Hi Mark,

Yes, nothing can provide 100% protection all of the time, so LLC+Insurance is a good way to go.

While I can understand why some lawyers might feel that an LLC might not provide much protection for you. There is certainly less exposure for a blog about internet marketing that is mostly monetized with e-books, software and hosting services than with some other niches. However, the exposure that you might have may not be covered by most insurance policies either — so it’s good to look at those carefully.

However, how much an LLC can benefit an internet marketer really can depend on the web properties that a marketer/blogger owns. A blogger who sells their own “hard” products has more liability exposure than one who writes about fitness and occasionally links to fitness products — but both could get sued by someone injured by one of those products.

While you can’t avoid getting sued, if you could successfully have a court limit the suit to the LLC, that could also possibly prevent a lien going on your personal property during the time the litigation is pending (usually years) that could prevent you from selling your property or borrowing against it. And, for those who still have day jobs, being able to limit suits to the LLC can keep all of those distracting court filings from popping up when a prospective employer Googles your name. These aspects are usually overlooked by CPAs when they recommend against an LLC.

Kind of like insurance or a gun or a fire extinguisher — a person really doesn’t need corporate/LLC protection until they NEED it (and then you REALLY need it). And you may end up being surprised at how and why you get sued. In modern business times, anyone who really does any substantial business can plan on getting sued at least once.

So people have to talk with both attorneys and CPAs and then do their own risk-reward analysis. In many states, LLCs are cheap to form and require only a 1-2 page form to get started — an require much less paperwork than an S-corp or C-corp. In others, there can be a minimum yearly fee (some around $500, check with your State). Still, if a person is making any kind of real money online, that is a small price to pay for the extra protections and peace of mind.

Best,
Rob

Very cool,, Thanks for the heads up Mark.

Very very easy. The feature that I like was that they use a “setup wizard” approach to fill out your forms. As you answer, you can see how others have answered in the past.

Note that if you have them be the official document handler for your business (to avoid revealing your home address) that this will result in an extra fee. I did not think they did a good job of expaining that option (or the fee). So watch for that.

Otherwise, two thumbs up.

How was the process with Zoom?

I am not sure about PI, either. But, I am sure there is something similar available. Thanks for the comment.

Thanks — sorry about that. Not sure what the equivalent is in Oz.

Thanks, Mark. I appreciate the kind words.

You are correct! Having an LLC at the end of your business name does make your business look a lot more impressive.

I run a single proprietor business right now. Am not sure if LLC’s apply here in the Philippines. But your post on LLC is very informative, at the least.

Jaime

Interesting — that is the first time that I have ever heard that number. Thanks for sharing that experience. Will be anxious to see what my tax guy (she is actually a gal) says.

I’m at work, stucky behind a proxy server, so I wasn’t allowed to submit my comment to your discussion on forming an LLC.

Here was my comment:
– – –
I used to study real estate investing. I attended several presentations (some by lawyers, some not) on why to form an LLC. The more I found out, the more I learned you really need a good lawyer as soon as you can afford it.

Here’s two (of many) reasons:

How to protect your business from something you do outside of your business. Lets say you back into an nice old lady in a parking lot and she sues you for everything you have and wins. If you are the only “member” of your LLC, she can eventually “foreclose” on your membership interest and take over the company and everything it owns. The advice I got was to have a 2nd member in the company, even they only have a 1% interest. Why? Because if you own the whole company, you don’t need anyone else’s agreement to sell the company. If another person has to approve it, then sale is prevented. (Again, talk to an attorney, or hang out in real estate investor forums so you can be thoroughly confused).

As far as tax savings are concerned, unless you make a lot of money, there are no tax savings. The subchapter S tax method, for instance, saves you some taxes if you make more than what you (and the IRS) decide is a fair salary. (For example, you pay yourself as CEO of your company, $60,000 a year, but the company made $100,000. Subchapter S can help tax that extra $40,000 differently to save on self employment taxes.)

Rob — great article. Thanks for the comments — I really appreciate you taking the time to write an excellent response.

A few things — you are right, I do mean well. 🙂

Second, if I understand your point correctly, you are basically making the argument that since the LLC will provide some protection of personal assets in some situations, that there is no reason not to have one.

I agree.

My point here is that many people believe that if they form an LLC, that their assets are “protected” — and this is simply not the case. I think we agree on that.

The approach you recommend — LLC + Insurance — is exactly what I am doing, for exactly the reasons you state.

For the record, I have had a couple of lawyers that set up LLCs on a regular basis tell me that in my particular case (solo entrepreneur worried about blog-related damages) that LLC protection would be almost useless.

Thanks,
Mark

G’day Mark and all,
Like Michelle, I am an Aussie doing business on the internet, and I have been bombarded with well-meaning advice that I NEED to set up an LLC or Inc. in the US to protect myself and my assets from the possibility of legal action. I was, in fact, planning to do so in a couple of weeks, but now you are saying that as a sole employee of my company that I would not be covered from legal action anyway. That is scary!

