Explanation of state filings

I realized I was talking about a lot of things that I wasn’t sure if my readers understood. Let me walk through some of the filings and the explanation of why I filed what I filed:

LLC

A Limited Liability Company provides shelters your personal assets from those owned or controlled by the business. It also offers some anonymity when you are doing business online. I chose Nevada for its strong privacy, no state income tax and fairly pro-business environment. Besides, my next trip to Vegas, maybe I can write off. In addition I am not running a store front but a virtual business so filing one in my home domicile was not required.

Other structures include the typical Corporation, a Sub-Chapter S corporation, Partnerships and sole proprietors. You will have to do the research yourself on the various reasons you might want one but given that mine is a single product, low overhead that I feel I can run myself, and would never need funding, I think the LLC is a good fit for me.

Registered Agent

A registered agent is a company that will take any type of legal service on your behalf. This included any type of lawsuits or subpoenas, as well as documents from the state, such as filing and tax documents. They also remind you of compliance issues and filing dates. It is important to note, if you do not live in the state you are filing in, you will need a registered agent anyway.

EIN/TIN

This is an employer identification number or also known as a tax identification number. It is like a social security number for your company. You need it to open bank accounts, registered with the local taxing authorities, and if you hire employees to pay excise and employment taxes. Even if I didn’t have an LLC, and was a sole proprietor, I would still get once just to keep my SSN off a bunch of public documents.

DBA

Doing Business As. This is a document you file with the state to identify the name of your business. It is also called a fictitious business name in some states. A DBA has several purposes. Once, it allows you to have multiple businesses under one corporate structure:

· Entity: ABC LLC
· DBA: DEF Sales
· DBA: XYZ Services

It also allows you to receive payment into a single bank account under multiple names. Your bank will most likely require it to open a business banking account. It even allows you to make letter head and business cards.

Operating Agreement

This is filed with your LLC to explain how the company will work. I have not received mine yet but will most likely make a few minor changes if I do not like the indemnification provisions. The operating agreement could even include things like ownership changes, splitting of profits and even little things like, year end.

Certificate of good standing

I know little about these. I just know I didn’t need one. Certain states require it but since mine didn’t. If you have a store front and an LLC in your state, just make sure you don’t need one.
Unfiled

There are more documents I need to file, I am just not sure yet. Some of these will be sales tax documents with the states I will accept sales tax in. Others will be a listing of the members and any tax documents I need to think of. I will update you as I figure out which ones they are.

Disclaimer

I am not a lawyer by any means. I am just a small business person sharing my experience. Part of the reason I used the service was, not only for speed, but to make sure things are filed correctly. My whole filing including all the items I listed above was less than 400 dollars, all in. This included the filings as well as state fees and even shipping (pure profit by the way). Don’t let fear of the unknown hold you back.

Ordered my LLC

Finally, after dragging my feet, I got the process started for creating my legal entity. I went with a Nevada based LLC. Since it will be a virtual business, i.e. no store front, I decided on Nevada which had strong privacy and no tax liability outside of sales tax. I looked at a lot of different services including legal zoom, incorporatefast.com, intuit and myllc. I chose MyLLC and I can not be happier so far. The woman who started the company also wrote LLC for Dummies, so there is at least some literature pointing towards expertise.

I got onto their live chat and was lucky to connect with Nicole who is their operations manager. She walked me through the entire process, what I needed, what I didn't need and to make it even better, gave me a coupon code at the end that essentially waved the filing fee.

As the process continues I will keep you updated and let you know any snafus. If it does as well as it has so far I will be quite pleased. If any of you need to start an LLC, here is a link:

http://www.MyLLC.com/default.aspx?referredbyaccountid=52909

One day closer!!

Still Here...

So I know it has been a while since I posted and I wanted to apologize to those who check out the site from time to time. Life intervened and I was not able to work on the business idea. I finally got my drawings back from my friend, and it looks darn good. A lot better then my pencil and pen drawings on blank paper. She did it in illustrator which provided a PDF I can provide to potential manufacturers.

