Ask HN: Starting Your Own LLC? I want to start my firm in the USA to channelize my creative endeavors. What are the nuts and bolts of starting your own firm? I can register an LLC online, but what else should I know? e.g Filing taxes, choosing between different corporations etc.
What did you wish you knew , when you started yours? What are some good resources ? |
Any downsides to that approach?
A few things as they come to mind (and, disclaimer, I am not an expert, I've just done this before):
- Any advice you read here, including mine, should be immediately superceded by that of your tax professional or your lawyer. If you do not have a tax professional, I strongly advise at least getting a consult even if you elect to do your taxes yourself (and if you're a single-member LLC, see further down, this is not unreasonable). It is not merely a "strongly advise" to have a lawyer on tap. Get a lawyer and make sure they're the kind of lawyer who is comfortable telling you when you are a dumbass. That kind of lawyer is invaluable.
- Corporations and LLCs are not the same thing. You can elect, as an LLC, to be taxed as a corporate entity, but that's a question between you, your deity of choice, and your tax professional (who I encourage you to think of, in this venue, as your deity of choice).
- IANAL, IANYL, and TINLA, but you will notice that many don't-dig-for-gold-sell-shovels outfits like Clerky will tell you you want to be a C-Corp because, as their website says, it's the best for "high growth startups". I assume you are not a "high growth startup". I would look at LLCs long before I looked at a C-Corp and an S-Corp long before a C-Corp. Minimize your hassles as best you can because otherwise it'll bite you in the ass later; IMO and IME, this means "default to an LLC".
- Formation is a moderate pain in the ass. I used Harvard Business Services for registration and continue to use them for registered agent services. No relationship, they just work fine and I don't have to think about it much. https://www.delawareinc.com
- Single-member LLCs are the easiest way to manage your stuff, if not the most tax-advantaged way. (I do this because I optimize for simplicity.) Effectively you just file a Schedule C with your personal income taxes.
- Once you've formed, get an EIN immediately. You can do it online, it takes like ten seconds. It will help with the next point.
- Regardless of how you do it, it is incumbent upon you to do some real careful management of funds. The second you get that LLC, go to your bank and open a business checking account. Route everything business-related through it. Eventually you will, if you're successful, want to take money out and that's fine--but having this structure to start will make it a lot easier to, if in the worst case, demonstrate enough separation to retain your limited liability if you get sued into the ground.
- Relatedly, I like QuickBooks Self-Employed for keeping track of revenue and expenses. It's free if you use TurboTax.
- If you're successful, get ready to file taxes quarterly. QuickBooks Self-Employed has helped me deal with that stuff, too, and if you make enough to have to file quarterly then it'll help you with reminders, etc. about that.
S before C is more the amount of nonsense involved in a C-Corp unless you're getting investor money.
Simplest possible illustration: Japan's equivalent of an LLC costs +/- $10k in running costs for most HNers and doesn't do pass-through taxation, which might counsel sole proprietorship for longer here than it would in the US.
https://delcode.delaware.gov/title6/c018/sc11/
If you need to make a decision based on this information I'd recommend calling up any practicing business attorney; it's a question they will likely be able to answer even in the free consultation.
And I was asking about the cost difference for an LLC created in the USA by an outsider VS an American citizen...
I guess it was not so simple after all... (you just misunderstood the simple question).
How about candies? Do they poison people?
You seem to be new here (73 days). Note that 'patio11 has been here for 11 years and is one of HNs top posters. Not that longevity makes someone right, but 'patio11's posts have been high quality for many years, and one should assume that he is probably not pulling a reply out of his ass when he does reply.
While not every poster on HN posts high quality replies, most people here reply with a clear purpose. This is not Reddit -- I encourage you to assume that most replies are actually substantive. If you are not sure, check the poster's history -- this will help you get a feel for the potential quality of their posts.
Welcome to HN, and good luck with your endeavors.
BTW I know that this is not reddit but there is about as much censoring, if not more (there is just more users on reddit).
Also, I see that your account was created in 2013... did you create any throwaway account since then? (this account, for me, is a throwaway account)
Conflict: do you work for the economist.com ? most of your submissions appear to point there
but thanks for the insight as to why I get all the downvotes...
2) Either learn basic accounting (if you don't already) and keep excellent records of all revenue and expenses business-related (ideally categorized into standard business categories) or find a CPA to keep your records straight monthly. A huge number of people get burned simply because they didn't keep proper records and then ran into tax or regulatory trouble later.
3) Definitely keep your business finances as separate from your personal funds as possible. Different checking account, different credit card, etc.
