Sole Proprietor, LLC, Business Entity WHAT?? Are you a new/ish entrepreneur that hasn’t incorporated yet? Do you sit and WONDER which entity you should choose? Or more likely, sit like this lady with her pen in her mouth wishing someone would help you decide?!?
It’s true that deciding when to incorporate your online business is a tough decision. There are differing views on when is the best time – one point of view is to wait as long as possible to avoid spending money and to ensure the business is viable. The other is the earlier the better to ensure legal protection, appear legitimate to customers, and separate banking (once you incorporate you can register for a Federal Tax ID number to get a business bank account).
If you are not making any money yet or are not worried about being held personally liable for any mishaps, is it necessary? On the other hand, what if your business goes from zero sales to 5K in a month and you are left without the necessary documents, bank accounts, etc. in place.
In the online world, going viral can happen at the drop of a hat – better to be ready than wishing you had taken the necessary preparations earlier!
The Basics: A Corporation and Limited Liability Company (LLC) are legal entities that have certain protections and benefits under the law. A sole proprietorship and partnership are also business entities but do not have the same protections
Technically “incorporating” means the act of creating a corporation under the laws of state; however, the term is now used interchangeably with forming a business, whether it be a corporation or LLC. While forming a sole proprietorship or a partnership are options, one of the main reasons to incorporate is to protect the owner from personal liability, which are benefits of a corporation and an LLC.
As an attorney, I always say to incorporate ASAP. It usually is not that expensive (ranging from $100-1000 depending on the state) and you can register a very broad business (e.g., ‘for any purpose a corporation may operate as’) so that even if you change course, you can still keep the same LLC. I also suggest to incorporate under either your name or a fairly generic name in case you do slightly change businesses.