Creating an LLC for your online business is a way to protect your personal assets while operating a business. It’s easy to set up an LLC and there are several advantages, including liability protection and the ability to transfer ownership without transferring equity.
However, there are drawbacks to forming an LLC as well. For starters, it costs money to form an LLC and you need to register your company with the state correctly or risk penalties down the road.
There are also some intricacies that tend to trip up first-time business owners when they set up their business. If you’re thinking about forming an LLC for your online business, here are some tips:
Check your state’s requirements up front
Before you even think about forming an LLC, you should make sure that it’s even possible in your state. There are two primary types of LLCs – single-member and multi-member. Single-member LLCs are for businesses where one person owns the company and is responsible for all liabilities. Multi-member LLCs are for businesses where there are several owners who are liable for company debts.
There are certain requirements, such as having a certain number of employees, that you’ll need to meet in order to form a multi-member LLC. Be sure to check the requirements of your state before you go any further so you can be certain it’s possible for your business.
Running an LLC and operating a business
An LLC is not a business on its own. Rather, it’s a type of business structure, like being incorporated or being a sole proprietor. There are two key differences between an LLC and other types of business structures:
1. You have liability protection
2. The ownership structure is different. The biggest difference between an LLC and other business structures is that you have liability protection when you’re operating an LLC. This means that if someone sues your company, your personal assets are safe as long as you’ve followed the rules for operating an LLC.
The other big difference is the way a company’s ownership structure is handled. As a sole proprietor, you’re 100% in charge of your business. If something goes wrong, you’re both the owner and the person responsible for getting things right again.
When you incorporate, you bring on board a board of directors who are responsible for the company. This can be helpful, but you’re still liable for any mistakes they make. In an LLC, there are two types of members – owners and managers.
The owners are the people who created the LLC and own the majority of the company. The managers are responsible for the day-to-day operations of the company. The owners are responsible for the company as a whole and the managers are responsible for their department, but neither group is responsible for the other’s mistakes.
Advantages of an LLC
There are a few advantages to forming an LLC for your online business, including:
1. It’s easier to hire employees – If you decide to hire employees, you’ll have to deal with payroll, insurance, and other administrative tasks. It’s easier to do that as an LLC because you can hire people who are contractors and not employees.
2. You have protection from lawsuits – If a customer sues you for a product or service, forming an LLC will protect you from all but the most serious of lawsuits. This is because the plaintiff has to prove that you acted negligently, which is difficult in most cases.
3. You can use a single member LLC – If you’re operating a small business on your own, forming an LLC will protect your personal assets while giving you the advantages of an LLC.
Drawbacks of an LLC
There are a couple of drawbacks to forming an LLC that you should be aware of before you decide to move forward. The first is that you’ll have to pay taxes on your profits. This isn’t the case for sole proprietorships, but it is for LLCs.
The other potential drawback is that you could get confused with other LLCs when doing business. Like corporations and other types of business structures, an LLC has a name that is sometimes used as an acronym.
For example, you might see something like “XYZ LLC” when a business is listed online. When you’re doing business online, it’s easy to get confused with another LLC if you name your LLC something common like “ABC”.
How to find the right lawyer for your LLC
One of the most confusing parts of forming an LLC is finding a lawyer and choosing a good business name. You’ll need to find a lawyer who specializes in forming LLCs, but you’ll also need to find one who specializes in your state and industry.
You can find a lawyer through your state’s bar association. Just search for “[Your State] Bar Association” to find the website. You can also try searching for “[Your State] LLC lawyer”, “[Your State] business lawyer”, or something similar. You can also use lawyer-finding websites like Avvo. If a lawyer is listed on Avvo, he or she has been reviewed by other business owners. It’s like Yelp for lawyers.
When forming an LLC, you should know that you’re responsible for registering your company with the state and paying taxes on your profits. You’ll also need to hold regular meetings, keep good records, and keep your company name and address off of your social media pages.
An LLC is a great way to protect your personal assets while running a business. It’s important to keep in mind that it costs money to form an LLC and there are some pitfalls that first-time business owners should be aware of. If you’re thinking about forming an LLC for your online business, these tips will help you do it right.