Incorporating and doing it right this time

E

erdini

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Jul 26, 2011
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Ok, so I'll admit it...when I was starting out, I didn't really think this thing would go anywhere(might make $50 or $100/mo), so I went for the easiest solutions.

I incorporated in my own state, I just did a single member LLC, my bank accounts had a lot of personal stuff intermixed. Basically, all I got out of it is an EIN, and no real protection on my end.

So now that this looks to be going well, I want to hit reset and do it right this time. Priority is on saving money on taxes and to get ironclad legal separation. The latter, because I'm moving to NYC soon, and there is an added city tax that I'd like to avoid. And I figure if there is literally nothing tying me to the company, it should be fine.


Now, before I go to an accountant/lawyer, I want to get some background on my options first so I'll be able to do further research and ask the right questions.

What are the best states to incorporate in? From what I found so far, Wyoming and South Dakota seem to be the go to places. Is there a chance they'll pass a Nexus law?

What type of entity is best? I know LLC is the easiest, but at this point I don't mind a bit of complication if it saves me money.

Who do you use to incorporate? Legalzoom? WyomingCompany? Something else?

Registered agents? Is it better to let them handle everything(setting up an address with mail forwarding, opening bank account etc) or is it better to get an address with Regus or something and then just incorporate using that? Basically I want to completely separate myself from the company.

Payments? When paying for the incorporation/services etc, do I just pay or do I need to separate things here too?

Anything else? is there anything else I need to make sure I do this thing right?

Thanks guys.
 


If you're actually serious about this, find a good CPA and talk to them- not consult a forum of alcoholic SEOs/SEMs.

My advice - any clean accountant will tell you that registering in Wyoming and living/working in NYC is not a way to shield from NY taxes...you're still operating in NY which means you're lying if you claim the income was generated in WY. Given the nature of our unclean industry and the fact that you want to completely separate yourself legally (which usually means you're up to something)...I'd advise paying Uncle Sam timely and in full like any good Merican citizen. If the company is HUGE, go offshore or at least move to a no income tax state.

I use LegalZoom as my registered agent, but that's to prevent people from Googling my company name and having any personal address come up. It doesn't really protect you legally...the best thing you can do for that is immediately withdraw corporate money and invest in foreign assets, commodities, bury it in your backyard, talk to a CPA about offshoring, etc.

Again, this probably isn't the best place to ask questions like these and get answers you can trust. I certainly am not an accountant or lawyer.
 
erdini said:
And I figure if there is literally nothing tying me to the company, it should be fine.
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So you will not be the owner of the company? If you are an owner, you are tied to the company. It is an asset of yours.

http://www.ehow.com/info_8429515_can-sued-personally-am-corporation.html

Whether you can be sued personally in an S corporation depends on the facts and circumstances of each case. Readers are strongly urged to seek the assistance of an attorney before proceeding.
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Another useful link.
http://www.expertlaw.com/library/business/corporate_veil.html

I am learning a lot myself, thanks for asking. I am a S Corp BTW. That is why I am pulling s-corp infor.

http://info.legalzoom.com/can-sued-personally-am-s-corporation-22022.html

Personal Liability

While the limited liability shield can insulate you from personal liability for things your employees or fellow shareholders might do, it doesn't protect you from getting sued for something you did yourself. People can almost always be held personally liable for their own acts. If you're driving a company car on the job, and you cause an accident through your own negligence, you can be sued because you caused the wreck, and the company can be sued because you were on company business at the time of the wreck. Other shareholders, however, enjoy protection from suit because you were working for the corporation, not them.
Click to expand...
 
^^^ As one who used to write eHow.com articles, don't ever rely on a single word spewed from that wretched site. Just about all of it is trash, trust me.

erdini said:
What are the best states to incorporate in? From what I found so far, Wyoming and South Dakota seem to be the go to places. Is there a chance they'll pass a Nexus law?
Click to expand...

I don't understand what you mean by "Nexus law", but you're most likely best off incorporating in the state you are operating in.

erdini said:
What type of entity is best? I know LLC is the easiest, but at this point I don't mind a bit of complication if it saves me money.
Click to expand...

Depends on the state you are in, but a LLC will be the answer in most places.

erdini said:
Who do you use to incorporate? Legalzoom? WyomingCompany? Something else?
Click to expand...

