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Ask HN: Starting Your Own LLC?

274 pointsby pulloabout 6 years ago
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 ?

32 comments

mdorazioabout 6 years ago
1) Doing taxes correctly as anything other than a sole proprietorship is a huge pain in the ass, especially if you&#x27;re selling things across state borders, and doubly so if you&#x27;re in California. I recommend finding a tax professional to handle that for you (the time it takes to do it yourself is generally not worth it). Also don&#x27;t forget that if you&#x27;re actually making money you&#x27;ll need to pay estimated taxes quarterly.<p>2) Either learn basic accounting (if you don&#x27;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&#x27;t keep proper records and then ran into tax or regulatory trouble later.<p>3) Definitely keep your business finances as separate from your personal funds as possible. Different checking account, different credit card, etc.<p>4) Think really hard before you hire anyone for anything, and if you do, make sure you&#x27;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.<p>And lastly, remember that most businesses fail and that failing at business is not something to be ashamed of. If it&#x27;s not working out, don&#x27;t make yourself miserable and mortgage your future to try and save it indefinitely - walk away and try again with the lessons you learned.
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patio11almost 6 years ago
I wrote answers for a number of these questions for Stripe Atlas; c.f. <a href="https:&#x2F;&#x2F;stripe.com&#x2F;atlas&#x2F;guides&#x2F;incorporation" rel="nofollow">https:&#x2F;&#x2F;stripe.com&#x2F;atlas&#x2F;guides&#x2F;incorporation</a> , <a href="https:&#x2F;&#x2F;stripe.com&#x2F;atlas&#x2F;guides&#x2F;business-taxes" rel="nofollow">https:&#x2F;&#x2F;stripe.com&#x2F;atlas&#x2F;guides&#x2F;business-taxes</a>, and the <a href="https:&#x2F;&#x2F;stripe.com&#x2F;atlas&#x2F;guides" rel="nofollow">https:&#x2F;&#x2F;stripe.com&#x2F;atlas&#x2F;guides</a> more generally.<p>If there are holes after reading them, we&#x27;d love to hear about them.
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dctoedtalmost 6 years ago
For more nuts and bolts: I&#x27;m a part-time law professor and do a fair amount of (pro bono) mentoring and lecturing for local academic institutions about &quot;Startup Law 101.&quot; In lieu of handing out the slides, I maintain a Web page with summaries and links to further reading. [0]<p>(The page includes links to lots of HN discussions in this area; depending on how this discussion goes, I might add it as well.)<p>[0] <a href="https:&#x2F;&#x2F;www.oncontracts.com&#x2F;startup-law&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.oncontracts.com&#x2F;startup-law&#x2F;</a>
kjksfabout 6 years ago
It&#x27;s also worth noting that you don&#x27;t need an LLC to &quot;channelize your creative endeavors&quot;.<p>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).<p>A step-up is a DBA registration in your city hall. It&#x27;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.<p>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&#x27;t put into words but it&#x27;s something what other people are doing).
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C00Lalmost 6 years ago
I&#x27;ve helped hundreds of creatives figure out their formation + taxes in the past couple of years. Here&#x27;re my top learnings:<p>- 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 (<a href="https:&#x2F;&#x2F;www.azlo.com" rel="nofollow">https:&#x2F;&#x2F;www.azlo.com</a> is great), make initial contribution (don&#x27;t worry, it&#x27;s your money). This makes sure that your LLC is set up right (some states won&#x27;t give you limited liability, if you don&#x27;t do it right).<p>- In most states, LLCs are pass-through entities, meaning you&#x27;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)<p>- 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.<p>- Pay your quarterly taxes. Even though the penalty is not huge, you&#x27;ll avoid getting a huge tax bill at the end of the year<p>- You may be able to manage doing your own taxes for a while, but if you&#x27;re serious about this, find a tax preparer to do your taxes. If you pick SCorp route, definitely get one, as it&#x27;s a separate tax return and a lot more involved (i.e running payroll)<p>- If you go SCorp route, make sure you get the reasonable compensation right. Run yourself regular payroll (<a href="https:&#x2F;&#x2F;www.gustom.com" rel="nofollow">https:&#x2F;&#x2F;www.gustom.com</a> is great) and get K1 distribution every now and then. Pass your health insurance via your S-Corp<p>- Invest in Sole 401K. Investing in retirement is always a good idea and you&#x27;ll save a lot in taxes.<p>- There are a couple of all-in-one services that can help with all. If you&#x27;re doing freelancing&#x2F;contracting <a href="https:&#x2F;&#x2F;www.hyke.me" rel="nofollow">https:&#x2F;&#x2F;www.hyke.me</a> is great. If you&#x27;re selling apps, doing ecommerce etc <a href="https:&#x2F;&#x2F;www.stripe.com&#x2F;atlas" rel="nofollow">https:&#x2F;&#x2F;www.stripe.com&#x2F;atlas</a> is great.<p>Hope helps.
