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Is creating an LLC worth it?

kshy

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Recently a friend and i decided to try and see if we can sell a new product we had in mind. We ended up finding the patent was already on file, but expired. We are looking to renew it, file for an llc and sell the product through the company name. Our knowledge is very limited, this being the first step we're taking, and was wondering if we could get some feedback. Would filing for an llc be worth it, and would even renewing the patent be worth doing before we even have a feasible prototype.
 
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jesseissorude

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For sure.

It's super cheap, and even if you never make anything of your company, the most you'd be out is the $300 (I think 800 in California) fee.

But is there also a way you test your idea on a smaller scale to make sure the customers will be lined up?

Can you think of just 5 people that are your customer avatar? Take those folks out to coffee and run through your idea with them.
 

kshy

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For sure.

It's super cheap, and even if you never make anything of your company, the most you'd be out is the $300 (I think 800 in California) fee.

But is there also a way you test your idea on a smaller scale to make sure the customers will be lined up?

Can you think of just 5 people that are your customer avatar? Take those folks out to coffee and run through your idea with them.
Yes, that's what we were thinking. Once we get the product developed (not an overall expensive product) we want to give out a sample of them to a couple of people we have in mind and get their feedback before getting it produced in large quantities. the next thing we're caught up in is the patent because this is a product that we have not found on the shelves, or online anywhere. would it be smart to see if it sells first before worrying about any sort of patent. We figured that wouldn't be a big process either?
 

kshy

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Is this in the US? Is this your patent that is "expired"? And what do you mean by "expired"?

If the patent is more than 20 years old and/or if the patent was filed by someone else, there is absolutely no way for you to "renew" it. You can't renew a patent after its 20 year term, and you most certainly can't take ownership of someone else's patent. The only plausible scenario is that you filed a patent, you didn't pay the maintenance fees, the patent is lapsed and then you *may* be able to reinstate it. But, by the way you've worded your post, I'm going to guess this isn't the case.
For the patent, as i am still reading up and learning on how it all works. It is in the US, and when we looked at the patent under Legal Status, it says Expired - Fee Related, not sure what that implies. the design i had in mind is different, so would it still have anything to do with the patent. Or can someone (take any product for example) just get it manufactured and just sell it.
 
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sthubbar

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Would filing for an llc be worth it, and would even renewing the patent be worth doing before we even have a feasible prototype.

Yes, definitely file for an LLC and I recommend you do it in Wyoming. The protection and anonymity laws in Wyoming are super strong. Check out http://wyomingcompany.com/. I have used them and they provide everything from simple company formation up to virtual office, phone, mail forwarding services.
 

kshy

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I'm not a patent expert/attorney, but here is what I understand to be the case...

"Expired - Fee Related" means the patent holder didn't pay the maintenance fees and the USPTO expired the patent for that reason. Under certain conditions, the patent could be reinstated -- I believe the most common is if the patent holder can prove that the lapse in fee payment was unintentional. Typically, though, once a patent is expired, it's expired for good, and it no longer provides any IP protection to the patent holder. That said, if a patent gets reinstated, it's as if it never expired, so you couldn't claim, "We started making these things while it was expired!"

I would check with an attorney before you start manufacturing the product, but I'd guess that you wouldn't be violating patent by creating this product (since it's expired). But, you want to make sure that there is little risk of it being reinstated. That said, it's unlikely you could get your own patent for this same invention -- you'd have to prove that your patent application stood on its own.
Thanks for the insight. I'll definitely need to look more into it, but the feedbacks been helpful.
 

JoIIygreen

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Is this in the US? Is this your patent that is "expired"? And what do you mean by "expired"?

If the patent is more than 20 years old and/or if the patent was filed by someone else, there is absolutely no way for you to "renew" it. You can't renew a patent after its 20 year term, and you most certainly can't take ownership of someone else's patent. The only plausible scenario is that you filed a patent, you didn't pay the maintenance fees, the patent is lapsed and then you *may* be able to reinstate it. But, by the way you've worded your post, I'm going to guess this isn't the case.