A competent lawyer in the state you are going to set up the entity in. Do yourself a favor and don't try this by yourself. You already admitted in your post that you don't know how to do this alone.

erdini said:
Registered agents? Is it better to let them handle everything(setting up an address with mail forwarding, opening bank account etc) or is it better to get an address with Regus or something and then just incorporate using that? Basically I want to completely separate myself from the company.
Click to expand...

Pay the lawyer $xxx per year to handle that for you. The point of the registered agent is accept service of process if someone sues you. You want to be found if someone is looking to sue. If you hide the adverse party will simply get a default judgment for everything they want without you providing any type of input or opposition.

erdini said:
Payments? When paying for the incorporation/services etc, do I just pay or do I need to separate things here too?
Click to expand...

The attorney you hire will help with this.

erdini said:
Anything else? is there anything else I need to make sure I do this thing right?
Click to expand...

Did I mention hire a competent lawyer in the state you're forming the entity in?


A post I did earlier this year on the asset protection aspects of LLCs may also be helpful, but not directly on point with some of the stuff you discussed.

http://www.wickedfire.com/shooting-...provide-same-type-protection.html#post2081514

One issue for the state you choose to form the entity in is whether there are any protection benefits for single member LLCs (if you choose the LLC). In many states the answer is "no", but not all...

/Free Legal Advice...
 
erdini said:
Ok, so I'll admit it...when I was starting out, I didn't really think this thing would go anywhere(might make $50 or $100/mo), so I went for the easiest solutions.

I incorporated in my own state, I just did a single member LLC, my bank accounts had a lot of personal stuff intermixed. Basically, all I got out of it is an EIN, and no real protection on my end.

So now that this looks to be going well, I want to hit reset and do it right this time. Priority is on saving money on taxes and to get ironclad legal separation. The latter, because I'm moving to NYC soon, and there is an added city tax that I'd like to avoid. And I figure if there is literally nothing tying me to the company, it should be fine.


Now, before I go to an accountant/lawyer, I want to get some background on my options first so I'll be able to do further research and ask the right questions.

What are the best states to incorporate in? From what I found so far, Wyoming and South Dakota seem to be the go to places. Is there a chance they'll pass a Nexus law?

What type of entity is best? I know LLC is the easiest, but at this point I don't mind a bit of complication if it saves me money.

Who do you use to incorporate? Legalzoom? WyomingCompany? Something else?

Registered agents? Is it better to let them handle everything(setting up an address with mail forwarding, opening bank account etc) or is it better to get an address with Regus or something and then just incorporate using that? Basically I want to completely separate myself from the company.

Payments? When paying for the incorporation/services etc, do I just pay or do I need to separate things here too?

Anything else? is there anything else I need to make sure I do this thing right?

Thanks guys.
Click to expand...

Stay away from NYC, as the taxes will slowly drain you. I am here and in the process of moving to better tax friendly state. Housing is way overpriced.

For legal entities, my preference is a regular CORP. but get the designation as a sub chapter s - for single taxation.

Nevada is a good state due to no corp taxes.
 
xRAPx said:
Why you no mention delaware c-corps?
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I guess I'll chime in (caveat - I have no fucking clue what I'm talking about).

DE C corps are the standard for any startup and certainly most types of serious businesses with multiple shareholders. One of the largest reasons being that Delaware has a special court called the chancery court. There's no jury, and the judges and arbiters are specially chosen on their knowledge of business law. Let me tell you right now if you didn't already know: the court systems are fucked and run by buffoons, no different than any state or government entity. DE on the other hand is famous for their diligence, and in fact a ridiculous amount of their revenue comes from this reputation. They also have no backlogs, so any issues that arise are handled fast. It's also cheaper to file.

C is typically chosen if there might be a chance the company goes public as you can have unlimited shareholders (and other stuff that we pay lawyers and investors to swindle us about) while S can only have 100 or so. C can be double taxed but doesn't have to be depending on how the business operates... if there's money leftover and you're not operating at a loss then you probably want to go to the S route. (I believe it's easy to go from S to C but not the other way around.)

