When is it time to incorporate?

**jamestl2** · 06-02-2008, 05:54 PM

I've noticed that many medium-sized sites decide to turn into LLC's (or create a company around the website), and most of the larger sites out there are full-fledged corporations.

So what I want to know is at what point in time is it necessary to take these legal steps, how large would a site have to be before it's a good idea to start considering a transformation of the business?

**VirtuosiMedia** · 06-02-2008, 06:34 PM

We're going to incorporate very soon, but I don't know if it really has to do with size but rather the benefits of incorporation. I'm not a lawyer, but as I understand them, some of the benefits are:

You and your personal possessions are protected from lawsuits which may arise as the result of your company doing business.

You can pay yourself in dividends rather than salary, which usually presents a significant tax advantage. In our area, the tax rate of dividends is something around 17% vs. 43% with salary.

All other things being equal, a corporation will probably have better professional appeal than a freelancer or sole-proprietorship.

I definitely recommend talking to both an attorney and an accountant, though. You'll also want to read up on share structure and corporate bylaws.

**jamestl2** · 06-02-2008, 06:42 PM

Quote:

Originally Posted by VirtuosiMedia

We're going to incorporate very soon, but I don't know if it really has to do with size but rather the benefits of incorporation. I'm not a lawyer, but as I understand them, some of the benefits are:

You and your personal possessions are protected from lawsuits which may arise as the result of your company doing business.

You can pay yourself in dividends rather than salary, which usually presents a significant tax advantage. In our area, the tax rate of dividends is something around 17% vs. 43% with salary.

All other things being equal, a corporation will probably have better professional appeal than a freelancer or sole-proprietorship.

I do realize there are advantages (and disadvantages) of incorporation, but at the same time, I don't know how those things could be affected solely by a website (like lawsuits for example, aren't privacy policies, TOS, enough?).

It just seems like many webmasters who do, undertake the process without really "needing" to go that far, although I'll admit I'm not completely sure. As in why would a "webmaster" specifically need to incorporate?

Quote:

Originally Posted by VirtuosiMedia

I definitely recommend talking to both an attorney and an accountant, though. You'll also want to read up on share structure and corporate bylaws.

I don't have a personal lawyer or accountant (I'm only 21), but I don't think those guys would be too hard to talk to, set up an appointment, etc. I'd have to look into that (I'm not a legal expert).

**VirtuosiMedia** · 06-02-2008, 07:16 PM

It depends on where you want to go with your site/business, but when you have the money (around $1000-$1500), I'd highly recommend incorporating, even if it's just to protect yourself. I really couldn't imagine sites like Facebook, Google, CNN, etc. relying on TOS and Privacy Policies. Perhaps more relevant to you would be a site like wikileaks, which has been sued numerous times. If you're running a conspiracy forum, you might have members post things that they shouldn't. I'm sure you wouldn't have a problem just removing an offending post or thread, but I'm not sure if a court would always view it as enough. That's not meant to scare you, but it is an (unfortunate) aspect of our society that shouldn't be ignored.

All that said, however, I don't think you necessarily need to worry about incorporating right now, especially if you don't have the money for it. If you do start generating a decent amount of revenue from sites or freelance work, it would probably be very worth it to spend the money to incorporate. In that case, I would do it sooner rather than later for the reasons I listed above, but I think you should be fine until then.

**jamestl2** · 06-02-2008, 07:22 PM

All right, thanks for the tips VM

.

That's why I was asking if sizes like revenues or traffic mattered much when choosing to incorporate website businesses.

Like I'm saying, I understand why the larger sites out there choose to, they have many different aspects and dynamics other than just "useful content" or basic services to offer.

Although, concerning removing and deleting threads, they violate the forum rules, so aren't they technically the ones at fault? (Not of risking getting sued, but in the court's eyes, should an even like that take place.)

**willcode4beer** · 06-09-2008, 12:49 PM

Quote:

Originally Posted by jamestl2

I've noticed that many medium-sized sites decide to turn into LLC's (or create a company around the website), and most of the larger sites out there are full-fledged corporations.

So what I want to know is at what point in time is it necessary to take these legal steps, how large would a site have to be before it's a good idea to start considering a transformation of the business?

Many people recommend doing it soon. This is usually meant as a way to protect your personal assets if you get sued (LLC = limited liability corporation). However, if you are a one man corp, a good lawyer can still come after your stuff.

Next, there are the tax reasons. A corp (unlike you) pays the same income tax rate, no matter how much it makes. So, many want to use the business as a way to control tax outflow. Keep in mind, whatever money you take out (as dividend or paycheck) will be taxed on your person.

There are some responsibilities that go with being incorporated. For one, many of your business dealings must be public, by law.

Personally, I recommend keeping it a sole proprietorship for as long as possible. You get maximum flexibility and control while your business is small. As a sole proprietorship you don't even have to give a reason to fire somebody. Many laws don't apply to you.

As a growing business, you're going to spend almost all the money made developing the business. No net profit, no taxes.

BTW, if you do find yourself with some extra money, spend it on a Hummer. Bush's tax credit (commercial vehicles over 6,000 lbs used at least 50% for work purposes) will give you so much money back that the even with the extra fuel used it's much much cheaper that a Prius. (just kidding, even though it is true)

**theguru** · 08-20-2008, 08:32 PM

Keep it as a sole proprietorship until you absolutely cannot anymore, otherwise you will simply be creating additional headaches and taxing yourself twice. If you are running a warez site etc. you might need a fully blown corporation (s corp) rather than an LLC.