4) Think really hard before you hire anyone for anything, and if you do, make sure you're either doing 1099 correctly or get a professional to help with W2 stuff. Again, this is something that often comes back to bite people.
And lastly, remember that most businesses fail and that failing at business is not something to be ashamed of. If it's not working out, don't make yourself miserable and mortgage your future to try and save it indefinitely - walk away and try again with the lessons you learned.
Look, do what you want. If you want a business start it. You’ll need a CPA and a book keeper. These are easy to find and low cost. I pay my book keeper $200/month and my CPA a few thousand each year.
I literally have never bothered with taxes. I hand them to my CPA and just double check the numbers when he’s done. Same with my book keeper. I don’t deal with IRS letters and whatever I just scan them and forward them to him and he deals with it.
Tax/accounting/finance are the easiest part of a small business. These jobs are easy to outsource because they’re well commoditized. Tax/finance/accounting for a small business can be challenging for a lay person but it’s routine for these professionals.
Lastly, if you fuck up your taxes and accounting it’s not that big of a deal. The IRS is happy to have you sort it out and pay them what you owe with interest later. They’re very polite people. I should know.
The dirty secret about starting a small business is that everyone’s back office is a total shit show. Ask any freelance bookkeeper or CPA what state their clients were in when they acquired them.
I’m not sure why you felt the prior comment was “offputting”; they don’t say not to start a business, they’re pointing out that financials are an area that a business owner needs to address, and that outsourcing it is often the correct route.
If there are holes after reading them, we'd love to hear about them.
(The page includes links to lots of HN discussions in this area; depending on how this discussion goes, I might add it as well.)
You can take money from other people for goods and services you provide without any legal structure behind it. IRS has forms to report such income (and related business expenses).
A step-up is a DBA registration in your city hall. It's still just you, nothing changes from point of view of IRS, you can just use a name for your business that is different that your own.
An LLC is a significant step-up in terms of complexity and cost and many people cargo cult it (i.e. they think they need an LLC for reasons they can't put into words but it's something what other people are doing).
A lawyer friend once told me that anyone can sue anyone at any time for anything. A good lawyer will sue the LLC and the owner of the LLC. Even if the defendant is found to not be liable, it won't feel like a victory when the invoice from the defendant's attorney arrives.
- LLC formation is not just filing the article of organization. Make sure to get an EIN, an operating agreement (Google operating agreement + your state for templates), get a business license, open a business bank account (https://www.azlo.com is great), make initial contribution (don't worry, it's your money). This makes sure that your LLC is set up right (some states won't give you limited liability, if you don't do it right).
- In most states, LLCs are pass-through entities, meaning you'll file your taxes via Schedule C and pay 15.3% self-employment tax. If you plan to make $60K or more in profit, consider filing for S Corporation (significant tax benefits)
- Get a decent bookkeeping software and do your books right from day one (it pays off). Quickbooks online is great. Connect your business bank account, categorize your expenses, close your books at least quarterly.
- Pay your quarterly taxes. Even though the penalty is not huge, you'll avoid getting a huge tax bill at the end of the year
- You may be able to manage doing your own taxes for a while, but if you're serious about this, find a tax preparer to do your taxes. If you pick SCorp route, definitely get one, as it's a separate tax return and a lot more involved (i.e running payroll)
- If you go SCorp route, make sure you get the reasonable compensation right. Run yourself regular payroll (https://www.gustom.com is great) and get K1 distribution every now and then. Pass your health insurance via your S-Corp
- Invest in Sole 401K. Investing in retirement is always a good idea and you'll save a lot in taxes.
- There are a couple of all-in-one services that can help with all. If you're doing freelancing/contracting https://www.hyke.me is great. If you're selling apps, doing ecommerce etc https://www.stripe.com/atlas is great.
Hope helps.
They offer services for incorporation too. Never used them so cannot speak about their service level. Seems to be a preferred choice for some YC startups. Then of course there is LegalZoom. They are around since 2001.
If you're starting any other kind of business it's a little over kill.
Generally registering an LLC, applying for a business license and then requesting a Tax ID number from the IRS is really all you need for a web based business of 1 person.
what is it for " a web based business"?
Unless there's something not mentioned in the OP, he doesn't need a board, he doesn't need shares, he doesn't have a partner. He needs a disregarded entity.
Signed up for Azlo just recently after keeping money in my personal, no big deal just makes taxes a little harder.
Make sure you keep records of everything. Get yourself a good receipt scanner that does OCR, like neat. Keep the physicals around too.
