Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 5 down vote favorite

I have a general idea of all of the business structures. I'm living with parents, with a toyota camry with 200k+ miles on it. I plan on launching a web service where people pay less than $100/month for something. Later down the road, I plan on scoring big contracts that begin at $1000 a month, or something. I'm thinking way ahead of any current problem I have... I like to be one step ahead of myself.

I've maxed out all credit cards and am seriously beginning to understand what this "entrepreneur lifestyle" is like.

Anyway, as you can see, I have no assets. LLCs protect assets, among other things.

I've been telling myself I want to get an LLC (IF I was bringing in $1k+/month from this) because I'm doing this full time+ and I feel it makes me more legit than a sole proprietorship + DBA (which I currently have).

If you were me, would you stick with the DBA + sole proprietorship, or would you get an LLC IF/WHEN I was bringing $5k+/month (thinking if I was in this position in the future)? I live in Los Angeles.

Thanks

share|improve this question

3 Answers

up vote 4 down vote

If you take on business debt, you should have an LLC so that you have the option of declaring business bankruptcy rather than personal.

However it's hard to get business debt any more. Those credit cards are backed by you, not the company, and any bank loan would require personal collateral, which it sounds like you don't have.

Therefore, since the business alone won't have debt, the LLC doesn't buy you any protection.

share|improve this answer
I respectfully disagree. LLCs protect its members from lawsuits, whether those are debt-related or otherwise. So an LLC still gives a lot of protection even if you don't have debt. If you ever get sued and lose, the LLC will allow you to avoid personal bankruptcy. – Michael Trafton Feb 19 '10 at 16:26
If only the LLC itself loses, right. But typically the human involved are sued severally, in which case it doesn't protect you. But you're right, some protection on that side of the lawsuit is better than nothing. – Jason Feb 19 '10 at 18:51
up vote 3 down vote

Having a formal structure does show some level of professionalism but in your case, you really need to worry about the cash burn since you don't have any revenue right now. As you mentioned, you don't really have any assets to protect and depending on your product, you will probably not have that big a liability exposure (unless your software controls nuclear reactors).

For now, it's best to save as much money as you can and forgo the LLC costs until you have a revenue stream. Then, you can reconsider.

When you are bring in revenue, then you can form an LLC. That does seem like a structure that will work with the type of business you want to run. Again, this all depends on your liability exposure and if you want to take on investors at some point.

share|improve this answer
up vote 1 down vote

My advice as an entrepreneur -- worry less about your entity right now and more about landing those users and contracts you mention. An LLC or S Corp is probably the right decision eventually, but you have bigger fish to fry right now. Putting all your energies into sales, marketing and creating buzz via social media and some traditional PR should be a top priority IMO.

Don't worry about incorporating just yet if you don't have a partner or investors -- that's a relatively easy piece that won't take much time. But sales fix everything!

Goodluck with your venture.

Bonnie at WebPRpro.com

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.