I'm looking to form an LLC as a parent company for all of my side projects. What are some of the resources HNers use to do these things? Do you do it by yourself? Do you pay a service like LegalZoom?
I recently set up a LLC in California using Nolo's $99 online service (could have figured it all out myself but didn't want to spend time):
- First get a federal EIN number online (free, self-service) for the LLC.
- When filing out the Nolo form, use your virtual mailing address as this will be public record. I signed up for Virtual Post Mail at $10/month.
- When filing out the Nolo form, answer "I already have a registered agent". If you use Virtual Post mail, your subscription includes free registered agent service. If you answer no and agree to use their service partner Incorporate.com, it'll cost you $235/year.
+1 Create a business checking account so your personal vs. business financial records are kept separate.
I read a bunch of Nolo Press books [0], talked to accountants and did a whole lot of research. Then I downloaded the forms and discovered it was particularly easy to create an LLC in my home state.
The tricky things to remember are to get an EIN from the IRS (it's free) [1] and to create a bank / credit union account for the business (free at my credit union).
There's no equivalent to LLC's in Canada so you'll need to create a corporation up here. You can incorporate in the federal jurisdiction or a provincial one; you'll want to read the relevant acts that you'd be incorporating under to figure out the differences. BC corporations, for example, require at least one director to be a BC resident; federal for-profit corporations, on the other hand, require 25% of the board to be Canadian citizens.
I also went through the Canada Business Corporations Act and Not-for-profit Corporations Act a few times; they lay out the bureaucratic details you need to be aware of.
The most awkward part was opening a US-based bank account afterward; BMO Harris was one of very few US banks I came across that was willing to talk shop with a Canadian company (I'd love to hear if anyone knows of any other foreign company-friendly US banks).
If you name yourself as the only director and shareholder (or voting member, in the case of a nonprofit), you still have to hold board and shareholder/member meetings but they'll be very straightforward since you'll be their only attendee. _Definitely_ consult with a lawyer if you're contemplating a voting structure that extends beyond yourself or the directors.
For creating a nonprofit in particular, you may be able to get pro-bono legal advice through an organization like Access Probono (http://accessprobono.ca). Corporations Canada also offers a super-useful By-law Builder tool which gives you "sane defaults" for the corporation's structure: https://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/h_cs04734.html
I've been reading up about this - why do companies setup provincial corps when they could be setting up federal corps (as in, it costs $100 more and there seem to be no downsides last I checked)?
Also, how do you manage taxes? (especially for revenue earned from other countries for example).
I see federal incorporation as a "sane default" but this is what I know that favours provincial incorporation:
- The bureaucratic details differ between the various provincial jurisdictions and the federal one (like the one I mentioned with requirements for the makeup of the board). This could make a particular province's corporate rules a better fit for your business than the federal ones.
- That provincial incorporation is cheaper can matter for local businesses that have no intention of expanding nationally.
- Some provinces may require corporations from other jurisdictions (other provinces or the federal jurisdiction) to "register extraprovincially" to operate there, at extra cost. This is avoided by incorporating locally.
- If your business name is already taken by a provincial corporation in another province, you may have an easier time creating a provincial corporation by the same name than a federal one.
*
> obligatory "I'm not an accountant or tax expert" note
Taxes... I'm still figuring those out but CRA allows corporations to file in USD [1]. To the best of my knowledge, a Canadian corporation that only has Canada-resident employees and shareholders, and doesn't own property or servers in other countries, only has to deal with Canadian taxes. Expect to fill out a few W-8BEN-E forms to assert this. Depending on what your company does, you may have to charge your Canadian users sales tax.
American bank accounts are the only way to get USD out of a PayPal account; PayPal will refuse to send anything but CAD to a Canadian bank account, regardless of what currency the account holds.
Since my organization mainly operates with USD, and many of its paying users really like PayPal, a US bank account was a necessity.
