Multiple Business Entities or One Umbrella Business Entity?

[Business Attorney]

On the whole, I don't see much advantage to setting up different entities for each website. The primary advantages of an LLC, for example, are pass-through taxation and limited liability.

As a sole proprietor, you already have only one level of tax, so there is no advantage over an LLC on that count. As to limited liability, there may be some protection but since there seems to be a relatively small risk of liability in most cases, the advantages of an LLC may not outweigh the cost and hassle.

There are certainly some types of websites where there are substantial risks. Those would benefit from the protection of an LLC or corporation. Such sites might include sites that face legal and regulatory scrutiny (such as offshore gaming or adult sites), sites that may be viewed as encouraging or at least enabling violations of copyrights or other rights (such as social networks and PTP sites), sites that may be reasonably expected to generate an occasional lawsuit (such as hosting violent games or sites that recommend unproven natural or homeopathic treatments for curable diseases that results in a death), etc... However, most sites seemingly pose little risk of such claims. It is difficult to see how a site on gardening, web site design, or reviews of web hosting companies would trigger a lawsuit or other liability.

A third reason that some people prefer to use an entity is that it provides at least a limited privacy screen. Rather than plastering your own name all over the place, you substitute the name of an entity. While people can check who is behind the entity in most states, some states now charges for that information, making it unlikely that someone will check just because of idle curiosity. A trade name may serve a similar purpose, however, at less cost and with less paperwork.

Also on the privacy front, some people prefer not to give out their social security number. As a sole proprietor, your social security number is your tax ID and must be furnished to payors. An entity would have its own tax ID, avoiding the need to supply your SSN.

[vangogh]

Thanks David. It sounds like I really don't need to make things too complicated and just keep myself as sole proprietor like I have been.

I actually do have a Tax ID. I don't need it for anything at the moment, but I got it specifically so I could use it instead of my SS# where applicable.

[Evan]

Originally Posted by vangogh

I actually do have a Tax ID. I don't need it for anything at the moment, but I got it specifically so I could use it instead of my SS# where applicable.

Which was my only disagreement with David's very detailed statement.

A seperate Tax ID # can be obtained from the IRS as a sole proprietorship by filing SS-4. You could even complete it online and print it out in a matter of 5 minutes. This certainly offers some security against identity theft.

If you form a single-member LLC from your S/P, and continue to be taxed as a S/P, you can continue to use the same EIN. If you add other members (partnership), or choose to be taxed as a corporation (S-Corp or C-Corp), you'll need to apply for a new EIN.

[vangogh]

I actually got my Tax ID with a 5 minute phone call. It was very easy and painless and does help protect my SS# in some instances.

[Evan]

Originally Posted by vangogh

with a 5 minute phone call.

To the IRS!?

Lucky.

[vangogh]

Shocking, right?

[Evan]

I've never been able to have a 5 minute phone call with the IRS. I usually wait at least 10-20 minutes.

I must be calling the wrong number.

[vangogh]

I think I was just lucky. I was definitely expecting a much longer phone call. For whatever reason I got through right away and before I knew it I had a tax ID.