6 ms·

At what point should one form an LLC? I mean, let's say a project is not yet generating enough income to even pay the fees to incorporate, should the entrepren

At what point should one form an LLC? I mean, let's say a project is not yet generating enough income to even pay the fees to incorporate, should the entrepreneur wait? Just curious.

jjawssd 10y ago
Fly under the radar until you build up some steam
- ChuckMcM 10y ago
  its all risk/reward tradeoffs. Your side project blows up and now you're scrambling to become an LLC. There are two kinds of blowup, one is suddenly you're being sued and the other is your being pursued (as in a buyout).
mikeryan 10y ago
It's really going to depend on the project and your exposure to litigation combined with your own net worth. If you can get sued and you own a home there's a risk where a corporate shield might be a benefit The truth is if you're just living paycheck to paycheck it's pretty unlikely you'll get sued there's nothing to win. Blood from a stone and all that. The key to assessing risk is figuring out what kind of damages your client can incur which is what they can recover via a suit. One other note LLCs are not the preferred structure for taking investment S and C corps are better for this.
- davidgh 10y ago
  I would submit that LLCs are better than S Corps for investments. With an S Corp each shareholder must be a human resident of the United States. Any sophisticated investor will not personally take ownership of shares when making an investment but will do it via some type of business structure (i.e. a business that the investor owns or controls will make the investment). Since each shareholder of an S Corp must be a human US resident, investments become more difficult. An LLC can have members that are individuals, corporations, other LLCs, foreign individuals or structures, etc.
jalonso510 10y ago
My usual advice is you want to incorporate when you either have (i) contracts with third parties, or (ii) other people working on the business with you. It's a spectrum of risk, with coding alone with no customers on one end and a full fledged startup on the other. When you start signing contracts, you want the company to be on the hook for any breach of those contracts. And you'll probably want a separate bank account and a professional looking name on the signature line anyway. More importantly, if someone else is working with you, you need to make sure there's an entity that will own all the IP, and that ownership is clearly defined, with everyone subject to vesting to protect you from the co-founder walking away from the business. disclaimer - I'm a startup lawyer but not your lawyer...
- JustSomeNobody 10y ago
  > disclaimer - I'm a startup lawyer but not your lawyer... I completely understand and I respect that you're willing to even post anything at all.

At what point should one form an LLC? I mean, let's say a project is not yet generating enough income to even pay the fees to incorporate, should the entrepreneur wait? Just curious.

jjawssd 10y ago

Fly under the radar until you build up some steam

ChuckMcM 10y ago
its all risk/reward tradeoffs. Your side project blows up and now you're scrambling to become an LLC. There are two kinds of blowup, one is suddenly you're being sued and the other is your being pursued (as in a buyout).

mikeryan 10y ago

It's really going to depend on the project and your exposure to litigation combined with your own net worth. If you can get sued and you own a home there's a risk where a corporate shield might be a benefit The truth is if you're just living paycheck to paycheck it's pretty unlikely you'll get sued there's nothing to win. Blood from a stone and all that. The key to assessing risk is figuring out what kind of damages your client can incur which is what they can recover via a suit. One other note LLCs are not the preferred structure for taking investment S and C corps are better for this.

davidgh 10y ago
I would submit that LLCs are better than S Corps for investments. With an S Corp each shareholder must be a human resident of the United States. Any sophisticated investor will not personally take ownership of shares when making an investment but will do it via some type of business structure (i.e. a business that the investor owns or controls will make the investment). Since each shareholder of an S Corp must be a human US resident, investments become more difficult. An LLC can have members that are individuals, corporations, other LLCs, foreign individuals or structures, etc.

jalonso510 10y ago

My usual advice is you want to incorporate when you either have (i) contracts with third parties, or (ii) other people working on the business with you. It's a spectrum of risk, with coding alone with no customers on one end and a full fledged startup on the other. When you start signing contracts, you want the company to be on the hook for any breach of those contracts. And you'll probably want a separate bank account and a professional looking name on the signature line anyway. More importantly, if someone else is working with you, you need to make sure there's an entity that will own all the IP, and that ownership is clearly defined, with everyone subject to vesting to protect you from the co-founder walking away from the business. disclaimer - I'm a startup lawyer but not your lawyer...

JustSomeNobody 10y ago
> disclaimer - I'm a startup lawyer but not your lawyer... I completely understand and I respect that you're willing to even post anything at all.