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chriskedabout 6 years ago
The Clerky handbook is worth a read: <a href="https:&#x2F;&#x2F;handbook.clerky.com&#x2F;" rel="nofollow">https:&#x2F;&#x2F;handbook.clerky.com&#x2F;</a><p>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.
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sokoloffabout 6 years ago
Pay attention to the annual filing fees in your state for LLCs. That makes it prohibitive in some states for small side-project type endeavors. (MA filing fees are $500 registration and $500&#x2F;yr for the annual report filing.)
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zubspaceabout 6 years ago
What would you fine people advice for a single guy making money through a website in Europe? What kind of corporation? At how much revenue do I need to think about that? How much money (and time) does it cost per year? How does it differ among EU countries? What do I need to take care of, when I take money from customers around the world?
dawnerdabout 6 years ago
Single member LLC wasn’t as hard as I thought to setup. 100 bucks online in Oregon, near instant approval too. Make sure you sign up with the IRS for an EIN.<p>Signed up for Azlo just recently after keeping money in my personal, no big deal just makes taxes a little harder.<p>Make sure you keep records of everything. Get yourself a good receipt scanner that does OCR, like neat. Keep the physicals around too.<p>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.<p>One thing I wish I did was not use my residence as the address. Oh well, too late for that.
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piotrkaminskialmost 6 years ago
One tip that&#x27;s not specific to LLCs but that I nearly missed: don&#x27;t forget to check if the city you&#x27;re based in has its own business licensing&#x2F;taxing requirements. For example, in San Jose you need to pay $150&#x2F;year for a &quot;business license&quot;, even if you&#x27;re just working from home by yourself.
metapsjabout 6 years ago
i don&#x27;t have any experience with Stripe Atlas. here are the highlights of their offering.<p>Enables founders to assign relevant IP to the company at formation, formalizing ownership of key technology.<p>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).<p>Provides a simplified process for adding members after formation.<p>Is organized in Delaware, the jurisdiction of choice for many new LLCs.<p><a href="https:&#x2F;&#x2F;stripe.com&#x2F;blog&#x2F;atlas-llc" rel="nofollow">https:&#x2F;&#x2F;stripe.com&#x2F;blog&#x2F;atlas-llc</a>
theturtletalksalmost 6 years ago
So 4 years ago, me and a couple of partners decided to start an online website selling vaporizers. Our supplier told us he was using Stripe and so we applied for a seller account. I stupidly put my personal information to get up and running quickly. In the next few days, I get an email from Stripe that vaporizers are prohibited and they can&#x27;t accept the payments. We were surprised but moved on since we couldn&#x27;t do anything.<p>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:<p>&quot;our banking partners prohibit us from helping with payments associated with a business we&#x27;ve had to reject previously.&quot;<p>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.<p>Are all those doors closed for me since I made a stupid mistake years ago?