As for starting an LLC with a partner, unless you have assets to protect and are willing to spend some money on an attorney, I wouldn't recommend it. Much of the value of an LLC comes from it's Partnership Agreement or Operating Agreement, and when you have a partner, you need to be very careful about what's in the Agreement. For example, how do you handle the situation where one of you wants out, but you're on the verge of making a lot of money? What happens if one of you dies? What happens if one of you wants to sell his position and the other is against it? What happens if you lose a lawsuit because one of you is negligent? What happens if the business needs money and only one of you has the ability (and/or desire) to fund it?

These are all things that need to be captured by your Agreement, along with many, many other things. And having a competent attorney to make sure the Agreement is airtight is important.

It's one thing if it's just you and the LLC is simply for business structure and management. But, if it's to create a partnership and/or to protect assets, you'll want an attorney to help you make sure things are set up right...and managed correctly.

That's are some excellent points when filing for an LLC jointly with a partner. I was thinking, "yeah totally file for one." It's simple and easy based on my experiences. Have that foundation can also save you a whole lot of trouble later down the road. However, I was thinking from a sole proprietor standpoint. More parties involved means more hassle. I agree in definitely getting an attorney to draft the agreement.

Thanks for the insight. I'll definitely need to look more into it, but the feedbacks been helpful.

What state are you thinking about filing in?
 
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JoIIygreen

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It looks pretty straight forward to file an LLC and cost is around $200.

dos.ny.gov states:

"Articles of Organization Domestic Limited Liability Companies
A limited liability company may be formed by filing Articles of Organization pursuant to Section 203 of the New York State Limited Liability Company Law. The New York Department of State has prepared instructions for forming a limited liability company that have been designed to make the filing as easy as possible.

The completed Articles of Organization, together with the filing fee of $200, should be forwarded to the New York Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231"​
http://www.dos.ny.gov/corps/llccorp.html
 

kshy

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It looks pretty straight forward to file an LLC and cost is around $200.

dos.ny.gov states:

"Articles of Organization Domestic Limited Liability Companies
A limited liability company may be formed by filing Articles of Organization pursuant to Section 203 of the New York State Limited Liability Company Law. The New York Department of State has prepared instructions for forming a limited liability company that have been designed to make the filing as easy as possible.

The completed Articles of Organization, together with the filing fee of $200, should be forwarded to the New York Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231"​
yea i was reading through the filings i would have to do for the llc, still going to do more actually. but i was looking more so towards just the advantages and disadvantages when first starting out. would an llc be necessary when first trying to sell a product, or is it sort of unnecessary and that should be more of a focus later down the line.
 
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JoIIygreen

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yea i was reading through the filings i would have to do for the llc, still going to do more actually. but i was looking more so towards just the advantages and disadvantages when first starting out. would an llc be necessary when first trying to sell a product, or is it sort of unnecessary and that should be more of a focus later down the line.

Hmm, two things.

1. Be very sure of who you are going into business with. I have seen business partnerships from school fall apart when some person doesn't pull as much of the load as the other partner but both are in the company 50/50 on paper. Then you're just making money for the other guy who is riding your coattails.

2. I would probably source, sell, and manage the product through the LLC just to manage liability. Especially depending on what type of patent and product you're dealing with. It's not worth putting yourself and your own assets/house/possessions at risk if there's any chance of pain, suffering, discomfort, death, poisoning, accidental death, injury, etc that could occur from using your product. People sue over anything these days if they think they could win.
 

kshy

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Hmm, two things.

1. Be very sure of who you are going into business with. I have seen business partnerships from school fall apart when some person doesn't pull as much of the load as the other partner but both are in the company 50/50 on paper. Then you're just making money for the other guy who is riding your coattails.

2. I would probably source, sell, and manage the product through the LLC just to manage liability. Especially depending on what type of patent and product you're dealing with. It's not worth putting yourself and your own assets/house/possessions at risk if there's any chance of pain, suffering, discomfort, death, poisoning, accidental death, injury, etc that could occur from using your product. People sue over anything these days if they think they could win.
i have heard number one a lot and a lot of thinking has been going into that. Though the idea is his to begin with, i would like this to be more of a way of just learning the ins and outs of how an llc works and how to be able to manufacture and sell a product, and even the ups and downs of working with someone else. that's something that this early in the stage im willing to go ahead with. and for number two that was what i was more worried about, seems like overall leaning towards the llc would be a better choice.
 

