Do I need an LLC?
Hey everyone,
First of - this is a great community! So much valuable info, so much motivation. Thanks everybody who participates and shares insights and thoughts.
I'm working on a proof-of-concept for the project I had in mind for a little while now. I was wondering, once I get to the point I need to integrate Stripe - do I need to register a LLC? Can I run the business as an individual, or do I need to register a company/business? Are there any upsides/downsides on each approach?
Thanks in advance!
Here's a quick rundown.. I'm speaking from experience, I've formed over 7+ S-Corps (CA) and 3 (NV) LLC's in the past 15years.
You don't need a legal entity to start a business. Start business as a sole proprietorship, use your social security number as the Tax ID.
Once you know you're going to start having revenue, then I would form LLC with S-Corp status (IRS Form 2553).
The reason you want to form a legal entity is for tax purposes, (other than protection) Sole Proprietorship has the highest tax bracket, whereas LLC or S-Corp will be lower.
Hope this helps!
PS I am not an expert in this subject. My answer is soley based on experience.
Got it, thanks! So you can have revenue still being a sole proprietorship, the only downside (from taxes perspectives) would be a higher tax bracket?
Also, I was curious why C-Corp vs LLC? From what I understand, C-Corp makes sense mostly when you're planning on having shareholders/stocks/etc.
So you can have revenue still being a sole proprietorship, the only downside (from taxes perspectives) would be a higher tax bracket?
Correct, having higher tax bracket and no personal asset protection.
In CA, I believe you're from San Jose, CA. You don't have to form a Sole Proprietorship. However, you will need a business license and a fictitious business name and statement; If you want to open a business bank account.
Fictitious Business name and statement you get from your County Clerk's office. County Clerk's office validates that you're operating as a Sole Prop with a fictitious name in the County/City.
"The statement should read "Your Full Name" - doing business as (DBA) "Your company's name" < Fictitious Name." The County Clerk's office should give you three copies, 1 to open a bank account, 1 for the press release, 1 for yourself.
Difference between Corp (C or S) vs LLC, each provides personal asset protection and protects the shareholder or member/manager from the business obligations. However, annual requirements and fees are different for each, different ways to manage. Corps have shareholders and LLCs have Members or Managers.
The simplest way to put is - C-Corp = Double Tax (at corp level and personal level), S-Corp= Profit/Loss passes to your individual tax returns.
Example - I have
Retail stores - all under S-Corps (generates revenue)
Media Agency - S-Corp (generates revenue)
Start-up - LLC (No revenue)
Real Estate Holding - LLC (Holding)
I hope this helps!
Wow, thanks for explaining! So sounds like being in CA, means that I can run the thing without any legal implications and paperwork until I decide to go on on open a biz entity (LLC, S-Corp, etc). Hopefully I got it right.
Thanks again, very helpful.
That's correct!
I own a sole proprietorship company to file my projects under. This is completely fine from a tax side and for most payment processors it works as well.
As soon as your revenue or risk gets too high to a point where you fear that somebody might sue you (e.g. signing up a big customer, having 1000s of users, having employees or contractors), I'd convert to LLC.
Got it. How about filing taxes as sole entrepreneur, with no legal entity? Having some revenue - can you still file your business expenses, and do all that kind of stuff without a legal entity?
Sole proprietorship company is a legal entity (or maybe that's not the word, meaning you actually have to form a sole proprietorship entity, it's not by default). Probably depends on the country, but where I'm from you would only have to pay taxes on the profit (revenue - expenses), which you can easily declare as 'income' on your personal tax return.
Got it. Thanks! :)