I know that every business must be legal however, I just like to ask your opinion or experience with regards to any online business most specially web hosting. Did you legally register your business upfront even if you have only started up? (meaning you don't have any clients yet) Or did you wait until you had a substancial client base before you legally established your business? What are the pros and cons of either?

We started out just as a Sole Proprietor. After business picked up, we formed an LLC. If your business consist just of you when starting out, then just start out as I did. Each city/state/county is different, but where I live, there was nothing to fill out. My company name included my legal name, so I did not need to file a DBA. As for federal requirements, they just wanted their share of the profits, and those were taxed at my personal tax rate, used a schedule C.

An LLC will provide you additional protection for personal assets and is a little more involved in regards to paperwork and costs.

Good Luck.

*Note: Im not a lawyer, just my suggestion

mbr: Whether or not you have 1 client or 10,000 clients you need to be registered. Not just for tax purposes but for protection against the random hostile clients that want to impose law suits on your business. Not having the protection of a registered business leaves your personal assets vunerable in suit. Meaning if I sued you for 10 grand and won, that would come out of your personal pocket...

So do your self a favor, play the game straight, get an LCC or something (not expensive) by talking to your local county clerks office.

Yeah, what svdorr said. :D

Basically, we started as a Sole Proprietor > LLC > Corporation.

--Tina

Yes, register and be legal from the start!

Following the same track AH-Tina lays out, but we're only on the LLC step at this point :)

I think a lot depends on where you are.

Where I was/am I am not in a city limits so I'm not subject to any local business ordinances, I don't need a local business license, no zoning to worry about, etc.

As a "service" I don't need anything but a DBA to start with and of course, to claim my income from the business. So when I started all I did was go to the bank, open a business checking account using a DBA as Dixie Systems and that was it, really. Later the LLC was formed and that was done online.

Just make sure you file your taxes, schedules (C etc) etc etc (I'm not an accountant I have someone do all this crap for me to be sure I don't make mistakes).

Hi,

Start out legal. It makes things much easier. :) Start small and work your way up. I have know companies who didn't register or start out legally and then they were hit big time.

Thanks for the replies everyone. I will definitely be heading for the right way to do things. I was just thinking it over at the back of my head and needed some advice from people who have gone through this. Again, thanks for the input.

Another thing to consider when deciding whether to start out as a sole proprietor, is name protection.
Not much fun trading under a name and building a business up, only to find that someone else registers that name as a company. You then effectively lose your identity and have to start over with another one.

When I started it was sole trader -> partnership -> registered company. But, I had big dreams from the start and registered my trading name as a registered trademark. Although my company has only been in existance for a relatively short time (coming up 2 years) my name has been out there and trading for 4 times that long.
I had also snapped up several domains using that name.
If the business hadn't prospered I hadn't lost a lot, but with forward planning I really wanted to protect my business identity and I recommend that anyone starting out should plan for this as well.

Can't agree more. Get registered, and protect right from the start. (That's if you are serious about success!)

Another thing to think about if your not registered is how does that look on a professional level? I have read in many forums and talked to many people that have said if you are not registered your not getting my business. LLC and Inc's favor more highly then SP. Something else to think about.

Originally posted by Redcoat
*Note: Im not a lawyer, just my suggestion

mbr: Whether or not you have 1 client or 10,000 clients you need to be registered. Not just for tax purposes but for protection against the random hostile clients that want to impose law suits on your business. Not having the protection of a registered business leaves your personal assets vunerable in suit. Meaning if I sued you for 10 grand and won, that would come out of your personal pocket...

So do your self a favor, play the game straight, get an LCC or something (not expensive) by talking to your local county clerks office.

Actually not always the best idea. Once you get some revenue in and a little stockpile, sure...

But once you've registered, in the event a baseless lawsuit comes along (much less one with actual GROUNDS!)... your forced to hire a lawyer even if you could sucessfully defend yourself without one. An individual cannot represent an LLC/Corp without a legal license, as the LLC/Corp is it's own identity, and thus it does not fall under self representation, even if it's a one-man corporation.

Though once you have enough you can set aside a decent retainer for a lawyer and some working capital... by all means, Incorporate/LLC :)

I might be wrong. However, all the documentation that I have read and discussed with a lawyer an LLC is not a seperate entity. Do not quote me; however, I do not believe that is true.

It does depend on which state your in; you might want to check your facts though.

*NOTE* definitely NOT a lawyer.

Not registering doesn't mean you're not legal. It may be misguided and put you at risk you shouldn't put yourself in, but it's not necessarily illegal, depending on where you live.

Many places, if you have your name in the company name (or register a DBA), you're legal as long as you pay taxes. So when people say "start off right, go legal", that's not entirely correct.

But, it really doesn't cost much (in terms of time or money) to start up an LLC, and there's not much reason not to do so, IMO.

And yes, an LLC is most definitely a separate legal entity, as long as you can prove that you're not operating it as an extension of your own personal means.

WebOnce and derek.bodner,

I apoligize, I miss interpreted the text I was reading. It sometimes can be difficult for a sole owner to prove that there is no connection between personal and company assets.

It definitely can be difficult. If you don't have a business checking account, it gets really difficult. You'll even see a lot of people suggest to keep "meetings", even if you're a 1 person LLC.

But it can be done, even as a 1 person LLC.

Yeah, I heard that too. I guess you could talk to yourself for an hour or so.

Originally posted by derek.bodner
It definitely can be difficult. If you don't have a business checking account, it gets really difficult. You'll even see a lot of people suggest to keep "meetings", even if you're a 1 person LLC.

But it can be done, even as a 1 person LLC.

Yup, that's what I do... not for hosting, but for my marketing services company. Annual shareholders meetings, etc.

As for business checking accounts, don't be surprised if you get charged higher fees than on personal accounts... when I first got my business accounts, I was surprised that I was being charged $20 base fee a month plus being charged per withdraw and deposit -_-

Originally posted by mbr
I know that every business must be legal however, I just like to ask your opinion or experience with regards to any online business most specially web hosting. Did you legally register your business upfront even if you have only started up? (meaning you don't have any clients yet) Or did you wait until you had a substancial client base before you legally established your business? What are the pros and cons of either?

In the state I do business in, it is legal to wait until you reach $3000 in sales. However, I did not want to risk anything and I went ahead and registered as a sole proprietorship. In alot of states that collect taxes on web hosting (mine does not), if you are operating without a license/tax id number you can be penalized quite a bit. If you haven't registered your business, I suggest you do it as soon as possible.