OldFaithful

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Before starting your business with a partner, may I suggest you read this GOLD thread?
https://www.thefastlaneforum.com/co...-but-am-happier-and-stronger-than-ever.62925/

2. I would probably source, sell, and manage the product through the LLC just to manage liability. Especially depending on what type of patent and product you're dealing with. It's not worth putting yourself and your own assets/house/possessions at risk if there's any chance of pain, suffering, discomfort, death, poisoning, accidental death, injury, etc that could occur from using your product. People sue over anything these days if they think they could win.
I agree. An LLC is much more than good way to cover your bases as regards to partners, but more importantly, it protects you personally and your personal assets in the event of future litigation. In the event you are sued for damages (or copyright infringement) the company takes the hit. Without that legal formation, all of your personal assets are in jeopardy. Its a shame to have to plan for this, but that's the litigation crazy world in which we live.
 
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Esquire

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I have mixed feelings about LLCs.

In theory it sounds great ... "protection from personal liability" ... but in reality ... more is required.

If you do not adhere to all of the required and recurring formalities ... if the LLC is underfunded ... or if the LLC operates as your alter ego ... the corporate veil can be pierced ... which is a long winded way of saying ... you could still be on the hook anyway.

It is also possible that you could get sued indirectly for alleged fraudulent transfers (transfers made while the company was insolvent).

It's not just as simple as file a piece of paper and pay a fee.

Which ... speaking of ... can add up.

First ... the fees to form the company ... then the annual registration and reporting fees ... then the annual fees for the designated agent for service ... tax returns ... etc. etc. etc.

The government just loves to nickel and dime you. And LLCs are a good tool for just that.

It adds up.

And then there is also the "pain in the a$$" factor ... filing out these piles of forms ... and having to dig them up every time you try to open a bank account or whatever ... yuck!

Speaking of ... in most situations ... banks or other lenders will not loan the LLC money unless you (personally) guarantee the loans ... or unless you (personally) guarantee the commercial lease ... or whatever.

Still on the hook.

And odds are ... you will never avail yourself of the limited LLC protections anyway.

And even if you got sued ... are you collectible ...?

If so ... no difference.

Eligible for bankruptcy? Good. Nuclear option.

Odds are ... it will be just a lot of fees, paperwork, and pain in the a$$ ... for nothing.

Oh ... one more thing to keep in mind:

Even if you are not (ultimately) on the hook ... and there were no fraudulent transfers ... you could still end up paying a lot in legal fees "proving it" in court. Not cheap.

And if you (do) have to go to court ... you'll have to hire a lawyer. Unlike individuals, corporations cannot represent themselves. Ouch! No self help collection remedy for you.

Now ... with that said ... I am not saying you should never form an LLC. There are plenty of good reasons to do it. Particularly if you are collectible, bankruptcy is not an option, or if you have a lot of money invested in the project.

But all too often I see people running out to form LLCs ... for no good reason beyond that's what people told them to do.

There is no one size fits all answer. Just pros and cons based on the unique circumstances of your situation.
 
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kshy

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Before starting your business with a partner, may I suggest you read this GOLD thread?
https://www.thefastlaneforum.com/co...-but-am-happier-and-stronger-than-ever.62925/
That was a good thread to read, and it does seem to be a recurring theme that people warn about when working with a partner/partners. although this one idea for this one product is with a partner, mainly because it was his idea. the thing im realizing is it's hard to develop a team to work on a startup without them wanting to be part owners of the company, since they are also the ones help it gain traction. for example, if i have an idea for an interactive app in mind but no experience in designing an app, how would i outsource the job to someone else without them wanting to be a part of the project IF they see an opportunity in it (just one idea, doesnt have to be an app).
 

MooreMillions

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Without a doubt, in my opinion, especially when it comes to copyrights, patents, trademarks, and licensing.

In short, it is like creating another person/identity.