I’m not bothering with a lawyer, CPA until I start having a lot more cash flow. Right now it’s enough for me to manage, but I will get professionals to manage in the future.
One thing I wish I did was not use my residence as the address. Oh well, too late for that.
That actually is a big deal.
https://www.nolo.com/legal-encyclopedia/personal-liability-p...
Commingling assets. Small business owners may be more likely than their larger counterparts to commingle their personal assets with those of the corporation or LLC. For example, some small business owners divert corporate assets for their own personal use by writing a check from the company account to make a payment on a personal mortgage -- or by depositing a check made payable to the corporation into the owner's personal bank account. This is called "commingling of assets." To avoid trouble, the corporation should maintain its own bank account and the owner should never use the company account for personal use or deposit checks payable to the company in a personal account.
But yes, had I known azlo existed I would have signed up from the start. I just wasn’t about ready to pay a big bank a monthly fee when I wasn’t making money yet.
Enables founders to assign relevant IP to the company at formation, formalizing ownership of key technology.
Is designed to make conversion to a C Corporation as simple as possible. (We can connect Stripe Atlas users to a lawyer to manage the conversion process with discounted, flat-rate packages).
Provides a simplified process for adding members after formation.
Is organized in Delaware, the jurisdiction of choice for many new LLCs.
So we eventually scrape the project and I move on to a new website selling electronics. I signed up for a new Stripe account, but immediately got an email from stripe saying:
"our banking partners prohibit us from helping with payments associated with a business we've had to reject previously."
Has anyone faced this or had any recourse? This was 4 years ago and now I am pursuing building a SaaS using Stripe Connect and using Stripe Atlas. Whenever I reached out to Stripe back then, only response I got was decisions are final.
Are all those doors closed for me since I made a stupid mistake years ago?
From Stripe’s perspective (as well as your business’s), wouldn’t this application be from a different business though the owner/proprietor is the same?
EDIT: spelling
Shouldn't you pick a state that has little to no annual filing fee?
(1) Register your domain name and setup email (GSuite is simple enough). I put this first, because it is nice to have all the business communications actually going to the business email, so you don't start intermixing with your personal email.
(2) Next, I'd recommend hiring a local lawyer for the LLC filing and paperwork, not because you can't do it yourself, but because they can do it a lot faster and will help find any mistakes throughout the entire process. (they do this all the time) You will basically end up using them to file the Articles of Organization, act as your registered agent (avoids having to put your name and address directly on file with the SoS office), and they typically have boiler plate Operating Agreements that you can use to bootstrap your own.
(3) Next, you (or your lawyer) need to file Articles of Organization with the Secretary of State's office and pay the filing fee. (Normally $100 or so) You'll typically have to renew this registration annually. Your lawyer can take care of it.
(4) You then need to decide how you will be taxed. Your basic choices are to be taxed like a sole proprietorship or as an S Corp. I would choose S corp, so that you can save on taxes. When you go this route you will select a "reasonable salary" for yourself to be paid. Anything you earn above and beyond your reasonable salary you can take as a distribution from the company, which is not subject to self-employment taxes. If you go the sole proprietor route it is simpler (you report income on your schedule c for the IRS), but everything is subject to self-employment taxes.
(5) If going the S Corp route you will want to obtain an FEIN(https://www.irs.gov/businesses/small-businesses-self-employe...) and file form 2553 with the IRS for the subchapter S election. You have a limited window to do this, so do it shortly after filing the Articles of Organization. If you have an accountant they can assist you or do this for you. (6) Next I'd recommend getting a payroll company to run your payroll if you've gone the S Corp route. (Something like Square Payroll https://squareup.com/payroll/) They take care of filing all the required forms with your state and will make it really easy for you should you ever add additional employees beyond yourself. What are some of these forms? They vary by state, but to give you an idea here is a look at the items for the state of Oklahoma (https://squareup.com/help/us/en/article/6319?utm_medium=web&...):
- Withholding Payment Coupon (WTH 10004)
- Wage Withholding Tax Return (WTH 10001)
- Transmittal of Wage and Tax Statements (OK W-3)
- Wage and Tax Statement (W-2)
- Employer's Quarterly Contribution Report (OES-3)
- New Hire Report
(7) This leads to the next item, which is you likely need to register for a state tax ID and a state unemployment insurance ID and then input those IDs into your payroll provider's system. Again this varies by state, but normally each state has some analog of this.
