Why an Online Seller Should Consider an LLC
Jonathan: Hello, my name is Jonathan Barlow. I'm an attorney here at Clear Counsel Law Group. I actually had a friend that this question came from recently. She told me that she created an online store where she started to sell some little nick knacks, some little crafts that she had been creating. She had starting earning a little bit of money and then kind of ... Some of her stuff went viral a little bit and she became very popular. She started making serious money. She asked me, "Do I need to think about creating a business? Do I need to think about creating an LLC or something like that to do my online business with?"
The answer to that question is maybe. It's up to you. You don't have to. There is no law that says you have to create an LLC to run your business. You can run it through yourself as an individual. That's called a sole proprietorship. The business is treated just as you are. There's no separation between you and the business.
The question of whether you should create an LLC really gets down to the question of accessing risks and rewards of the LLC. An LLC can give you asset protection. Meaning that is somebody had a dispute with the business and say they've got a court to tell the business that the business had to pay them money back on a judgment or something like that they would only be able to go after the assets that are in the business in order to pay that judgment. They wouldn't be able to come after you individually.
If you're operating as a sole proprietorship there is no protection. Somebody that has a claim against the business could come after your personal assets. They could potentially get to your personal income. They could get to your personal bank accounts in order to pay a business related debt, because you didn't have that business set up to create that separation.
A second consideration is more of a practical consideration when you're doing this, which is often having an LLC gives a form or appearance of legitimacy as a business. People think they're doing business with an actual business and they may want to ... Make them more likely to do business with that person or with that business, rather than just an individual person. Those are some considerations you can think about in considering whether it's time to transition from a sole proprietorship into an LLC. Brian do you have a question about this?
Brian: A quick question. Will it be expensive for the online seller to form an LLC?
Jonathan: In the state of Nevada an LLC is not really that expensive to create. The main expense you have to pay is you have to pay the state of Nevada a filing fee to create the LLC. Then on each year, an annual basis, you have to file an annual filing fee with the state of Nevada, right now that's a few hundred dollars on an annual basis to get that. To start it's about $400 or $500. On an annual basis it's about $200 to $250 to do that. It's not terribly bad, so that's another consideration. Is my revenue to the point that it justifies creating some more of these administrative type expenses that you're going to have to pay. If you're not making a ton of money it may not make sense to put money into an annual filing fee with the state, but if you're making quite a big amount of money then that may be a very, very small percentage of your business operations and it makes sense to get that protection through the LLC.
If you have questions about your growing business, your growing online business and you're finding it booming and you want to make sure that you're protected and your business is protected give me a call here at Clear Counsel Law Group and I'll answer your questions.