LLC... God am I confused. So much conflicting data right now and trying to figure out where to domicile the entity is driving me nuts. I talked to my sister and brother and law and I will include them as 2% owners so it is not a single entity LLC. This should provide greater liability protection. Also, since they would be the beneficiary of my shares in the event of my death, it makes sense.

Now, where do I domicile it. I originally looked at Nevada for a variety of reasons. I then decided Illinois since that is where I am living at the moment. But there is possibility of moving back to California, this could screw things up of course. I may just break down and to the Nevada LLC, since it is cheaper, and they do not release the name of LLC members, go figure a state started by the Mob...

Either way I am hoping to find out this week if this company will be interviewing me in California, which will further determine how I structure. In all reality I just need to stop fooling around.

My to-do list this week

This week is a busy one but I am building out my to do list so that I can figure out what needs to be done this week.

Scan and email to my friend my crude drawing so she can build it out for me in Adobe/Quark when I go to manufacturers.

Set up PayPal for the business attached to a seperate credit card. Bank of America offered me a credit card in addition to the one I have with them already so might just need to set it up that way. I am tempted to set it up against a credit union account I have already. Just not sure yet.

Set up phone number in Skype. I need to check and price out so that I have a "Business" phone and voicemail at this time.

Fill out provisional Patent Application and file with Patent Office.

Figure out "company name" to start an LLC. While I didn't want to spend the money initially to have it filed in Illinois, I think that is being penny wise pound foolish. The liability protection is well worth it. I was originally going to do it in Nevada, but since the product will originate in Illinois, I need to make sure I have an Illinois LLC.

This in addition to some interviews and networking opportunities I am supposed to have this week should keep me pretty busy.

Shipping Terms

So when you get to the point where you have a product built and shipped, you will need to pay attention to the shipping terms. Unlike when you buy your dell computer and the computer comes damaged, and you reject it, on the B2B side that doesn't happen. Most items will be shipped FOB or Free on Board.

FOB is what is called an Incoterm or International Commerce Term. Wikipedia has a great synopsis of the various Incoterms and what they mean.

http://en.wikipedia.org/wiki/Incoterm

It is important to realize that shipping terms and conditions are litterally centuries old. Lloyds of London was originally set up to insure spice shipments. Risk Management departments litterally spend weeks negotiating, shipping terms, conditions, and even the definition of Free on Board. If the crain drops the container and it hits the railing, was it considered "on board"?

Since in all possibility you will not have a cargo insurance program, evaluate the risk of product being lost or stolen in transit. While it is a big money maker for sellers (think Best Buy makes money from selling a TV? Nope just the insurance on it.), it may make sense for you to have them cover the cost of the product.

This becomes a bigger deal on high value items where the truck driver, stops to use the bathroom, and "forgets" to take his keys out of the truck. Oops, the truck is gone. And yes, it does happen! It is sometimes less of a deal when you use a common carrier like Fed Ex or UPS but try and understand the terms you are accepting from your manufacturer.

Should I incorporate?

Every small business has to decide the best "corporate" structure to provide for their business. You essentially have three choices. Sole proprieter, S Corporation or LLC. Their are advantages to all three and the final decision is yours. Which one works for you.

The main difference between the sole proprietership and the others is liability. Both the LLC (Limited Liability Company) and the S Corp (Sub-chapter S Corporation) limit the liability to the assets of the entity. Many prefer this since they do not need to worry about their house or car being at risk.

I have decided for this first project, the risk is minimal at best, so will not go through the process of seeking liability protection. The cost can be quite high. My next project I will create an LLC, so earning can just flow through to me the individual. Each state is different, and you just want to make sure your state recognizes single member LLC's.

My tax guy advises S-corps, and as I learn more I will let you know what he has told me. Of course everyone situation is different and you have to determine what works best for you. There are several companies out there that will help you set up and establish an entity. I have l inked to one below but I know there are several others.

http://www.incorporatefast.com/

Hopefully those who have incorporated can provide resources in the comments as well.