Advice on forming a mostly online-based LLC while not having a stable physical location?

May 12, 2009 12:13 AM

Advice on forming a mostly online-based LLC while not having a stable physical location?

Hi all,

My situation is this:
* I have several websites that are starting to generate revenue via subscription models.
* I would like to form an LLC to shelter myself from legal liability.
* I need to choose a state to incorporate it.
* I'd love to incorporate in my 'home state,' but I don't really have one. I usually move every year or so.

My objectives are:
* Simplify the process as much as possible. I hate filing forms and dealing with legal hassles.
* Pay as little income tax as legally possible.

So my questions are:
* Do you have any advice on where to incorporate?
* Given the virtual nature of my business, in what states would I be considered to have a "nexus," and thus have to file taxes? (Paid) subscribers will be from every state.
* Do any of you have thoughts or anecdotes on the Vermont Virtual Corporation?
* Do you have any recommendations on books I can read to give myself a better background?

Thank you!

posted by Poleris to Computers & Internet (8 answers total)

Isn't Delaware the traditional answer?

But unless your revenue is all from subscribers in the USA, you might want to expand your search to include international options. I know two different people in situations that sound like yours... one American and one Canadian... and they're looking at registering their businesses in (if I remember right) Costa Rica and Singapore.

(I don't know why they are leaning toward those locations; maybe others here with more sense can weigh in on international plus/minuses)
posted by rokusan at 12:54 AM on May 12, 2009

I am not your lawyer. My advice would potentially have been to file in the state you live in, especially if you'd be operating as a pass-through entity, because it cuts down on the number of different states you have to submit taxes forms (and taxes) to each year. But since you say you move every year, then that doesn't seem like it would be much help. So you're gonna have a certain level of hassle no matter which state you choose.

Not sure, but you may also have sales tax issues to worry about
posted by Conrad Cornelius o'Donald o'Dell at 1:14 AM on May 12, 2009

Response by poster: > Isn't Delaware the traditional answer?

Delaware is the traditional answer for traditional C Corporations mostly because of its well-established case laws. That benefit doesn't apply to me as much.

The 0% income probably wouldn't apply to me, as I might have to register as a foreign entity in whichever state I was living in. (Anyone have any thoughts on this?)
posted by Poleris at 1:28 AM on May 12, 2009

Response by poster: > I am not your lawyer. My advice would potentially have been to file in the state you live in, especially if you'd be operating as a pass-through entity, because it cuts down on the number of different states you have to submit taxes forms (and taxes) to each year. But since you say you move every year, then that doesn't seem like it would be much help. So you're gonna have a certain level of hassle no matter which state you choose.

Right: I've been studying this issue for a while, and the amount of _perceived_ hassle is quite high for an online business, especially because I move. I am not sure whether my perception of the amount of hassle is accurate.

Given that many MeFiers are probably very technically literate, I wouldn't be surprised if others have been in my situation and could offer advice, hence the post. :)
posted by Poleris at 1:31 AM on May 12, 2009

You mention paid subscribers... it occurs to me that since you'll have to open up a bank account for the LLC you might want to check out how that works with whatever bank you'd be intending to use if you haven't already.
posted by XMLicious at 1:53 AM on May 12, 2009

Fair enough. Let me rephrase, then - the best way I can think of to fulfill your first objective (cutting down the hassle factor) would be to file in the same state you live in. Since that's not available to you for longer than a year (in all likelihood), then there may not be much else you can do to reduce the hassle. (I suppose some states might have simpler or fewer forms than others to deal with than others - that'd be something to consider.)

So, what would the hassle actually entail? This is something I considered when forming an LLC for my own small, ad-supported website (and I wound up going with the same state I live and work in). Either downloading an extra state from TurboTax or manually figuring out which form(s) you need from the given state's tax dept. website; then figuring out how to complete those forms & filing them; and possibly writing a separate check to that state. It may also involve figuring out some sort of split in tax burden between more than one state. (Though you might already have that issue on your hands.)

In the end, it sounds to me like your second objective (tax minimization) is perhaps more attainable than hassle-reduction.
posted by Conrad Cornelius o'Donald o'Dell at 2:33 AM on May 12, 2009

I am not your lawyer; this is not legal advice; this may not even make sense.

If you move frequently, plan on doing business in more than one state, and won't have a single physical location, then you'll want to consider forming your entity through a service that will serve as your physical place of business (many states require that) and registered agent. Some services, in some states, also allow the owner to remain anonymous, if that is your choice.

Have you looked into Nevada?

In any event, before you go into a business where you anticipate needing to "shelter [your]self from liability" you must first get yourself a lawyer and a tax advisor. Otherwise you're just begging to get burned.
posted by mikewas at 6:24 AM on May 12, 2009

The hassle is always going to be there but you can take steps to minimize it. In my opinion, that includes just incorporating in the state you reside... Otherwise, you have to rely on other people. You more than likely will be required to file in your state if you do business there anyway.

Having said all that, I realize you move often, so you may want to pick one of the states that supports your business image. Maybe an address in Silicon Valley and register in California. Or perhaps in Nevada for the great business culture there.

Strangely enough, Wyoming is also an attractive choice because it has no state tax and has strong business ties (and no formal sharing with the IRS.)
posted by jlstitt at 6:30 AM on May 12, 2009