Selling without a business entity

[MakeMoreMoves]

Hey guys I finally have a solid idea of what I am going to be doing. My product are being produced now.

- I plan to sell on eBay until I have completed my website.
- Once I build my website I will put banner ads on forums (I know the community well)
- See how it goes

My biggest question is if I keep selling without a business entity. Are there any consequences? Or should I go get a single member LLC first then build my website? I am selling the product solely online and it is being produced in my home. I think single member LLC is my best option unless anyone has any other recommendations. This is going to be my first business

 

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[Sehcill]

Go ahead and incorporate; if nothing else it's a type of insurance against a litigation-happy populace. If there's any chance at all that a customer (or their children) can hurt themselves in any way at all with your product, if you have a single member LLC (or any other corporate entity for that matter) at least they can't come after your personal assets. Well worth the few hundred bucks it'll cost you to file the paperwork.

 

[throttleforward]

If there's any chance at all that a customer (or their children) can hurt themselves in any way at all with your product, if you have a single member LLC (or any other corporate entity for that matter) at least they can't come after your personal assets.

This is not entirely true, and is likely to be completely wrong for most newbies.

When Courts Will Pierce the Corporate Veil
Courts might pierce the corporate veil and impose personal liability on officers, directors, shareholders, or members when all of the following are true.

• There is no real separation between the company and its owners. If the owners fail to maintain a formal legal separation between their business and their personal financial affairs, a court could find that the corporation or LLC is really just a sham (the owners' alter ego) and that the owners are personally operating the business as if the corporation or LLC didn't exist. For instance, if the owner pays personal bills from the business checking account or ignores the legal formalities that a corporation or LLC must follow (for example, by making important corporate or LLC decisions without recording them in minutes of a meeting), a court could decide that the owner isn't entitled to the limited liability that the corporate business structure would ordinarily provide.
• The company's actions were wrongful or fraudulent. If the owner(s) recklessly borrowed and lost money, made business deals knowing the business couldn't pay the invoices, or otherwise acted recklessly or dishonestly, a court could find financial fraud was perpetrated and that the limited liability protection shouldn't apply.
• The company's creditors suffered an unjust cost. If someone who did business with the company is left with unpaid bills or an unpaid court judgment and the above factors are present, a court will try to correct this unfairness by piercing the veil.

Factors Courts Consider in Piercing the Corporate Veil
The most common factors that courts consider in determining whether to pierce the corporate veil are:

• whether the corporation or LLC engaged in fraudulent behavior
• whether the corporation or LLC failed to follow corporate formalities
• whether the corporation or LLC was inadequately capitalized (if the corporation never had enough funds to operate, it was not really a separate entity that could stand on its own), and
• whether one person or a small group of closely related people were in complete control of the corporation or LLC.

http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html

Operating a properly managed LLC is no joke if your goal is to preserve the "corporate veil" and enjoy asset protection. There is a substantial, on going cost in both time (paperwork, "meetings", etc) and money to mantain an LLC. And if you screw it up, the protection you thought would be there when someone's kid gets hurt by your product goes out the window. Just because it only takes 10 minutes on the state corporate page to register doesn't mean it's a trivial matter.

 

[Ron Dee]

Most lawyers will offer free consultations. Call one.

 

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[MakeMoreMoves]

The product I am selling has a set time limit to grow, it is a live plant. Its making me debate whether or not I can make decent profit. It can take a couple months before a product is made. The competitors are selling it for about 5-9 dollars. I have checked if this item if it is in high demand. What I got so far is that "the community" asks for it occasionally on forums/discussions. The top eBay sellers range from selling 300-1000 which are mostly international. Wisdom is wanted.

 

[MakeMoreMoves]

Go ahead and incorporate; if nothing else it's a type of insurance against a litigation-happy populace. If there's any chance at all that a customer (or their children) can hurt themselves in any way at all with your product, if you have a single member LLC (or any other corporate entity for that matter) at least they can't come after your personal assets. Well worth the few hundred bucks it'll cost you to file the paperwork.

Hypothetically, I do get this LLC. The biggest thing holding me back is that I have to pay taxes even if I don't make a profit. A friend told me that, but I'm not sure.

 

[MakeMoreMoves]

Operating a properly managed LLC is no joke if your goal is to preserve the "corporate veil" and enjoy asset protection. There is a substantial, on going cost in both time (paperwork, "meetings", etc) and money to mantain an LLC. And if you screw it up, the protection you thought would be there when someone's kid gets hurt by your product goes out the window. Just because it only takes 10 minutes on the state corporate page to register doesn't mean it's a trivial matter.