As Michelle said, setting up company status in both countries is fairly expensive and time-consuming, so if there aren’t any real benefits to being an LLC then I might have to re-think the whole thing. Thanks for the info, Mark and Josh!
Terry

The laws “as I know them” are very similar in Australia. There are hefty fees involved in setting up a company here and the ongoing paperwork and level of information to be submitted regularly is significant.

Looking forward to what you find out regarding insurance.

I love the logo. 🙂

Now that is very cool!

Steve

I am not surprised — so that is what I expect to hear from my tax atty. My big question will be “why or why not.”

Thx for reply Mark. I didn’t know that. I will do some checking.

Steve

Mark, I’m no attorney either, but I discussed moving to an LLC with a good CPA a few years ago, and the tax benefits were definitely not worth the costs (both financial and time) of starting and maintaining the LLC. And we never even discussed the liability issues such as the ones you mention (I wonder if he even knew about them).

I look forward to your follow up on the tax issue. Thanks for the info.

Steve, I am pretty sure that it is possible to obtain an EIN as a sole proprietor. You might ask your Tax guy (maybe you did that already).

http://www.peakpersonalfinance.com/llc-corporation-better-than-insurance/

Regards,
Rob

Steve

Very interesting info and I’m looking forward to reading more about this topic in your blog.

I’m not an attorney nor am I am a CPA, but I do pay a tax attorney to do my taxes. Per my tax attorney, I need to make $10,000 per year or more from by business to realize any true tax savings by forming a LLC. Again, ask YOUR tax person for advice on your specific situation, but this is what I was told last year at tax time.

Also, a sole proprietor can apply for an EIN online. It’s very simple and only takes a few minutes.

Thanks again for the great info and a great blog.

-dc

Right — you are saying exactly what I thought. My understanding is that your common sense assumptions are incorrect.

Bottom line as I understand it — if your company harms someone and you are the only person in the company, it really means that you did the harm yourself. That means that you will be named in the suit, and the protection of your personal assets will be broken (easily as I understand it).

Yes — the answer is Liability Insurance. And that will be another post (when I get it all wrapped up).

Just to be clear — I am not offering advice — your situation could be much different. However, given the information that I have, your decision sounds reasonable to me.

One thing that bugs me about this is that lawyers make money selling LLC setups. They are bound by a code of ethics, but it is still a conflict of interest. Since they are the only ones that really understand them, I find it hard to get an unbiased opinion on whether or not you need one.

Patrick — my LLC is formed in Texas. I tool the standard package and added the option to have LZ get my EIN for me, and to be the official registrar for me. I did the latter to protect my home address (which is very easy to find in any case).

Totally agree — the liability protection (or lack thereof) really surprised me. Thus the article.

As for branding — I totally agree. This was my primary motivation (will discuss in a future article).

With regard to taxes — I am told by many that LLCs are not much tax help for individuals. But I have not gotten feedback from my tax pro about my situation. So, we shall see.

Excellent — you should also consult your attorney about running naked – there are some public indecency ordinances that you probably need to consider….LOL

It seems to me (from a commonsense point of view) that there should be a difference between liability for actions connected with the company operations and those that are personal in nature (like insulting someone). I would expect that the limited liability would cover you if it were suggested that a product of yours had lost someone money.

Not sure if commonsense and the law often agree though!

Thanks for the information on LLC’s. I’ve thought about forming one off and on for years but never have done it yet. Sounds to me like I don’t really need one based on your findings. I use very little money to run my business and if it won’t protect me in a lawsuit then no need. However, I am interested in hearing your findings on the tax side of things. Although sounds like Josh has gotten some advice on that and it wouldn’t help there either. Anyway, I appreciate it. Saved me some time and effort.

Trent

The quality of your information is second to none.

I will be back again soon

Mark McCulloch

Your post is the first exploration of LLCs I have ever read in the many years of reading about LLCs that not once mentions the word “privacy”. You did mention “other reasons”. I’m wondering if your LLC is based in your neighboring State. 😉

Thanks again, Mark. Have a Great Day.

Caveats noted, but it seems that Branding and Taxes may be good reasons to incorporate but legal protection is not?

Yep — that’s the one (although I did not even know that until you asked).

http://www.legalzoom.com/about-us/management-team.html#robertshapiro

Your article has prompted me to consult an attorney sooner rather than later to get my business structured to meet my needs and objectives.

Thanks!

Bill

sba.gov has a wealth of resources to pour through before consulting a professional on how best to incorporate.

Question – Is LegalZoom the one that was co-founded by Robert Shapiro?

I’m looking forward to your follow-up posts.

I plan on discussing taxes in another post — not done researching that one yet. Another issue is insurance. I’ll be working on that one as well.

I don’t think you discussed the tax issues did you? He tells me I wouldn’t benefit from an LLC in regards to taxes either. But I’m sure that depends on the person, company and other factors.