(8) Make sure you create an Operating Agreement. It is an important governance document for your LLC. Your lawyer can help bootstrap you here or you can find samples online. Although, not strictly required it is an important document in establishing your LLC as a legitimate LLC and not just an extension of yourself. It helps prevent "piercing of the corporate veil" in instances where you might be sued. (i.e. keeping your personal assets protected in the event of a lawsuit)
(9) Hire an accountant (if you haven't already) to handle the K-1s and taxes of the LLC. This saves you time and potential penalties that you might run into in making a mistake with filing.
(10) Use some software like Quickbooks Online or similar to track your accounting. Bonus here if your payroll feeds directly into your accounting software.
(11) Get a Small Business Credit Card like this one from AMEX (https://www.americanexpress.com/us/credit-cards/business/bus...). You are going to have expenses and you might as well get some points while you're at it. Also, easier to track expenses. The bonus with these too is if you add employees then their travel expenses are tracked and you get the points for them as well.
That's all the basics to get the LLC operational. Obviously there are things like business plans, industry specific compliance regulations and certifications(not typical of software companies though), health insurance, etc., but this is a basic list to meet the requirements of the federal and state government. Good luck!
I've started a few different business this way and the nicest thing about a disregarded entity is that if you need to sell or fold the business, you won't have any complicated forms to fill out with the IRS. You just stop reporting the following year.
Pariss is also talking about LLC on Twitter you might want to follow her
https://www.toptal.com/finance/interim-cfos/c-corp-vs-s-corp
The LLC makes it easy to pass profits through but if you don’t have any yet...what’s the point?
https://www.nolo.com/legal-encyclopedia/converting-llc-corpo...
https://www.delawareinc.com/blog/how-to-convert-your-llc-to-...
And if you need to convert, it will be easier to convert an LLC to a Del. C. than to create a Del. C. based on your co-mingled personal and business records.
[0] https://www.wilmerhale.com/uploadedFiles/Shared_Content/Edit...
- Should a subsidiary of a foreign company be an LLC or C Corp? I've read https://stripe.com/atlas/guides/llc-vs-c-corp and if I were to own the company directly, I certainly would go for a C Corp to avoid having to report the company's taxes on my personal U.S. tax returns. But it's not clear to me whether it's better for a subsidiary to be an LLC or C Corp. (I'm leaning towards C Corp, but don't want to miss out on any benefits of having the subsidiary be an LLC.)
- Can I transfer 100% of my U.S. subsidiary's revenue to the foreign parent company, and write off the entirety of that amount as a business expense? So, my U.S. subsidiary's income would be zero, with everything that was repatriated to the parent company subtracted as a fully deductible business expense. Is this okay under U.S. tax law? Or would this be considered tax evasion? (Would the U.S. company even have to file a state or federal income tax return, since its income after business expense deductions is zero?)
(Note: The sole reason I want a U.S. company via Stripe Atlas is because Stripe is the best payment gateway out there. It makes receiving money from customers a lot easier, which is to put lightly, quite important.)
- If I directly own a C Corp, will I ever have to report anything connected to it on my personal U.S. tax returns? (I assume with a subsidiary I never would have to.) Also, will Stripe ask me to disclose my U.S. Social Security number, or would a foreign passport be sufficient? And, does Stripe Atlas transmit any data on company ownership to the federal government? Since temporary work/other visa holders are prohibited from running a startup on the side, there can't be anything (that's discoverable by the Dept of Homeland Security) tying me to the U.S. company. (It's just that people have been deported for selling apps, receiving ad revenue, among other things: https://www.murthy.com/2014/01/28/home-based-businesses-inad...)
- How does succession for intellectual property work for companies? If the company is shut down, can I designate myself as the "inheritor"/beneficiary of all the property that the company held prior to its dissolution?
- Can I convert a subsidiary into a normal company that is directly owned by me? There is a high probability that I will dissolve the foreign parent company once I get U.S. permanent residency (but that could take a few years).
- Do I need to use the Delaware registered agent that Stripe Atlas offers its customers for $100/year? (I want to use the one offered by VirtualPostMail instead: https://www.virtualpostmail.com/services/registered-agent)
Finally, patio11, is the email address info at stripe dot com the best email to reach out for further questions such as these?
> is the email address info at stripe dot com the best email to reach out for further questions such as these?
I do not work for Stripe, never have, but I can state with near-certainty that the answer to this question is "absolutely not."
Stripe are not going to give you advice on how to violate U.S. immigration law and not get caught. If you are living in the U.S. on a visa that does not allow employment beyond the terms of your visa, you are asking Stripe to give you advice on how to break the law and there's zero chance that any business--especially one so deep into financial services like Stripe are--will be OK with doing that.
