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I live in CA, and I am publishing a Web site that I intend to generate a tiny amount of cash through ad revenue. It costs $800/year to form an LLC in CA which is exactly what I made last year in ad revenue. However, the fact that there are people using the site, and that I will be entering advertising contracts, makes me think it would be important to have a business entity behind it.

Anyone out there in CA and have incorporated out of state? Is it worth it if you're only really generating a little candy/comic book money? Is there another way to get the basic lawsuit/asset protection of an LLC as an individual without forming an LLC?

My plan for the LLC was to form it as myself and then d/b/a the Web site.

Thanks!

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Mostly a duplicate: answers.onstartups.com/questions/1832/… -- also, $800/yr? Sheesh. That's crazy! – Alex Papadimoulis Oct 20 '09 at 17:52
I guess I should have focused on the living in CA, incorporating elsewhere bit. That's the key - is saving the $800 worth it? – Don Zacharias Oct 20 '09 at 18:57

5 Answers

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  1. Incorporating outside California will not protect you from the $800/year CA tax (which is waived the first year). So that's a non-starter, unless you consider tax evasion a good strategy (I thought your goal was to reduce legal exposure, not increase it :-)

  2. Depending on who you do business with (Google AdWords for instance), your liability exposure might be acceptable, and you could continue as a sole proprietor. Obviously, you shouldn't consider my advice as legal advice, only fools listen to advice they found online...

As a side note, LLC liability protection in your case is not a perfect solution. If I'm a large corporation that decides to put you under, having an LLC will not save you from personal bankruptcy. Yes, it's wrong, but that's the way it is. If you had lots of money to defend yourself against bogus claims, then you'd eventually prevail in court. Except you don't have that kind of money, so you lose. In the end, it's a risk assessment of who might want to sue you, and how badly they would want to.

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That's good knowledge, thank you. I think if I can remove the contracts angle, then I am only looking at the situation where a party claims they are libeled by something posted on a blog that I maintain. So that's a specific legal topic to look at. – Don Zacharias Oct 21 '09 at 3:09
up vote 2 down vote

You should check out http://www.nolo.com about California LLC's. They have a great comparison as to what it gets you.

Now, for your situation, you should figure out what you really want to protect and what liability you are worried about. If you are only making beer money, then it's not worth it (from a cost/benefit analysis). If you plan on expanding and the content on your site might bring about a lawsuit, then having some protection makes sense.

Asset protection can be done by simply copyrighting your material. You don't need an LLC to protect assets from others stealing it.

The other option is liability insurance. The cost of that will depend on your liability profile but can be effective.

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I do hope to expand but even now I'm concerned that allowing public content on a blog leaves me open to a lawsuit. Liability insurance is something to look at. Thanks! – Don Zacharias Oct 20 '09 at 19:29
up vote 1 down vote

If you make $800 a year, and it costs $800 to incorporate, then the question is not if you should incorporate (assuming that insurance is not any cheaper) but if you should start the website itself. If you stand to make no money, or have a liability, then its not a good business.

Before starting a business, you need to make sure that it is financially viable. A hobby is something else, but a business must be profitable.

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Good point - this is a hobby. But allowing public content and wanting to sign advertising contracts makes me think I need some kind of legal protection. But I'm not inspired to create an LLC for the profit. Thanks so much! – Don Zacharias Oct 20 '09 at 22:13
If you are not looking for a hobby, you don't need the advertising contracts, and are not exposed to any liability from those contracts. Enjoy – RonGa Oct 20 '09 at 22:48
Well then it's halfway between a startup and a hobby. It is never going to be a replacement for a day job, but it needs to pay for hosting and registration and stuff, and if it generates beer money for the 5 people who write for me, I'm happy with that. I definitely see your point though, thanks for making me look at it in a new way! – Don Zacharias Oct 21 '09 at 3:07
up vote 0 down vote

Don, have you considered forming a C or S Corp instead? Unlike LLCs, those entity types have a max 1 tax year grace period for that $800 min franchise tax (though if you form now, the grace period expires at the end of this tax year). That might give you some time to conduct your business and see how fast it grows/how much revenue it generates with the liability protection taken care of.

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up vote 0 down vote

Have you considered making that a non-profit organization? If your objective is not to generate large equity income, that might be a valid solution. I don't know how you would structure this, and whether it would help you, but you should add it to your list of options.

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