As for gotchas... be aware that directors cannot hire-and-fire each other unless they also happen to be the corporation's voting members or hold its voting shares. This might be weird to wrap your mind around if you've only been a sole proprietor before, and is why I advise consulting with a lawyer if you plan to split up control.
In my state you just need to file simple articles of incorporation with the Sec. of State and then keep up an annual fee. (If there are multiple people involved, you probably want to get them looked over by a lawyer in case disputes arise). The fees can vary significantly depending on the state you file in (NY and CA have especially high fees, since so many companies must incorporate there).
Other than that you usually need a local address (which can be yours if you incorporate in the state you live). A bank account is useful to show a separation between business assets and personal assets should you ever need the 'limited-liability' part in court.
The major thing is that you pick a structure that does what you want (LLC versus C or S Corp, etc), and that you understand the tax implications. The IRS and other folks have circulars on that as well as employer tax guides, etc.
The SoS of the state you want to file in will probably have more information on the requirements.
Clerky is great for creating a Delaware C Corp (if you intend to raise funding in the near future), but I wouldn't suggest this for a small side project, because a C Corp plus related paperwork is a lot more expensive than an LLC in your home state.
Yeah exactly, thanks for pointing this out. I'm specifically focused on LLCs because they are single-man operated side projects with passive income. I maintain each one only a couple of days per month, at this point.
That being said, Clerky is an excellent choice for those looking to form a C Corp in Delaware and focus on their startup full-time.
I used LawTrades[0] to find someone to do it for me. This included the post incorporation stuff such as the company bylaws, stock purchase agreements, and other stuff.
You probably want a lawyer or accountant to walk you through the process if you're doing any significant volume. Don't use LegalZoom -- they aren't technically providing legal counsel; they're providing "guidance," which won't help you at all if someone comes after you (they're not liable for poor counseling, etc.)
It's worth asking your accountant/counsel if you should consider setting up a LLC that files taxes as a corporation. You probably only want to do this if you are able to pay yourself a consistent, set payroll (I'm not a lawyer or accountant, but I can speak from experience that this is one of the cases where filing in this manner is not helpful, and will actually be detrimental).
While it's easy to create an LLC, it's very easy to create one that can be broken through if someone wants to come after you. Pony up the $200 or so to talk to a proper lawyer with experience setting up corporate entities, even if you only have them tell you what to do on your own.
Disclaimer: I work for this company, however my comments and opinions are my own.
I used Launch by Legalshield[0]. It's like the LegalZoom option, but they do provide legal counsel. After you signup, the member lawyer of your region calls you to finalize the documents and ensure everything's sorted. I paid around $460 overall for the formation, agent, and all the documents neatly organized in a binder with a really nice rubber logo stamper. Every step has some information to the right to help explain the process, and if you get it wrong, your member lawyer should catch it pretty easily.
Again, I work for them, but it's both not my project in the company, I don't receive anything special for saying good things about it, and I really did like the flow. So I might be biased, but I do highly recommend it.
Short thoughts: in my official capacity I have to tell you that this is a legal question and you should talk to your qualified professional advisors, but unofficially, let me observe that you can form a sole member LLC in Nevada or Wyoming approximately as easy as buying a book from Amazon. You don't need to pay any expediter to do this; both of them have web apps that will walk you through it.
If you want to incorporate a Delaware C corp, perhaps because you want to raise investment, you can use Atlas. If anyone on HN needs an invite drop me an email (this username @stripe.com would work) and hum a few bars as to your situation; I'd be happy to help.
Find a local agent, best bet use BizFilings to do papers if you hit snags, they provide legal help to resolve. Smooth, just use wyoming's site.
You may want BizFilings to maintain recurring filings and local agent address for you, or you can do recurring WY filing online and get cheap local agent.
Nice reasons to use Wyoming, just google. Think carefully about name and address steps, you don't have to be popping up in every public DB.
I've been looking at Stripe Atlas. For $500 (early access) they do all the paperwork for you, but that's for a C-Corp. I'd also be interesting in resources for other types of businesses, as I'm not sure which direction I want to go in.