If you have to ask questions with a caveat like this:
> there can't be anything (that's discoverable by the Dept of Homeland Security) tying me to the U.S. company.
then you are playing with fire, particularly under this administration, running the risk of being deported and receiving a 10-year ban on reentry at all (to say nothing of destroying your chances at ever getting a work permit again) and I strongly suggest you reconsider what it is you are considering doing.
> Unless you have a really crappy situation with respect to payment processing, regulations etc., that are real roadblocks for competing internationally, I do not recommend setting up company for the romanticised notion of using a particular gateway.
I made that mistake of romanticizing Stripe. I was too hasty, and didn't bother to do some basic research. Customers just want an easy way to pay, and definitely don't care what gateway you choose to use. As far as setting up an American company/subsidiary goes, it's not worth the trouble. Reading https://stripe.com/atlas/guides/business-taxes alone was eye-watering and migraine-inducing. The plethora of complicated tax rules are absolutely not worth enduring just to use one particular payment processing system.
I strongly encourage you to see an accountant and/or lawyer -- it would strike me as cavalier if anyone answered your questions completely in a public forum such as this.
It's definitely worth it IMO since you're double-paying FICA taxes on your W-2 (i.e. paying both the employee + employer sides).
In order to legally do business and report on your taxes (in washington state for example) you need to register your entity as a business with the state -- in the form of a business license.
I only used the phrase "web based business" assuming you have no physical property (retail) or employees which add additional licensing requirements and more complexity.
So an example here might be that you were working for a client and work wasn't fully completed on time. You made a good faith effort to get the work done, so while the company you were working for might be entitled to compensation from your LLC they can't come after your house.
Finally, let me caveat all this by saying that the standards for "piercing the corporate veil" vary by state and as always you should consult with a lawyer before making a final determination. Also, another work around is to form a multi-member LLC and hold formal annual meetings. This is normally enough for most states to consider the LLC as a separate distinct entity and prevent piercing of the corporate veil.
Here in NY, piercing the corporate veil is a bit easier than in other states. More importantly, if someone attempts to go down that road, you have to spend the time and resources ($$$) to defend your position. In general you're best off just starting in the strongest possible position to start with, and usually that means splitting the decision making responsibility. If you want to avoid all that hassle, just go the SP route.
In my original comment I made the mistake of saying "any" instead of "all"
The way you wan to do it is set up an LLC but then "loan" the business money and act both as it's owner but also it's creditor. This separates you in the eyes of the court.
In practice this protection isn’t worth as much as it is for larger businesses because, for example, any bank lending to a new single person LLC will require a personal guarantee anyway, and most single person LLC don’t have a lot of situations where they might incur a life destroying liability, like an accident in a warehouse or something, but that protection still definitely exists for single person LLCs.
How do you hold meetings with minutes in a single person LLC? With clients/subcontractors/advisors maybe?
I'm not being sarcastic, my accountant wants me to form an LLC and if doing this helps with liability I'd be happy to go through the ceremony of it.
The only silly part is calling it a meeting, but people do seem to agree that's the terminology the IRS wants to see.
Actually, I guess there are two silly parts, although the second is arguably more sad than silly: you must be 100% clear that you are engaging in these activities with a profit motive and not for the love of learning, doing, helping... and if the IRS decides that your motive is not sufficiently (im)pure, you will owe considerable back taxes, interest, and fees.
Best advice for anyone, especially a foreigner without SSN/ITIN, is to get a lawyer. Note for all foreigners, IRS changed their rules to get an EIN 5/10/19 and this is significantly delaying new foreign owned/controlled businesses.
The caveat, is you must operate like a business - including proper insurance levels. If you're not acting like a business, then you don't get business-like protections.
Source: Single member LLC who has discussed the issue with my lawyer.
An insurance broker will happily talk you through what each gives you, and what is most relevant to your co, but it will almost always include GL (general liability), E&O (errors and omissions), and some sort of "cyber" (to pay for resulting damage from hacking). Expect other flavors of insurance to also be applicable.
So, for instance, document the seed money to the LLC, and any other money you put in, carry on the books. Similarly, pay yourself a salary or if doing “equity draw” again keep it full documented.
Never pay for personal things with company funds.
It’s literally the name of the thing, the two L’s stand for “limited liability”
If you conduct the business in a businesslike manner and keep proper separation of personal issues, and keep required records to document its corporate actions then you have the law’s liability protection.
That’s also true for a 2 or 200 member LLC.
And my lawyer.