[Davecore]

I am currently having a website built for me and it will be finished within the next 3 weeks. I will be allowing people to find items for the cheapest price; as well as allow people to trade items for a fee.

I was wondering if I should form a Single Member LLC (SMLLC) or a Sub Chapter (S Corporation). I will not be making much money in the first few months or even year; I know this;I am more worried about protecting my personal assets. Which should I do? I also have never had to file taxes, so taxes and filing will be totally new to me.

I just don't want something like the following happen: People purchase item on site from seller and the server crashes or something happens between the buyer and seller; in which I would try to help, but if nothing happens in which I will have a strong terms of condition and use. I don't want a class action lawsuit or something like that happen to me and they come after all my personal assets etc.

So what should I do, SMLLC or Sub S Corp? Im based in Florida. I also have heard that SMLLC do not get any liability protection. I don't plan on not paying back a loan or anything, because I won't need one anytime soon; I'm more worried about the litigation aspect and people that are sue happy.

Thanks

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You DEFINITELY need to speak with an attorney. The costs of doing so may seem high now, but they are NOTHING compared to what you could spend later on by having not consulted with one.

[mbolton2181]

Definitely consult an attorney. I hear amazing things about Nevada LLC because they allow for so much privacy.

If you aren't making much money, then why cant you run it as a sole proporietorship for the time being?

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Originally Posted by mbolton2181

... why cant you run it as a sole proporietorship for the time being?

And open himself to unlimited liability? I think that is the reason that he is looking to operate as a business entity that provides limited liability.

[richrf]

It is true that LLC or S Corp at times can limit the liability (the corporate veil can be pierced, if it seems like it is a personal endeavor), but none of these would prevent a lawsuit, which in itself can be exhausting and expensive.

If you feel that you are exposing yourself to unnecessary risk, then I would suggest you try to fashion the venture in such a way that it minimizes your risk. An attorney might be able to help you with this, but attorneys do cost quite a bit of money - more than you probably would like to spend right now.

Check out other sites, and see how they attempt to minimize their risks via the terms of agreement, when members register. This may give you some ideas of where to start.

My advice is don't take on more risk than you are prepared for at this time in your life. There is plenty of time to learn and grow. Even monetary risks may be small compared to the headaches that you may incur by getting involved with being the intermediary in financial transactions. Suppose there are scams on the site - how will you handle these situations?

Good luck! I hope you find a way of structuring your site that works for you.

Rich
Rich

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Don't take this as an insult, but how did this help answer the original poster's question regarding choice of business entity?

I always use an LLC because it is easier than an S Corp. and serves all purposes that I need it to, namely limited liability.

However, you should still seek legal advice from a licensed attorney based on your situation.

[richrf]

Originally Posted by jmenq2

Don't take this as an insult, but how did this help answer the original poster's question regarding choice of business entity?

I always use an LLC because it is easier than an S Corp. and serves all purposes that I need it to, namely limited liability.

However, you should still seek legal advice from a licensed attorney based on your situation.

I'm afraid that the poster feels that an LLC or S Corp limits his liability. It may or may not. It all depends. He should be aware of this. And limiting liability, does not mean he cannot go broke trying to do it. So there are all sorts of assumptions that a young entrepreneur might make concerning corporations and LLCs that may not be congruent with reality. An attorney will verify this.

As for LLC vs. S Corp. they are both very easy to maintain. S Corps are sometimes cheaper to form and have some advantages if the business starts making money. LLC's are very straightforward, and have some advantages if the business starts taking on partners, since stock ownership and profit distribution do not have to be in equal proportions. Neither approach is necessarily better than the other. But it is difficult to change once you get started.


However, my primary point remains. Do not believe that an LLC or S Corp is really going to keep you out of trouble. They will help, but if you are going to be involved in financial transactions as a third-party, much more has to be considered.

Rich

[JLeezer]

I'd have to agree with jmenq2 regarding the liability protection that both entity types provide. Essentially, if you are investing $5000 in the LLC/S-Corp/Corp, then that is the maximum amount that can be lost, even in a lawsuit--assuming that everything is done legally and with the intention of preventing piercing the corporate veil.

I do agree that a trip to your friendly CORPORATE attorney is in order. Do not make the mistake of going to (and thus paying for) the WRONG type of attorney. Many attorneys have a grasp on other areas of law outside their specialty, but for a good, firm solution to your question, go to an attorney that specializes in corporate formation and taxation. Also, it may be wise to visit a tax strategist (note, I did not say CPA or book keeper). A tax strategist will most likely be well versed in business and personal tax reduction methods. It can be relatively painless for one to shift various business transactions around (legally) to ensure that they are paying as little in taxes as is legally required.

My first company was an LLC (it failed), but my second company (that houses my subsidiaries) is a full fledged Tennessee Corporation.

Hope that helps some.

[richrf]

Hi all,

My primary point - and I hope I am explaining it well enough - is that that the cost of defending a lawsuit can greatly outweigh any initial investments in a corporation. My friend just lost over $20,000 in defense costs alone. Plus, the LLC meant nothing when the landlord went after him (he had the deepest pockets). No matter what, you always have to defend yourself, otherwise you can lose the judgement for the full amount that the Complainant is asking for. Total loss to my friend was in excess of $100,000 as he negotiated himself out of the mess.

So the LLC or corporation may provide some cover, but anyone can sue for damages and attempt to pierce it. That is what attorney's do, and any owner must defend themselves against any complaint of negligence or otherwise. A person getting involved as the intermediary or facilitator in financial transactions must understand the possible issues that may be faced, particularly in the Internet world where scams abound. The big boys like Ebay are always under pressure. Not everyone sues, but one good one can change the way a person perceives life. It certainly changed my friend.

Rich

[Davecore]

Well, I contacted a few corp lawyers through Score for free and they basically all agreed that I should form a S-Corporation due to the fact that LLC's especially since SMLLC's are still not concrete in the law books, and S corps have their history.

Also they said it is cheaper to setup a S Corp in Florida then a LLC and less paperwork in the long run. Only have to file the Articles of Incorporation period (excluding the tax stuff).

So now that I have chosen a S Corporation I was wondering if anyone could help me with that. Does anyone know were I can get a good Articles of Incorporation? I know they have it on the division of corporation site, but it does not include a indemnification clause and a few other clauses. I found lawdepot (dot) coms articles of incorporation to look pretty detailed, any good?

Also I will need a decent set of corporate bylaws. Anyone know of some good ones I can download?

Thanks again for all the great answers so far

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Originally Posted by