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MORE THAN A WEBSITE: CREATING A WEB-BASED LLC
Operating a website as your business can be a risky endeavor… not only do you have to overcome all of the competition out there and get your website to become popular with your target audience, but you also have a number of expenses and other liabilities that you have to take upon yourself should there be any problems.
This doesn’t have to be the case, however; by creating your website as a web-based limited liability company (better known as an LLC), you can allow your business to absorb most if not all of the liability in the event of lawsuits, credit problems, or other major problems that might arise. Best of all, in most cases you can do the work to create an LLC yourself and only have to pay the appropriate filing fees when sending in the paperwork (saving yourself sometimes hundreds of dollars compared to what some LLC creation services charge.)
Choosing to make your website into a limited liability company can have a variety of advantages; it protects you from the double taxation that occurs in some types of corporations, it separates your personal assets from your business assets so that you can’t be found liable for business debts and lawsuits in most cases, and it can even add legitimacy to your website as your visitors may feel more confident in the site since it has a legally-defined business entity behind it. If you think that making your internet business into an LLC would be in your best interest, then the process is probably much easier than you think.
Defining the Business
The first thing that you’re going to need to do is make a few decisions about the business itself. Since it’s a website instead of physical store or other business, you most likely haven’t registered the name of the business legally using a DBA form (DBA, which stands for “Doing Business As”, is a way of registering a business name and making sure that others in the area aren’t using the same business name as you.) You’ll have to decide exactly what you want the name of your new LLC to be, how you want to describe the business (such as listing it as an entertainment website, an online store, or a similar type of business.) You will also need to decide how you want to handle details such as accounting and the separation of your business’ money and your personal money (which is a necessity, since if you don’t do this you can lose your legal protection from liability.) Once you’ve figured out all of these details, then it’s time to start researching exactly what it takes to form a limited liability company in your state.
Researching State Guidelines
There are some federal guidelines which govern limited liability companies, such as the IRS guidelines concerning how they are taxed, but for the most part the creation of LLC’s is governed by the state in which they are created. Even though your website will be accessible to people all over the world, you’re still bound by the laws of the state that you live in… meaning that more than likely that’s where you’re company is going to be formed. Contact the Secretary of State’s office or visit their website in order to find out the specifics of what’s involved in creating a limited liability company in your state. Often the requirements will include filling out paperwork and submitting a filing fee, though there may also be residency requirements, business license requirements, and other factors which must be met as well.
Take your time in making sure that you meet all of the state’s requirements for creating the company, as the last thing that you want is to have your application denied because you overlooked something simple. After you’ve double checked to make sure that your paperwork will be accepted when you submit it, then it’s time to get your paperwork filled out so that you can send it in.
Filing State Paperwork
In most cases, the paperwork that you submit will simply require basic information about the business, the business members, and the mailing address that the business will be using. It should be sent in to the Secretary of State along with the appropriate processing fee, and unless there is some major conflict then it your business information will most likely be approved and filed. You should keep in mind, though, that this may not be all of the paperwork that is required; some states will also require that you submit reports on a regular basis, usually annually. This helps them to make sure that you are fulfilling your legal obligations in regards to the operation of your LLC, and also serves as a renewal point for your business registration in many states. Take care when submitting your business reports, since you don’t want to send in inaccurate information as it can result in fines or other penalties of discovered.
Contacting the IRS
After you’ve sent in your state paperwork to create your limited liability company, you still need to contact the IRS so that you can register your company with them for tax purposes. Either visit the IRS website or contact them directly to request all of the information that you need on applying for an Employer Identification Number (more commonly known as an EIN) as well as the procedures for submitting tax money from the business on behalf of all members and employees.
When taxes are deducted from your paycheck, you are actually only paying half of the tax debt that you owe… the other half is paid by your employer. When you create your LLC, it will be serving as your employer for this purpose so you’re going to have to make sure that the proper taxes are paid on time for everyone who is employed by your company. Depending upon the income that your website generates, you may be required to make payments once per year or you might have to pay more often (such as quarterly.) The IRS will be able to give you all of the information that you need regarding these payments, as well as how to get started in setting up payments with your state for state income taxes (if applicable.)
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Obtaining an EIN
Once you have all of the information that you need from the IRS, all that remains is for you to apply for your EIN so that you are properly registered with them. The process is simple, and best of all it’s free… all that is required is that you fill out a form and send it in. Once the form has been processed, the IRS will send you your EIN and any additional information that you might need to help you get your business working for you and making all of your appropriate tax payments on time.