Yeah, Atlas is probably excellent for a startup filing a C-Corp in Delaware - I just want an LLC since I have passive side project revenue and want to parent all of them and funnel it all down into a single structure for simplicity.
Beyond that; look for specific information in your state. My state, Connecticut, has a government web site that gives you step by step instructions on setting up a company in the state; including what paperwork to file and how to get taxID Numbers...
Just wanted to say that all you US-based people are very lucky having all these "starerpacks" companies (Atlas etc.) that handle all the messy parts and paperwork for you.
Incorporating a limited-liability business in Germany is hell.
You should consider an S Corp instead of an LLC. In California, you have to pay an $800 franchise fee every year. It's significantly cheaper for an S Corp and any revenue can be passed to your personal income tax.
> You should consider an S Corp instead of an LLC. In California, you have to pay an $800 franchise fee every year. It's significantly cheaper for an S Corp and any revenue can be passed to your personal income tax.
A California S Corp pays a 1.5% franchise tax on income with an $800 minimum. There is no income level at which the S Corp franchise tax is less than the combination of the LLC tax of $800 + the income-dependent LLC fee.
Typically, S-Corp status has more to do with how you're taxed than your entity type. Technically you can be either an LLC or a corporation and still be taxed as an S-Corp, if you meet certain requirements (only one class of stock, no more than 100 shareholders, etc.)
This is very weird that LLC is so expensive in Cali, the land of statups. In good ole Indiana, it is ~$93 to form an LLC and much less to maintain it. Illinois was not that much more.
Looking at Illinois requirements now it's MUCH higher than that. Based on what I have open in another tab, it's a minimum of $500 to file, and annual fees of $250; both of those are for filing on paper, electronically it's $600/300.
There's also a requirement to register with the state if you're an LLC incorporated in another state and will be doing business in Illinois. $500 filing fee and you have to have a registered agent within the state. The relevant law is http://law.onecle.com/illinois/805ilcs180/45-5.html, but it's not entirely clear to me what "transacting business" really means. The seemingly obvious meaning would imply that every little LLC selling anything would be required to spend $500 once plus annual fees to a registered agent before selling to anyone in Illinois.
If you live in Cali, doesn't that mean you also need to incorp in cali as a foreign entity? I don't think its either home state OR Delaware.. its home stand AND Delaware. And then yes, you get some Delaware legal things on your side, but you are paying more.
If you (as a corporation/LLC) do business in a state but are incorporated elsewhere, you generally need to register as a foreign corporation in the state you are doing business in. This often involves franchise fees similar to opening a corporation/LLC in the state. But you only, strictly speaking, incorporate in one place (unless you want a subsidiary incorporated elsewhere for some reason.)
Which country/state are you in ? If in the United States, I recommend finding a good local accountant/CPA who can help. Usually, for any projects that hopefully bring in revenues, you will need a good accountant to help with taxes etc on a recurring basis. Better to find a good one upfront and then work with them.
The problem with using generic services is that they may work fine in the beginning but you may end up contacting an accountant anyway for best advice on tax and planning. Yes, even for side projects that bring in some money.
Thanks! I usually go to TurboTax for accounting needs on a personal and side project basis, since I'm fairly literate in tax processes and personal/side project income isn't very complicated. Any personal experience on a local accountant being better for you than a service like TurboTax?
Are your side projects generating money from app stores or selling directly to your users? If selling direct, how do people handle the EU VAT stuff with a US based company? (assuming sales to the EU countries)
- Get a mailbox (like one at the UPS store, NOT a PO Box!) to use as your business address so you will not have to use your home address if it bothers you.
Now, for the real stuff -
1) Get a registered agent (even if you want to do it yourself, I recommend getting one anyway). I used freeregisteredagent.com for 1 year free. Required before you file the next step.
