Confessions of a Six Figure Professional Blogger

Five Terrible Reasons You Failed To Incorporate Your Online Business

View Comments | Posted In Life & Mindset by David

This is a guest post by Michael Alex Wasylik, a Florida lawyer and blogger.

Look around you. You’re neck-deep in other people’s companies.

The computer you’re using to read this? Made by a company. The software that runs your computer? Probably created by a company – even most flavors of Linux. The breakfast you had this morning, the chair you’re sitting on, the roof over your head, even the underwear you’re wearing – all made, distributed, sold, and repaired by other people’s companies.

But there you sit, running your online business as a sole proprietor – me, myself, & I. What do all those other successful businesses know that you don’t? Or, perhaps more important, what are some of the reasons you haven’t gone ahead and formed your own corporation or LLC?

1. You didn’t have 70 bucks.

Incorporation is expensive, you might think. Not true. In Florida, you can form your own corporation for just $70 in state fees. ($125 for an LLC.) You don’t need a lawyer to simply form a company, because you can fill out the forms yourself online and pay the fees by credit card. If you stop reading this and start the process right now, you’d have your own company formed in the time it would have taken you to read the read of this article.

2. You’re not planning on making any money.

Does your business plan involve never making a dime from your online business? Then you’re in luck – forming a corporation doesn’t make sense for you. For everyone else, forming a corporation or an LLC is the first step you’ll need to handle the money – and the tax issues – that will start rolling in when your business takes off. I’m not a tax adviser, but every tax adviser I’ve ever had for my own business needs has advised me to form a corporation or LLC if I was serious about making any money at all. (If you don’t have a tax adviser, you’ll need one. Plan for it.)

3. You’re never, ever going to sell your business.

Ever heard of Blogger? A handful of really smart people started the company – then known as Pyra Labs – and accidentally set the Internet on fire with the software they used for in-house communications. Four years later, they were acquired by Google.

Now, you might not have the next Blogger in your business plan. (They didn’t, either – at first.) But unless you want to work on the same business until you die, you’ll eventually want to sell part or all of your business to someone else. And that’s hard to do if you don’t have a corporate form already in place. It’s much cleaner to sell someone a share of a company that owns all the business assets, than to sell a pile of business assets that you own individually. (Obviously, you can’t sell chunks of You, black market kidneys aside.) So if you hope that, someday, someone might pay you a bunch of money for the business you’ve built, keep the business in a business entity.

4. You’re deliberately keeping your competition off guard by cultivating an amateur image.

Again, look around you. Who’s succeeding out there? Who’s floundering? You’ll notice a clear pattern – the business owner who treats the business like a business will outperform the one who’s treating it like a hobby. Even the biggest “names” in Internet business – the folks who trade on their personal brands – have incorporated their businesses when you look behind the curtain.

David Risley, the Six-Figure Blogger? He’s incorporated. Brian Clark, of Copyblogger? He’s formed an LLC. So has Chris Pearson, creator of the Thesis Theme for Wordpress. Even Dan Kennedy, one of the most famous “personal” brands out there, has his own corporation, although he doesn’t make it obvious. Again, the pattern is clear – successful business owners treat the business like a business – and that means forming a business entity.

5. You like living dangerously.

If you haven’t formed your own company, you’re operating the second most dangerous type of business there is – a sole proprietorship. (The most dangerous, a general partnership, comes when two people do business together without making any kind of legal business entity.)

Corporations and limited liability companies exist to protect business owners from liability beyond what they’ve invested. This is their most important function.

If the business fails, or gets sued, a sole proprietor is personally liable for the debts of the business – that means you could lose your house, your car, and almost anything else you own, too. If you’re in a partnership, you could be liable not only for the business, but for anything your partner does on behalf of the business – whether you agreed to it or not.

If you have a business entity, you get an additional layer of protection between you and any business creditors. As a bonus, a properly set-up business entity can also protect the assets of the business from any personal liability you might incur. So, if you drive your car through a playground full of schoolchildren, and your business owns some valuable assets, a properly-formed business entity might give your business extra protection from your personal follies.

