Legal, Tax, & Accounting February 12, 2020

LLC from the start?

hammond @hammond

I plan to start registering for a domain using route 53 and get the process started. I was wondering if I should from the start keep finances separate for my new company and should perhaps with opening the LLC first.

  1. 4

    I would say you really don't need it until you are making money. Like @shanefromfargo said, your chances of getting sued while making little money are microscopic.

    Patrick McKenzie (@patio11) writes a little about this in this article. Scroll down to the section "Dealing with the government".

    I made the mistake of filing for an LLC when I was working fulltime as a software engineer and had no idea what I was doing. I had no product or customers but thought an LLC was necessary. Really just dumped a bunch of money down the drain.

  2. 3

    I find that once you hit about $1,000 MRR is a great time to start tackling all of the legal stuff. It costs time and money to set all of those things up, and there just isn't a lot of value that is returned from setting all of that up. The chances of you getting sued while under $1,000 MRR is microscopic(assuming you aren't blatantly breaking any laws). As far as taxes goes, the IRS could really care less what you are as long as you pay them.

    Once you hit $1,000 MRR it's probably worth it to hire an attorney and get everything setup how you want it.

  3. 2

    I think I am a little liable because I own a relatively large home. So would like to reduce liability here. My analogy here is like, buying an umbrella policy. Umbrella policy is $100 a year. If an LLC is only $350, seems like a no-brainer? Even if my idea goes nowhere. Thoughts?

    1. 1

      Depending on where you want to register the business it can be even cheaper or more expensive than $350.

      But don’t forget the ongoing costs too, renewal fees, registered agents (assuming you don’t want to be your own Registered Agent) and state specific taxes.

      For example, in California although it costs less than 150$ to setup an LLC they also have an annual $800 tax required for companies doing business there.

      While the costs are negligible for most businesses, if you’re not making revenue yet, it might not be worth it. If you have anymore specific questions check out our chat support at https://blook.io

  4. 2

    Hi @hammond,

    I second everyone's responses in that in my personal experience, as soon as you start the project or side-hustle you don't need to create the LLC.

    Ideally like Shane mentioned, once you start getting revenue or bring on partners/employees is when to start seriously considering opening one up to start separating finances and reduce your liability.

    Eventually when you get to that point check out https://blook.io. We make it as simple as possible for tech entrepreneurs to register their LLC or Corporation. You can even do it from your phone! :) Feel free to reach out if you have any questions about it.

  5. 2

    Just track your expenses in a spreadsheet for now until you actually start getting some decent revenue or start hiring people. Before that it's just another barrier of entry.

  6. 1

    I advocate for an LLC. Separate out personal from business no matter what. Doesn't matter if you don't make anything, someone can sue you and will go after your personal holdings if you don't have an LLC or something for separation and protection. State of Idaho, LLC is $100 and takes 10 mins to register for.

  7. 1

    I agree with everyone saying that it makes more sense to start the LLC once you have 'something to lose' aka revenue. However I think this might depend also on the nature of your business, because if someone sues you for your work and you don't have an LLC then your assets are liable.

    The other big consideration that no one else has brought up I think is the cost of having an LLC. When I lived in minnesota it was no big deal to put down $250 to register an LLC and get free auto renewals every year to keep it registered. In California I have to pay $800 every year to stay registered every year. In that case... it might not be worth putting down that kind of money before you are really making any money.

  8. 0

    I think that once you make enough with your project to cover the state filing fee, registered agent and required first year filings, you probably have a reason to start an LLC. Highly recommend ZenBusiness