Forming an LLC

[JerseyMVP]

I will be contracting with some designer to build a new social networking site after the near year. I have not yet found a programmer to build it so if you are capable of building social networking sites or can recommend somebody please do.

My question is... I am in college and like most college students, I struggle financially. However, come January 8th I get a CD due for more than $5k, it's money that was put aside for my education. I would like to hold onto this money if I could as I need it for rent and food when I go back to school.

I know I could convince somebody to invest in my idea, that is not the problem. However, is there anyway to reduce my liability if the site does not go as planned for some reason? If I form an LLC and build my site under the name of my LLC, am I legally responsible for the money lent to me? Worse comes to worse I can just file my LLC for bankruptcy correct?

I appreciate any advice you can give me. Thank you for your time.

John

[JohnGalt]

John,

Are you talking about loans? I don't think you will be able to find very much financing through your newly formed LLC. You will be a newly started business with no assets and no recurring revenue or receivables on the books so you will probably need to personally guarantee the loans. If you personally guarantee the loans then you can't just take the company bankrupt as you are personally liable for the debt. If you are talking about investors instead of loans then you won't be liable for the money they invested since they will be owners of the company, not creditors.

The best advice I can give you is to do your research very thoroughly before starting this. Lots of ideas seem exciting and guaranteed to work but very few of these exciting new ideas are actually good businesses. Make sure you have a solid business plan, know all of your potential competitors, and have revenue projections.

Is it really necessary to build your site from scratch? What is so different from any of the CMS based social networking solutions or other social networking sites? Building from scratch will be expensive and you will need even more money for continuous updating and debugging. Open source solutions give you a large support network (usually for free). Personally, I think you need to look at what other options there are out there, build the site as far as you can using an open source solution, then hire a developer to make the code intensive changes and customizations.

Best of luck and keep us updated.

[soccerprodigy777]

Good advice here...there are better opportunities out there

[JerseyMVP]

I mean I wouldn't mind using open source I just don't know how! My experience with basic HTML is very limited and I know absolutely nothing about PHP or Java.

I think I could have what I am looking for built for under $5k. I will have the $5k in January but like I said, that's money I have to live off, I can't risk it. Do I have any options to secure funding but limit my risk?

[Machiavelli]

Well in theory, yes, you would acquire limited liability status for yourself when forming an LLC. But then other complexities arise with an LLC, for example filing fees and annual LLC fees, which in California are $800 annually on top of the government fees for filing it, which cost a couple hundred as well.

Maintaining an LLC has its own set of rules and procedures which you have to follow. They are not really that difficult and anybody with common sense should be able to follow them properly, but if you make a mistake, in the case of a bankruptcy, the judge could take away your limited status and make you personally responsible for your investors lost capital. This is called piercing the veil.

If you plan on spending less than 5 grand, forming an LLC is not really worth the hassle.

Also, depending on the contract you form with the angels, give them equity in the company instead of just using them as loaners/creditors, that way, they take take the risk without guarantee of return.