FREE BONUS REASON

6. You couldn’t decide between an S-corp or an LLC.

If you’re a one-man – or one-woman – operation, either an S-corporation or an LLC will meet your needs. The main difference between the two is that – in Florida, at least – an LLC is slightly more flexible and low-maintenance. But LLC’s get treated differently in every state, so if you’re selling products or services outside your home state, you might prefer an S-corp for predictable legal and tax treatment. LLC’s also have slightly different tax implications than S-corps do, so you’ll want to consult your tax advisor before you make a final decision.

Of course, there may be plenty of other reasons – some better than others – why you haven’t formed a corporation for your business. Feel free to leave them in the comments.

Michael Alex Wasylik is a Florida lawyer with the firm of Ricardo, Wasylik & Kaniuk PL. He’s been blogging since 1999 at his personal site, Perpetual Beta. and more recently at the Florida Foreclosure Fraud Weblog.

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  • My company is small--just me, not much income right now--but I formed an LLC immediately. (I'm in Maryland.) Having recently had some personal financial difficulties (big ones,) I wanted to be sure I'm protected if something should happen. Liability insurance is in my future, once business picks up a bit.

    It was $140 to get set up, and it's $300/year to renew it. I don't see that as a huge expense, considering the benefits.

    Great post.
  • Great writing style. :) I myself is really having some difficulties of choosing between LLC and s-corp
  • Genevieve: You're correct that California puts a much higher price on doing business than almost every other state in the union. That is, I understand, one reason so many Californians set up their businesses in Nevada.

    As far as protection of personal assets via an LLC, I pretty clearly stated that every state treats LLC's differently. California is one such state, and I for one wouldn't do business there because of it.
  • My tax person here in CA advised me that there's an $800 per year filing fee here in California to file taxes as an LLC. Worse if you're a corporation.

    I've also been advised by multiple reputable sources that an LLC does not in fact protect your personal assets if you get sued. Liability insurance is the only way to truly protect your assets (business and personal).

    So a sole proprietorship with liability insurance is the most efficient way to go, from what I have been advised, here in California.

    I'm just a gardener, but I've looked into this quite a bit here and I don't think the blanket statements about LLC's you make are completely accurate (for CA at least) - at the very least there is professional disagreement on it.
  • Mike Wasylik
    Lisa, depends on your facts. Generally, most lawyers advise forming your entity in the state you'll be doing business in. You could start one here, or one where you're going, ot both, or start one here and then a nnew one later. Mostly depends on your risk tolerance.

    JR, an s corp is treated the same in every state but an llc is not. Sale of goods exposes you to suit elsewhere, but enforcement would still be here, so either one is better than nothing. If you want to expand into other states you might find a corporation more suitable.
  • Excellent advice. Heck, even the Singing Naked Cowboy (Times Sq. street performer) is incorporated.
  • fantastic post. Is a topic that is rarely discussed in our industry, but a topic that needs to be discussed. Most people are out there are running blind with no protection at all. Unfortunately, I think it's because people are building hobbies and not businesses.

    People look at their Internet business has an extra money maker. Something they'll do on the side to make a little bit of extra money. Most people don't really look at it as a true business.
  • Great post I agree. I've been seeing more about this topic lately but I still think it's not considered enough by most people. Great work.
  • Funny how I read this post as I was looking up info on the same topic!

    Michael, what are your thoughts on waiting to incorporate if you know you'll be relocating in a year or so? That's my current dilemma, as I'm currently in transition.
  • Great post. This is a topic not covered often in the courses out there but is very important.

    Quick question, does selling products in other states apply if it is sold from here in Florida? I started an LLC but considered switching to an S-corp because it seems to be popular among Bloggers and Internet Marketers. I spoke with another Internet Marketer who uses and LLC and then uses DBA's under that.
  • I formed an LLC last summer to cover all my online ventures and websites. In Florida, it cost me I believe $155 because I got a certified copy along with it. Then in March or April I had to fill out the annual papers and paid an annual fee. It's a very little cost considering the benefits you receive from having an LLC.
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