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chrisanalmost 6 years ago
Isn&#x27;t Delaware $300 a year to have an LLC there?<p>Shouldn&#x27;t you pick a state that has little to no annual filing fee?<p><a href="https:&#x2F;&#x2F;www.llcuniversity.com&#x2F;llc-filing-fees-by-state&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.llcuniversity.com&#x2F;llc-filing-fees-by-state&#x2F;</a>
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ahnickabout 6 years ago
I hate how this information is so spread out so I will try to condense this:<p>(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&#x27;t start intermixing with your personal email.<p>(2) Next, I&#x27;d recommend hiring a local lawyer for the LLC filing and paperwork, not because you can&#x27;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.<p>(3) Next, you (or your lawyer) need to file Articles of Organization with the Secretary of State&#x27;s office and pay the filing fee. (Normally $100 or so) You&#x27;ll typically have to renew this registration annually. Your lawyer can take care of it.<p>(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 &quot;reasonable salary&quot; 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.<p>(5) If going the S Corp route you will want to obtain an FEIN(<a href="https:&#x2F;&#x2F;www.irs.gov&#x2F;businesses&#x2F;small-businesses-self-employed&#x2F;apply-for-an-employer-identification-number-ein-online" rel="nofollow">https:&#x2F;&#x2F;www.irs.gov&#x2F;businesses&#x2F;small-businesses-self-employe...</a>) 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&#x27;d recommend getting a payroll company to run your payroll if you&#x27;ve gone the S Corp route. (Something like Square Payroll <a href="https:&#x2F;&#x2F;squareup.com&#x2F;payroll&#x2F;" rel="nofollow">https:&#x2F;&#x2F;squareup.com&#x2F;payroll&#x2F;</a>) 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 (<a href="https:&#x2F;&#x2F;squareup.com&#x2F;help&#x2F;us&#x2F;en&#x2F;article&#x2F;6319?utm_medium=web&amp;utm_source=dashboard" rel="nofollow">https:&#x2F;&#x2F;squareup.com&#x2F;help&#x2F;us&#x2F;en&#x2F;article&#x2F;6319?utm_medium=web&amp;...</a>):<p>- Withholding Payment Coupon (WTH 10004)<p>- Wage Withholding Tax Return (WTH 10001)<p>- Transmittal of Wage and Tax Statements (OK W-3)<p>- Wage and Tax Statement (W-2)<p>- Employer&#x27;s Quarterly Contribution Report (OES-3)<p>- New Hire Report<p>(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&#x27;s system. Again this varies by state, but normally each state has some analog of this.<p>(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 &quot;piercing of the corporate veil&quot; in instances where you might be sued. (i.e. keeping your personal assets protected in the event of a lawsuit)<p>(9) Hire an accountant (if you haven&#x27;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.<p>(10) Use some software like Quickbooks Online or similar to track your accounting. Bonus here if your payroll feeds directly into your accounting software.<p>(11) Get a Small Business Credit Card like this one from AMEX (<a href="https:&#x2F;&#x2F;www.americanexpress.com&#x2F;us&#x2F;credit-cards&#x2F;business&#x2F;business-credit-cards&#x2F;american-express-blue-business-plus-credit-card-amex&#x2F;45094?linknav=US-Acq-GCP-BusinessCards-ViewAllCards-CardTitle-BlueForBusinessPlus" rel="nofollow">https:&#x2F;&#x2F;www.americanexpress.com&#x2F;us&#x2F;credit-cards&#x2F;business&#x2F;bus...</a>). You are going to have expenses and you might as well get some points while you&#x27;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.<p>That&#x27;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!
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PopeDotNinjaalmost 6 years ago
Spending money on legal entities for is an expensive way to find out you have no know idea what you are doing (speaking from personal experience here). My guidance is worry about driving revenue. If you have a customer that wants to give you money, that is a great time to figure out what you actually need. Everyone will take your money and sell you something that sounds like what you wanted. It doesn&#x27;t take that long to set up a legal entity, and even paying more for a rush job will be cheaper than starting the wrong legal entity now.
chasingthewindabout 6 years ago
I used to work at a company that did incorporations so I may simply be parroting the company sales pitch here, but I did get the honest impression that finding a company that helps you incorporate can really save you some huge headaches later on. The state where you incorporate can have a huge impact on a number of things and a company that specializes in this can steer you clear of some minefields. It will cost more but I think it&#x27;s very likely to be worth it.
tidwallabout 6 years ago
Sounds like you want a Single Member LLC. This is the easiest to start. From a tax perspective you can file as a Disregarded Entity, which means you&#x27;ll report taxes your (the owner&#x27;s) personal tax return.<p>I&#x27;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&#x27;t have any complicated forms to fill out with the IRS. You just stop reporting the following year.
stcredzeroalmost 6 years ago
Don&#x27;t use LegalZoom. I&#x27;ve been a customer of them for years, but I&#x27;m trying to transition off of them. Stripe has a project to replace them, I think.