4) Wait for the Secretary of State of send a copy of the file articles of organization (form LLC-1). Now, file a Statement of Information, form LLC-12: http://bpd.cdn.sos.ca.gov/llc/forms/llc-12.pdf This is due within 90 days of the file date (on the filed LLC-1 form) All the information here will become public information. Send that in to the SoS with a $20 money-order and wait.
5) Use your filed articles of organization, the EIN you got in step 3, and a state issued personal ID to get a bank account. US Bank and CapitalOne Spark have free checking accounts for business, you can also try a credit union as local ones have them for free.
6) Look for any local licenses you need, some cities require business licenses, some require a "Business Operation Tax" (BOT) certificate - check your city or county website(s). CalGold is useful: http://www.calgold.ca.gov/
7) Conduct business, keep records, etc
Recurring items:
- An $800 minimum tax is due every year to the state of California.
- You must file a new LLC-12 (if the information has changed) or an LLC-12NC (if nothing about your LLC has changed) biannually (every two years).
Going through this currently and this is the detailed, correct answer for CA LLC; nice work. Save this if you are considering one in the future.
Only thing I might add is the operating agreement, which is critical for multi-member LLC's as it defines everything. Maybe fits into step 7 above, and worth having a lawyer assist with some clauses.
I got my copy of LLC-1 returned to me 8 business days after they stated they had processed it. Your LLC will show up in the business search the next day after they processed yours.
It's worth asking if you really need an LLC/Corp. Find a good tax person, and see what they recommend. To find a good tax person, ask a few business people who they use and recommend.
I formed an LLC a couple times, and both times I probably shouldn't have bothered until the business could pay for the fees, and an official entity offered me something a sole proprietorship couldn't.
I work for a company that specializes in incorporation and compliance services. We have a free information center that contains a lot of information and guides that people may find helpful: https://www.harborcompliance.com/information
Depends on your state. I live in Florida and everyone I know personally who lives here and has started a company use sunbiz ( which is state specific ) maybe your state has it's own specific website? Otherwise there are multiple options available.
Check out valcu.co (founded by a former Gunderson Dettmer attorney). You can set up a venture capital ready C Corp for $19. It also has amazing document automation tools.
IANAL and don't have a C Corp, but doesn't that depend a lot on how you're being paid?
I know "double taxation" is the bogeyman and is undoubtedly an issue in some cases, but for truly small setups of expect taxes to either be passed through S-Corp style or for larger businesses to be low because a lot of income may be offset by expenses (e.g. paying a salary or wage for time spent).
LegalZoom is a fine way to get started. It's not that expensive and they will do it correctly. Best to not waste too much time on it and focus on the business.
Just me for side projects that generate a passive revenue. From what I can tell, the process seems fairly straight forward, but I ask because there are always caveats that people with experience learn from that I might be able to avoid.
You might investigate a "Series LLC" if you want separation of your multiple independent projects.
Series LLC is not available in all states and is fairly new but it allows for a master or an umbrella LLC and other LLCs which are separated from each other for liability purposes.
Each LLC has assets separate from the others, while the master LLC controls all the LLCs in the series. Each unit has its own owners (members) and is liable only for its own debts and obligations. A series LLC can be thought of as a corporation with several subsidiaries.
You can accomplish the same thing by creating a subsidiary LLC with its sole member as the Parent LLC. As a wholly owned subsidiary, it is a disregarded entity for tax purposes.
Yeah I've gathered it's probably pretty straight forward. I only ask because I've never set up an LLC before (been involved with many C corp setups), and I can guarantee I'll miss something that someone here could point out to me from their own experience.
- First get a federal EIN number online (free, self-service) for the LLC. - When filing out the Nolo form, use your virtual mailing address as this will be public record. I signed up for Virtual Post Mail at $10/month. - When filing out the Nolo form, answer "I already have a registered agent". If you use Virtual Post mail, your subscription includes free registered agent service. If you answer no and agree to use their service partner Incorporate.com, it'll cost you $235/year.
+1 Create a business checking account so your personal vs. business financial records are kept separate.