This is also my concern, if it is actually worth it to maintain an LLC when I start selling on the website.

 

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[blackhat]

Hypothetically, I do get this LLC. The biggest thing holding me back is that I have to pay taxes even if I don't make a profit. A friend told me that, but I'm not sure.

Think about that. How much would you owe in taxes based on your $0 profit?

 

[MakeMoreMoves]

Think about that. How much would you owe in taxes based on your $0 profit?

lol ok it sounds very dumb. But I think he meant some maintenance fee. But anyways, lets say I sell without an LLC, how do I pay taxes since its not really documented.

 

[Kung Fu Steve]

You didn't say where you're resident so I'll assume you're American. In that case if you just start selling you can classify yourself as a sole proprietor without filing any paperwork.

It doesn't provide the best protection asset-wise... but if you have no assets there isn't much to fight over... so you might as well just go and figure it out along the way. If you DO start making some money (I would say around the 5k mark) it's about time to start looking at an LLC taxed as an S Corp or just a plain S Corp.

Diane Kennedy @ www.ustaxaid.com is probably your best bet otherwise @GlobalWealth can get you set up offshore. But that's a ways down the road if you haven't made dollar number one.

 

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[MattCour]

Agree w @Kung Fu Steve, don't go crazy about all of the what if scenarios that may never happen. Make a bunch of sales, then fund the LLC and website w profits.

 

[GlobalWealth]

To have a business, you must first have a customer. Proof of concept first. You can always organize the business a bit later. Although I would not wait too late. I get a lot of people coming to me to help with reorganization of their structure after they have a huge mess.

 

[Jesse Dallenbach]

Yes that tax thing is true (at least in California) Did a LLC back in 2012 and immediately was on the hook for an annual minimum franchise tax of $800.

Not sure if others states (or countries) do this But I am sure there some sort of annual tax.

- Jesse

Hypothetically, I do get this LLC. The biggest thing holding me back is that I have to pay taxes even if I don't make a profit. A friend told me that, but I'm not sure.

 

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[MakeMoreMoves]

so one of my products can technically be made at home and people are selling the same thing overseas. Should I get a patent for this?

 

[Accounting Newb]

Generally agree with the approach of having proof of concept before organizing the business. If I structured a business for every idea I have, I would be broke!

 

[EntreAdvisor]

Go ahead and incorporate; if nothing else it's a type of insurance against a litigation-happy populace. If there's any chance at all that a customer (or their children) can hurt themselves in any way at all with your product, if you have a single member LLC (or any other corporate entity for that matter) at least they can't come after your personal assets. Well worth the few hundred bucks it'll cost you to file the paperwork.

I wouldn't incorporate so quickly. No need. Once you do that, your state will expect you to file. The IRS will be looking for an 1120. You will need to pay someone to set the corporation up. You will need to pay a CPA to prepare federal and state returns.

Not worth the hassle yet. Also, you most likely will not want to organize as a C-corp.

Get some sales. Run as a sole proprietor. If it takes off, then re-evaluate.

 

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[EntreAdvisor]

Hypothetically, I do get this LLC. The biggest thing holding me back is that I have to pay taxes even if I don't make a profit. A friend told me that, but I'm not sure.

If you have a loss, the business can actually reduce your taxes. Depends on whether this qualifies as an actual business or a hobby under IRS regs.

 

[EntreAdvisor]

Yes that tax thing is true (at least in California) Did a LLC back in 2012 and immediately was on the hook for an annual minimum franchise tax of $800.

Not sure if others states (or countries) do this But I am sure there some sort of annual tax.

- Jesse

Great point! And exactly why you just don't want to incorporate or open an LLC on the whim. CA can be $800 or $1600 (depending on income) in just annual fees. Local tax authorities will see you have registered and will be nickel and diming you for a $25 city fee or county tax - especially in KY or Ohio.

Best advice I've seen is to get some sales and then organize later. Good luck!

 

[MakeMoreMoves]

So my business is dealing with plants, I can start growing at home and everyone here is telling me to do the business stuff later, but I did some more research and to sell plants you need to get inspected like twice a year. Since I am growing them at home, should I just keep it a secret? I really don't know. I just don't like mixing all these regulations/legalities with my home, if you know what I mean. Also, my plan to sell is just eBay and targeting some forums. I compiled a list and realize that many forums are anti-business. What gives?!? They don't let you sell on their forum solely for profit if you are in business. This is going to be my biggest avenue of sales though. So should I just sell under the table until I make 5k. Hypothetically let's say I get in trouble for selling plants in my basement, before the 5k mark. Will the law be understanding that I am still in trial/error period?

 

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