All I can say is "amen, brother." Not following his first 3 general purpose lessons have cost me if not millions, at least many hundreds of thousands of dollars. I urge others to commit these to memory:
+Really understand something before you sign it.
+Ask all questions, dumb questions, hypothetical questions, extreme-scenario questions, what if questions, until you’re sure you really fully understand it as well as anyone on earth.
+It’s also very worth paying for an hour meeting with your accountant, and asking 100 questions there, too.
He writes: Each separate business venture should usually have its own LLC. It’s very cheap through companies like LegalZoom, and well worth it.
If I plan to launch a few websites over the next couple years. am I supposed to create an LLC for each one? I think I've read elsewhere that you can form an umbrella LLC to cover them all.
What have your experiences been with this?
(FWIW: Before I do anything I'm going to meet with a lawyer... but the more background knowledge the better.)
There are legal ("asset protection") reasons that many taxi companies have each car as its own LLC, or ski slopes register each slope as its own LLC. So if someone has a legal problem with one, and you can really show that you've been treating them separately in your bookkeeping and bank accounts, it's clear to the creditor that they're not going to be able to go after everything you've got.
Then of course as they grow there are reasons why you may want to sell one of your websites, but not the others, etc.
The reasons why to do it are vague and different for everyone, but to me, it's a "can't hurt" and "why not?" type decision.
You go to LegalZoom (or any similar service) and pay $400. They mail you a certificate you bring to your bank to open a separate account. Total spent: $400 and 30 minutes of your time.
California is an exception: They make you pay $800 per year to the state for each entity. Most states it's only $50 and some states (like New Mexico) you never need to renew or pay any annual fees at all. If you're a virtual company with no physical office, you can set up your LLC in any business-friendly state you want. (Delaware, Nevada, Wyoming, etc.)
Gosh, I wish we had the LLC option here in Norway. The only "real" similar alternative we have is an AS (Aksjeselskap, "stock company"), which requires a minimum of 100 000 NOK in company capital (about 16 000 USD).
The other viable option is a Norwegian foreign registered company (NUF). This means that I can create a company in a different country (e.g. England), and then register a company branch here in Norway. The problem is that these companies have gotten a bad rep in Norway, so you might find yourself in a bad position with the banks, as well as your customers.
Each business should have its own company. Are these web sites separate businesses? Or are they different faces of the same business?
I have five web sites, but two businesses. Each business has and is its own presence and personality. Each web site clearly belongs to exactly one of those businesses.
Seems like the 'transaction costs' (registering the LLC, bank account, etc...) could add up unless the sites really are independent, perhaps with different people working on them.
I don't get it...didn't you need to file before that point? Wouldn't you have found out this info the first year you paid taxes? At which point you would have just been starting out, and the "buyout" would have been for pennies since the company wasn't showing profit
How would his taxes have reflected the percentage of this company he owned? You pay taxes on your income, which wouldn't be affected here. You pay capital gains tax on stock when you sell which he didn't do at any point.
Ouch. Big mistake, but great advice NOT to ignore the legal paperwork. As mind-numbing as it can be to go over contracts, NDA's, etc., you need to know what you're signing.
At least in his case it was his father, so he didn't have to worry about getting a raw deal there.
Comments like this on a serious well written post with some good advice make me smile:
"Ibod Catooga wrote on May 27th, 2009
Shit, negro, I woulda punched my dad in the NUTS if he tried that shizzle on me!"
(http://sivers.org/mistake#comment-15816)
[+] [-] michael_dorfman|17 years ago|reply
+Really understand something before you sign it.
+Ask all questions, dumb questions, hypothetical questions, extreme-scenario questions, what if questions, until you’re sure you really fully understand it as well as anyone on earth.
+It’s also very worth paying for an hour meeting with your accountant, and asking 100 questions there, too.
[+] [-] matt1|17 years ago|reply
If I plan to launch a few websites over the next couple years. am I supposed to create an LLC for each one? I think I've read elsewhere that you can form an umbrella LLC to cover them all.
What have your experiences been with this?
(FWIW: Before I do anything I'm going to meet with a lawyer... but the more background knowledge the better.)
[+] [-] sivers|17 years ago|reply
Then of course as they grow there are reasons why you may want to sell one of your websites, but not the others, etc.
The reasons why to do it are vague and different for everyone, but to me, it's a "can't hurt" and "why not?" type decision.
You go to LegalZoom (or any similar service) and pay $400. They mail you a certificate you bring to your bank to open a separate account. Total spent: $400 and 30 minutes of your time.
California is an exception: They make you pay $800 per year to the state for each entity. Most states it's only $50 and some states (like New Mexico) you never need to renew or pay any annual fees at all. If you're a virtual company with no physical office, you can set up your LLC in any business-friendly state you want. (Delaware, Nevada, Wyoming, etc.)
Outside the U.S., British Virgin Islands is the quickest, cheapest, easiest place to do it: http://www.google.com/search?q=bvi+corporation
[+] [-] henriklied|17 years ago|reply
The other viable option is a Norwegian foreign registered company (NUF). This means that I can create a company in a different country (e.g. England), and then register a company branch here in Norway. The problem is that these companies have gotten a bad rep in Norway, so you might find yourself in a bad position with the banks, as well as your customers.
[+] [-] RiderOfGiraffes|17 years ago|reply
I have five web sites, but two businesses. Each business has and is its own presence and personality. Each web site clearly belongs to exactly one of those businesses.
[+] [-] davidw|17 years ago|reply
[+] [-] carbon8|17 years ago|reply
[+] [-] pageman|17 years ago|reply
here's the HN link: http://news.ycombinator.com/item?id=504151
[+] [-] vaksel|17 years ago|reply
[+] [-] bobbyi|17 years ago|reply
[+] [-] philjackson|17 years ago|reply
[+] [-] pclark|17 years ago|reply
[+] [-] sivers|17 years ago|reply
[+] [-] mattmcknight|17 years ago|reply
You could induce a period of low valuation to make a stock transfer though, thus costing less than the $3.3M.
[+] [-] jedc|17 years ago|reply
At least in his case it was his father, so he didn't have to worry about getting a raw deal there.
[+] [-] stcredzero|17 years ago|reply
[+] [-] stijnm|17 years ago|reply
Beautifully eloquent.