Ask HN: Starting Your Own LLC?

[pullo]

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 ?

[mdorazio]

1) Doing taxes correctly as anything other than a sole proprietorship is a huge pain in the ass, especially if you're selling things across state borders, and doubly so if you'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't forget that if you're actually making money you'll need to pay estimated taxes quarterly.

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.

[gshdg]

Note that a single-person LLC can file taxes as a pass-thru entity, which is essentially the same as a sole proprietorship. You do still need to separate your finances/accounts/etc tho.

[ishan1121]

The last point. I think its the number 1 thing every new founder should know. Getting success on the first try is tough and very rarely people achieve that. In fact, Microsoft was Bill's second business

[20years]

All of these points are spot on! I learned some of this the hard way and wish someone told me these things years ago when I went from sole proprietorship to LLC. Spending money on a good Bookkeeper, CPA and accounting software is well worth the money.

[ryanmarsh]

I don’t like the tone of this advice. It’s very off putting.

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.

[patio11]

I wrote answers for a number of these questions for Stripe Atlas; c.f. https://stripe.com/atlas/guides/incorporation , https://stripe.com/atlas/guides/business-taxes, and the https://stripe.com/atlas/guides more generally.

If there are holes after reading them, we'd love to hear about them.

[primitivesuave]

Atlas customer here - I filed for an LLC myself in 2013 and then helped some entrepreneurs sign up through Atlas in 2018. While the up-front cost is higher ($160 for filing yourself vs $500 through Atlas) you get access to cheaper tax preparation and have no chance of being hit with pesky fines for not filing paperwork on time, and the cost is negligible compared to the minimum tax. Most importantly, you get access to some great support for all the ancillary stuff to running a business that is otherwise hard/expensive to come by on your own. If I had used Atlas in 2013 it would have easily paid for itself in time saved and fines avoided.

[argyleaf]

From your first link, the link to the WilmerHale [0] article is a 404.

[0] https://www.wilmerhale.com/uploadedFiles/Shared_Content/Edit...

[idlewords]

Keep in mind that these are marketing materials for a commercial product. Grain of salt sold separately.

[winter_blue]

patio11, I have a bunch of questions about Stripe Atlas (sorry that this is long):

- 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?

[dctoedt]

For more nuts and bolts: I'm a part-time law professor and do a fair amount of (pro bono) mentoring and lecturing for local academic institutions about "Startup Law 101." In lieu of handing out the slides, I maintain a Web page with summaries and links to further reading. [0]

(The page includes links to lots of HN discussions in this area; depending on how this discussion goes, I might add it as well.)

[0] https://www.oncontracts.com/startup-law/

[kjksf]

It's also worth noting that you don't need an LLC to "channelize your creative endeavors".

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).

[theturtletalks]

LLC stands for limited liability company. What makes it different than a DBA is that a LLC gives you limited liability. If your LLC is sued, you're protected personally from losing assets. Regardless, many people don't need it and a DBA suffices until the liability gets too high.

[WillPostForFood]

If you have no assets then you may not have anything to protect and an LLC can be a waste. But if you have a family, a house, and some savings to protect, then it is very easy to put into words why an LLC is important. LLCs are cheap and easy insurance. Where I might agree about cargo cults is the Delaware Corp.

[C00L]

I've helped hundreds of creatives figure out their formation + taxes in the past couple of years. Here're my top learnings:

- 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.

[zallarak]

Through what context did you help out hundreds of creatives? Just curious. Do you do tax advisory for a living?

[m0zg]

To add to the point regarding 401k. As a business owner you can set aside something like 56K a year in 401k pre-tax (not to exceed 25% of gross income IIRC). Go to Fidelity and Vanguard and search for "Solo 401k" to get started.

[chrisked]

The Clerky handbook is worth a read: https://handbook.clerky.com/

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.

[hayksaakian]

I've skimmed through it, and it's a fine guide if you're starting a traditional startup that plans to raise money.

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.

[eropple]

The OP is not talking about starting an investor-bait C-Corp, though. That's what Clerky specializes in.

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.

[sokoloff]

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/yr for the annual report filing.)

[charliepark]

And if you end up close to the end of the year before filing, hold off until January to form the LLC if you can. Otherwise they’ll expect the annual fees ($800 in California!) for the partial year. And if you end up paying late, they’ll come for the penalty as well.

[zubspace]

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?

[dawnerd]

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.

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.

[300bps]

Signed up for Azlo just recently after keeping money in my personal, no big deal just makes taxes a little harder.

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.

[piotrkaminski]

One tip that's not specific to LLCs but that I nearly missed: don't forget to check if the city you're based in has its own business licensing/taxing requirements. For example, in San Jose you need to pay $150/year for a "business license", even if you're just working from home by yourself.

[metapsj]

i don't have any experience with Stripe Atlas. here are the highlights of their offering.

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.

https://stripe.com/blog/atlas-llc

[theturtletalks]

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't accept the payments. We were surprised but moved on since we couldn't do anything.

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?

[mistersquid]

Since you used your personal information previously, can’t you use the business information this time?

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

[zeeshanm]

Yes, they are generally very stringent about these rule. I would suggest you use another provider such as Braintree.

[chrisan]

Isn't Delaware $300 a year to have an LLC there?

Shouldn't you pick a state that has little to no annual filing fee?

https://www.llcuniversity.com/llc-filing-fees-by-state/

[kpommerenke]

If you register your LLC in a different state from where you live, you need to hire a Registered Agent in that state for legal reasons, which adds a bit of cost (about $100-200 per year) and some complexity.

[ahnick]

I hate how this information is so spread out so I will try to condense this:

(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!

[tptacek]

That S-Corp trick, the "reasonable compensation" thing, is an audit flag; there is apparently a whole specialized kind of audit the IRS does for "reasonable compensation" claims (presumably because it's so easy to spot mechanically; your single-member firm made X, you claimed X-n income, X-n>threshold: audit). I wouldn't bother with it.

[PopeDotNinja]

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'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.

[chasingthewind]

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's very likely to be worth it.

[tidwall]

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'll report taxes your (the owner's) personal tax return.

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.

[stcredzero]

Don't use LegalZoom. I've been a customer of them for years, but I'm trying to transition off of them. Stripe has a project to replace them, I think.

[marktani]

Hopefully this provides a good intro to LLCs to you https://medium.com/@parissathena/what-the-hell-c-is-an-llc-l...

Pariss is also talking about LLC on Twitter you might want to follow her