IOU on revenue. What's the essence of your business? Nail the beginnings of that and the administrivia will come later.

Caveat Time
If the idea has high liability or touches more regulated areas (food, chem, manufacturing), then disregard my "fast track" advice. Though with food, I've seen people do a word-of-mouth hustle (i.e. delivering high end grilled cheese sandwiches out of an East Village apartment, getting hype, then going legit with a food truck -> restaurant -> chain).

Otherwise, wait until you start making some consistent revenue, and then shift everything into an appropriate entity and consult a lawyer and accountant.

Too many other caveats to list, just food for thought.

My personal bias: I hate losing steam on the admin side of things, giving me more time to start questioning the underlying premise. If the premise is good, just get that first close using duct tape if need be.

Much appreciated! In essence, you're saying

1) Just do the business
2) Accept payment personally, include it in personal income taxes. This method would prevent the possibilty of tax write offs, I'm assuming.
3) Once/if it starts making more than pocket change, consult an attorney/accountant about the next step

Sounds pretty reasonable to me. Thanks again

Post: #19

^^ on 2), you can still write off expenses even on your personal income in many cases.

Keep us updated on your business!