Any business anyone takes part in should be in DE. No matter what. Partner issues arise, trust me, it's going to happen even when you're positive it can't. Money changes everything. Do not let your case be handled by idiots. Have your LLC, LLP, corp, whatever, in DE.

NYC city tax is bullshit but it doesn't apply unless you're invoicing businesses in NYC (naturally).

I won't be that asshat that tells you to talk to a lawyer or accountant because frankly they cost too much-- use Quora and do some research on your own, and make a few accounts on different law forums and just ask.
 
Esquire said:
One issue for the state you choose to form the entity in is whether there are any protection benefits for single member LLCs (if you choose the LLC). In many states the answer is "no", but not all...

/Free Legal Advice...
Click to expand...

So are you saying that single member LLCs provide no protection benefits and expose the owner to unlimited liability much in the same way that a DBA would?

Or are you saying that there is no protection advantage to a single member LLC compared with a corporation owned by a single shareholder?

Hypothetically speaking, if someone's had their single member LLC take a loan out from a bank with no individual guarantor, and the LLC has a good operating agreement, and all formalities are followed; will the bank still be able to pierce the LLC like nothing and go after the individual owner if the LLC was unable to pay the loan back and had to default?
 
For those of you with Wyoming LLCs/S-corps, which company are you using for your registered agent?
 
bluechinagroup said:
So are you saying that single member LLCs provide no protection benefits and expose the owner to unlimited liability much in the same way that a DBA would?

Or are you saying that there is no protection advantage to a single member LLC compared with a corporation owned by a single shareholder?

Hypothetically speaking, if someone's had their single member LLC take a loan out from a bank with no individual guarantor, and the LLC has a good operating agreement, and all formalities are followed; will the bank still be able to pierce the LLC like nothing and go after the individual owner if the LLC was unable to pay the loan back and had to default?
Click to expand...

Since he would be running the company, he can be liable if he does something fraudulent. You can't expect to be shielded by your LLC if you are making the choices. The other members who are not active would be personally safe.
 
bluechinagroup said:
So are you saying that single member LLCs provide no protection benefits and expose the owner to unlimited liability much in the same way that a DBA would?

Or are you saying that there is no protection advantage to a single member LLC compared with a corporation owned by a single shareholder?

Hypothetically speaking, if someone's had their single member LLC take a loan out from a bank with no individual guarantor, and the LLC has a good operating agreement, and all formalities are followed; will the bank still be able to pierce the LLC like nothing and go after the individual owner if the LLC was unable to pay the loan back and had to default?
Click to expand...

Back in the day, if I sued you and won, I could take your interest in a LLC and now step into your shoes as the new owner. If you had partners in the LLC, they were now stuck with me instead of you, which is not ideal for anyone. The law developed the concept of the "charging order" as a result. In theory, the charging order doesn't protect the owner who is being sued, but protects the "innocent" owners who are your business partners so that I don't become their new partner. Under charging order laws, all I would be able to do is take the profits/income/dividend income you would otherwise receive from the LLC and keep it to satisfy my judgment I have against you. You still keep your ownership and the business experiences minimal disruption.

The issue with a single-member LLC is why should a creditor be limited to a charging order if there are no other "innocent" owners to protect? In some states, like Nevada, the law states that the charging order is the creditor's only remedy even if the LLC has one member. In other states you would not be so lucky.


bluechinagroup said:
Oh I see where the single member LLC problem comes in. It's due to a lack of a charging order.
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If you are a single member LLC, you want a charging order to exist, otherwise you are at risk of losing the entire LLC to the creditor who is suing you.

bluechinagroup said:
The charging order is still available for Wyoming Single Member LLCs (Assuming your LLC actually operates IN Wyoming), but I doubt such state level protections would hold up in a federal court.
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Federal courts have their own set of rules, but, depending on the circumstances, they will look to state law for guidance, which makes the state you form the LLC in relevant.
 
Esquire said:
If you are a single member LLC, you want a charging order to exist, otherwise you are at risk of losing the entire LLC to the creditor who is suing you.
Click to expand...

If a charging order doesn't exist or isn't exclusive, could you skirt consequences by 1) giving a few shares to a family member for a small investment and/or 2) licensing assets (like a domain name) to yourself from a private offshore entity or I guess even a US entity?

Basically what's the stupidest shit that's been gotten away with or that might work :P
 
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