marktaniabout 6 years ago
Hopefully this provides a good intro to LLCs to you <a href="https:&#x2F;&#x2F;medium.com&#x2F;@parissathena&#x2F;what-the-hell-c-is-an-llc-llcs-for-newbies-24a42eb1bb56" rel="nofollow">https:&#x2F;&#x2F;medium.com&#x2F;@parissathena&#x2F;what-the-hell-c-is-an-llc-l...</a><p>Pariss is also talking about LLC on Twitter you might want to follow her
trcarneyalmost 6 years ago
Here is a good blog post that goes through all the various options for legal structures for starting a business<p><a href="https:&#x2F;&#x2F;www.toptal.com&#x2F;finance&#x2F;interim-cfos&#x2F;c-corp-vs-s-corp" rel="nofollow">https:&#x2F;&#x2F;www.toptal.com&#x2F;finance&#x2F;interim-cfos&#x2F;c-corp-vs-s-corp</a>
cosmodiskalmost 6 years ago
A) learn enough accounting so educated and motivated crooks couldn&#x27;t take you for a ride so easy. B) Check point A C) Check point B D) Try to find reasonable person that can do payroll,taxes etc for you,as otherwise you&#x27;ll be a full time accountant for your own business in no time..
bastawhizalmost 6 years ago
Get a lawyer and get an accountant. Don&#x27;t do your own taxes. Don&#x27;t try to file paperwork for business things if you&#x27;re not 100% confident that you&#x27;ll do it completely correctly. The $300 you spend on a lawyer to file something will save you thousands in the long run.
pinsleybreamalmost 6 years ago
If you are open for a full solution (formation + taxes) these guys did an amazing job for me - www.hyke.me
gumbyalmost 6 years ago
I don’t see the point of an LLC if you plan to have an outside investor. The LLC will have to be converted to regular corporation (typically. C Corp) anyway.<p>The LLC makes it easy to pass profits through but if you don’t have any yet...what’s the point?
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michaelrknalmost 6 years ago
I made a simple website to walk you through the nuts and bolts of starting an LLC or S Corp: <a href="https:&#x2F;&#x2F;www.startmybusiness.us&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.startmybusiness.us&#x2F;</a>. Let me know if you find it useful!
CalChrisabout 6 years ago
I would think that an LLC would be the simplest thing to manage during early formation. It is simple and low maintenance. Then convert that to a Delaware C which has greater reporting overhead, ..., when necessary.<p>Any downsides to that approach?
dangeroabout 6 years ago
Add to your list to research corporate structures because LLCs are not always the best choice. A lot of people assume LLC is right for them based on advice from friends, but it’s something to think through.
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edwhitesellabout 6 years ago
I&#x27;ve used LegalZoom twice. Once for a corp, another for an LLC, it was easy both times. Other than that, I&#x27;d say it&#x27;s helpful to have a good CPA.
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idlewordsalmost 6 years ago
Just want to give a shout-out to all the other sole proprietorships out there. It&#x27;s a nice route to follow if you hate paperwork and legal fees.
eroppleabout 6 years ago
One lead-in question: are you in the USA? If not, most advice is going to be fraught as hell. Assuming you are: this is a well-paved path these days.<p>A few things as they come to mind (and, disclaimer, I am not an expert, I&#x27;ve just done this before):<p>- 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&#x27;re a single-member LLC, see further down, this is not unreasonable). It is not merely a &quot;strongly advise&quot; to have a lawyer on tap. Get a lawyer and make sure they&#x27;re the kind of lawyer who is comfortable telling you when you are a dumbass. That kind of lawyer is invaluable.<p>- Corporations and LLCs are not the same thing. You can elect, as an LLC, to be taxed as a corporate entity, but that&#x27;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).<p>- IANAL, IANYL, and TINLA, but you will notice that many don&#x27;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&#x27;s the best for &quot;high growth startups&quot;. I assume you are not a &quot;high growth startup&quot;. 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&#x27;ll bite you in the ass later; IMO and IME, this means &quot;default to an LLC&quot;.<p>- 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&#x27;t have to think about it much. <a href="https:&#x2F;&#x2F;www.delawareinc.com" rel="nofollow">https:&#x2F;&#x2F;www.delawareinc.com</a><p>- 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.<p>- Once you&#x27;ve formed, get an EIN immediately. You can do it online, it takes like ten seconds. It will help with the next point.<p>- 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 <i>everything</i> business-related through it. Eventually you will, if you&#x27;re successful, want to take money out and that&#x27;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.<p>- Relatedly, I like QuickBooks Self-Employed for keeping track of revenue and expenses. It&#x27;s free if you use TurboTax.<p>- If you&#x27;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&#x27;ll help you with reminders, etc. about that.
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nik736about 6 years ago
Are you in the US?
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ycombonatoralmost 6 years ago
I have started a Delaware LLC several years ago and abandoned the use of it, never got a chance to file reports or close it properly. It now shows thousands I owe in annual fees. Is anyone here in the same position?
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