My startup questions

[oceangerl]

I'm new to the forums. I'm interested in starting up as an e-tailer or online retailer. I plan to sell goods online. I've been working on my business plan, I have my EIN, business license, fictitious name (since I'm doing it under a different name), and seller's permit as well as domain name and web hosting. I plan to do my own website because I currently work as a web designer.

Before I go into that kind of thing, I thought incorporating my business as a C Corp. to protect my personal assets and keep business liabilities separate from my personal debts. Or should I start off as Sole Proprietorship to see how the business is taking off first? Less fees and taxes to concern myself?

I'm wondering if it is possible to move business to another state if I decided to move down the road? If I established my business in this state but in reality I prefer to do business in another state where the costs of living are lower. Is it more prudent to do business in a state where costs of living is lower rather than in a state that has high costs of living? Because I plan to be solely e-tailer with no plans to open a brick and mortar but maybe a small warehouse down the road to hold the inventory if the business does take off?

[vangogh]

Hi oceangerl. Welcome to the forum.

Sounds like you're already off to a good start. I had the same questions about what kind of business entity to set up when I was first starting. At the time I didn't have much assets to protect so I went the sole proprietor route. That's still how I'm set up, but I would like to incorporate in the not too distant future. I've been thinking of forming an LLC myself.

It costs a little more money to incorporate, though not so much, and it will make things a little more complicated, though again not so much. You probably need to weigh the extra cost and complication against the value of what you're hoping to protect and how realistic it is that it will need protection.

If you're a sole proprietor you should be able to move anywhere. The only difference would likely be which state you have to collect sales tax for. It might be a little trickier to move after incorporation because I think you're filing with the state and not federally. It's really up to you about where you choose to live. Since you'll be selling online where you live shouldn't make a difference in your revenue, but it will make a difference in your expense. However money isn't everything. My motivation for running a business has more to do with living the kind of life I want than the money. I think that's true for a lot of us. I prefer to live where I'll enjoy living. There are less expensive places to live, but I wouldn't be as happy there so why move.

[Paul Elliott]

I'm wondering if it is possible to move business to another state if I decided to move down the road? If I established my business in this state but in reality I prefer to do business in another state where the costs of living are lower. Is it more prudent to do business in a state where costs of living is lower rather than in a state that has high costs of living? Because I plan to be solely e-tailer with no plans to open a brick and mortar but maybe a small warehouse down the road to hold the inventory if the business does take off?

Welcome to the SBF, Oceangerl.

I also travel a lot and spend varying amounts in different states.

I chose to form my LLC in NV. I technically domicile it there because of the very business-frendly attitude of the State of NV, e.g., no busienss franchise taxes. Since it is an online business, it can be there, and I can be anywhere I can get Internet access.

Paul

[Evan]

I chose to form my LLC in NV. I technically domicile it there because of the very business-frendly attitude of the State of NV, e.g., no busienss franchise taxes. Since it is an online business, it can be there, and I can be anywhere I can get Internet access.

Any business can incorporate in any state, whether or not it intends to do business in that state or not. The choice of state really requires some thought.

While the business is online, you are technically transacting business in your home state and would technically need to incorporate in your home state as well. Saying it is "online" no longer suffices, and most states do not accept that as a reason. At a minimum, you are operating an office of the business in your home state, which could be enough to require you to register in your home state. The specifics vary from state to state.

[Evan]

I am interested in starting up as an e-tailer or online retailer.

Before I go into that kind of thing, I thought incorporating my business as a C Corp. to protect my personal assets and keep business liabilities separate from my personal debts.

I'm wondering if it is possible to move business to another state if I decided to move down the road?

First, welcome! Good luck as your start your online retail store. There are two general reasons for incorporating or organizing (as an LLC) -- for legal protections, or for tax benefits. For what is best from a legal standpoint, ask a business attorney in the state you're conducting business. From an accountant's perspective, the cost to incorporate or organize varies from state to state. The fees also vary considerably. In my home state (RI), it's cheaper to form and maintain an LLC than a corporation. There are other states (say MA) where it is the opposite. But corporations add a bit more complexity that for the few dollars you may save, that it is not worth the headache.

You mention becoming a C-Corp, specifically over an S-Corp. For many businesses, it tends to be more advantageous to elect to be an S-Corp over a C-Corp. But depending on your personal tax rate currently, what you expect to make, and some other life questions, the decision of what choice to make can become a lot more complicated.

As a blanket statement -- incorporating or organizing can help protect your personal assets, but it isn't guaranteed. In such a lawsuit-driven society, people are willing to sue anyone for anything. If your name was thrown into a lawsuit, even if you were incorporated or organized, it doesn't mean the case has no merit or that you somehow aren't personally liable either. There are many ways to mess up that liability protection.

See the note I made above to Paul regarding the state considerations. But organizing or incorporating in your own state tends to be the best move as you would need to still incorporate or organize in your home state anyways. As these fees are often identical to incorporating or organizing in your home state to begin with, why add the expense of another state?

[Paul Elliott]

While the business is online, you are technically transacting business in your home state and would technically need to incorporate in your home state as well. Saying it is "online" no longer suffices, and most states do not accept that as a reason. At a minimum, you are operating an office of the business in your home state, which could be enough to require you to register in your home state. The specifics vary from state to state.

NV is my home of record. I simply travel extensively.

Paul

[Evan]

NV is my home of record. I simply travel extensively.

Certainly. My reference was more to people who have never even been to Nevada, let alone being considered a resident.

[oceangerl]

I did research on incorporating in state of Nevada, but then it means to do 'Foreign Qualify' in order to do business in my home state. It's an extra expense so I try to avoid that at all costs. I've spoken to a CPA about these questions. She said similar things that you guys said. Better to incorporate in my current state. She suggested C-Corp. for better tax advantage and reduce liability issues, but avoid leaving any dividends to shareholders because it will lead to double taxation if I'm a shareholder of this corporation. One thing I don't like about my current home state is that it has minimal state franchise tax of $800 for second year of business or at least a certain % of income produced from the business. I appreciate your feedback on this and I might just simply start out as Sole Proprietorship until it does take off. If it ever takes off, I will incorporate down the road.

[Evan]

You never mentioned a state, but mentioned $800 franchise tax. I'm assuming you are referring to California?

C-Corps can be good, only if you plan to grow the business and aren't going to be taking money out of it. Otherwise, making the S-Corp election is more advantageous, though you want to make sure you never lose it -- as that becomes a tax nightmare!

If you like the simplicity of the sole proprietorship (tax wise), and seek just the limited liability, an LLC is your best friend.

Of course there are state tax concerns that you need to factor in, and the costs.