Why should I create LLC company?
I confess I don't quite understand the logic behind creating LLC company..
What are the befenits?
Should I do this now that my product(website) is still in development?
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It's not that you don't understand the logic; you have no idea what an LLC is. Beyond these answers below, I'd read up carefully on it before you conclude what it is or what its benefits are. Make sure you include coverage of "piercing the corporate veil" and "alter ego" particularly if you are thinking of forming the LLC as a one member company or with your spouse; even then, you *have* to run it as a proper corporation (hold meetings, separate bank accunts, etc) for it to enjoy protection. Note: LLCs *don't* protect you from your own torts, even in civil cases (see linked question). – Chelonian 12 years ago
3 Answers
Putting it simply...
Let's assume I'm your customer and your application caused me damage due to some negligence on your part (software design, lack of legal agreement to cover an option like that). I lose $500K - or at least claim I did.
If you're an LLC - I can only sue the company, not you personally. If I succeed in court, your company will have to pay me. If it can't, it may have to go bankrupt and shut down. In that case you'll still be able to start over with a new business free and clear of the previous business excused debt...
If you're not an LLC -- my flesh eating lawyers are coming after you personally -- if you lose in court - you and your family may lose your house and/or forced into bankruptcy if you can't pay up. Not something you want bring home...
LLC Protects you from business horror becoming family/personal horror.
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interesting, is that LLC main reason? personal protection from business side? – Edwin Soho 12 years ago
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One note: If it's YOUR negligence, then (depending on the state), the LLC doesn't matter. Ex: If I'm driving a truck on company business and negligently run somebody over, then the victim can sue both me AND the company for his damages. However, let's say that he only sues the company, but the company doesn't pay him -- he can't then sue the company owners for the company's debts. (Well, he can always sue, but, absent special circumstances, he won't win.) – Chris Fulmer 12 years ago
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You are right. yet, it's hard for a website to harm someone with a truck.. :-) Defective Software (to which there's no criminal negligence clause) can still cause damage and customer may want to sue. That's the more likely scenario I was referring to. – Ron M. 12 years ago
Do yo know what a Corporation is? LLC provides the same beneft
As Ron mentioned, LLC provides a huge Liability benefit. Any legal action must be taken against the company, not you personally. Depending on the state the LLC is registered in, that's great protection. I would suggest for a website to register in Nevada, as they provide amazing legal framework, you can then register in your home state as a foreign entity. It costs an additional couple hundred a year, but that's what you'd spend on 1 hour for "decent" lawyer.
Additionally, it separates the company's debt from your own. Ever hear that a lot of small business owners have horrible credit? This is due to them charging company expenses on their own credit cards. If you have say $100k in personal credit limits. A small to mid sized company can have those expenses in one month, and it'll look like your cards are constantly maxed. If you don't succeed and go bankrupt, that debt gets discharged in business bankruptcy, not gets transferred to you unless you personally guarantee it.
Another benefit is if you decide to sell, it is much easier to sell the whole company than just 1 site. Additionally, it makes you look much more professional, and shows people this is a business not a "hobby" site.
You also get a variety of tax benefits, although you get those with sole proprietorship as well, it is easier to separate and record when you are fully registered.
You are also afforded better protections in terms of Intellectual Property, although in this regard I suggest speaking to an attorney, because this topic is too big for a Q&A site
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thanks for detailed answer! where would you suggest me to start the LLC? can I do this online? do I need a lawyer to do so? How much do you believe it might cost? – Edwin Soho 12 years ago
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If it's a basic site, no you don't need a lawyer. You can check out Incorp & Legal ZOom, they are 2 bigger ones. Most of my companies a registered with Incorp, as they offer 1 year free registered agent. As I said, I 'd suggest Nevada as a home state, and your own state as foreign entity. Nevada provides many legal protections. – User60812 12 years ago
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http://en.wikipedia.org/wiki/Nevada_corporation – User60812 12 years ago
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that should list a lot of the benefits for nevada – User60812 12 years ago
The principal benefit is that the liabilities of the company stop with the company, and you can't be pursued personally for its debts (unless you act recklessly, negligently or illegally, in which case the corporate shield may be broken).