There is only ONE you...make the mistakes...or the riches, with the "people" you create.

In function, it has worked well for me so far. I have owned a half a dozen of them over the last decade at different points in time.
 
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D

Deleted5250X

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Hey Esquire, sorry to dig up an old thread, but I was researching LLC formation on the forums and you are the first person who's recommend not wrapping their business in an LLC. So I had a few questions before I make the decision myself.

If you do not adhere to all of the required and recurring formalities ... if the LLC is underfunded ... or if the LLC operates as your alter ego ... the corporate veil can be pierced ... which is a long winded way of saying ... you could still be on the hook anyway.

What do you mean by underfunded. How does that impact the piercing of the corporate veil?

Also, how does an LLC work from a liability stand point. Since all income flows through to the owner. Does the LLC have no assets after that income has flown through to the owner. Or are the owners personal assets and bank account collectible?

And even if you got sued ... are you collectible ...?

If so ... no difference.

What does this mean "Are you Collectible?" What criteria should I use to determine if I am collectible.

Eligible for bankruptcy? Good. Nuclear option.

If I have bankruptcy available, then I assume I am not collectible? Do I lose all my assets and cash during a bankruptcy?

Even if you are not (ultimately) on the hook ... and there were no fraudulent transfers ... you could still end up paying a lot in legal fees "proving it" in court. Not cheap.

And if you (do) have to go to court ... you'll have to hire a lawyer. Unlike individuals, corporations cannot represent themselves. Ouch! No self help collection remedy for you.

Is it reasonable for an individual to represent themselves in court? Wouldn't you get crushed by lawyers who are experts at the law?

Now ... with that said ... I am not saying you should never form an LLC. There are plenty of good reasons to do it. Particularly if you are collectible, bankruptcy is not an option, or if you have a lot of money invested in the project.

Let's say I don't initially invest a lot of money in the project. But down the road I end up earning a large amount of money. Is that money collectible if I get sued while operating as a Sole Proprietor. Assume I have bankruptcy available.

Is that money I've earned collectible even if I wrapped the business in an LLC, since I earned it through the LLC?

But all too often I see people running out to form LLCs ... for no good reason beyond that's what people told them to do.

Everyone recommends forming an LLC or corporation, so it's almost a default to go out and form one.

Is it difficult to sell a business without wrapping it in an LLC.

Would it be reasonable to assume that I could form an LLC down the road if it was necessary or if the business grew to a reasonable size?
 

fhs8

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So much misinformation here.

Yes, definitely file for an LLC and I recommend you do it in Wyoming. The protection and anonymity laws in Wyoming are super strong. Check out Details on Wyoming Incorporation and the Advantages over a Nevada Corporation | We can help a business form a Wyoming LLC or Wyoming Corporation.. I have used them and they provide everything from simple company formation up to virtual office, phone, mail forwarding services.

That's a bad idea. If you have an office in another state such as CA then you MUST file LLC-5 with the CA SOS and it makes things a lot more complicated (All states have their own foreign LLC treatment). You also can't avoid paying less state taxes by having an LLC in another state and it actually makes your liability WORSE because usually the plaintiff can PICK which state to sue you in through long arm statutes.

LLC usually comes with MORE taxes. In CA it's a minimum $800 franchise tax each year and it goes higher based on revenue. Legal costs setting up the LLC as well. Patents can even come with liability. A big company might sue you if they think your patent infringes/is similar to a patent that they have already. It doesn't matter if you're in the right. You better have a million bucks to defend yourself in court or you automatically lose.

You can't enforce a patent in most cases through court unless you have 500k cash in the bank. Sending out a C&D letter itself can cost a few thousand. Only patent something if you think the patent has actual value in the five figures if you were to sell it to someone else.
 

jsk29

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In my case it wasn't worth it.

I created my first llc in 2015 called GOCHU LLC, DBA: GOCHU Marketing

GOCHU in Korean means "pepper"... and slang for "penis".

I thought it was funny.

GOCHU LLC was dissolved in 2016.

Total expenses = ~$400, which was not funny.

#actionfake #mistakesweremade
 
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