I want to start a internet based multi-media audio and video company. Should it be an LLC? And can I register out of Delaware?

Asked about 4 years ago - Boston, MA

I want to start a graphic design/website internet based company and my research thus far has concluded to go with an LLC. I will most likely have one other investor involved as well. He will not be doing any of the actual work. I will be doing the work, and possibly one other friend who does audio production. Is an LLC the best route for me?

I also heard registering the company out of Delaware is the best way to go since they have the best taxes and so fourth, for small businesses. Is this true? I live in Massachusetts and dont want to deal with our taxes, but would I have to drive there for any occasions aside from a court summons if I was being sued?

Im aware I should get a lawyer, but Im 25 on a reall slim budget and Im hungry and motivated, I gotta start somewhere. Thank you!

Attorney answers (3)

  1. Freya A Shoffner

    Contributor Level 11

    Answered . Congratulations on deciding to start your own business. It can certainly be the best way to do what you love and love what you're doing. Choosing an entity is important for a number of reasons. First, it will help you define the relationship between yourself and your investors. Second, the taxes you pay will be affected by the entity you choose. Third, if you are planning to go public or to sell the business the entity you choose may make a difference.

    Nevertheless, it is important to remember to keep things simple. You don't need a complicated entity structure especially because you don't have a huge budget.

    You didn't say why you think an LLC would be best, and without more information I can't agree or disagree with you. Often, people choose an LLC because it seems simpler to set up than a corporation, when it actually setting up an LLC properly also requires thought and careful drafting.

    The same goes for the decision to establish in Delaware. For many years Delaware was the preferred state for incorporation, but since then Massachusetts has completely changed its corporate laws and it has added its own laws regarding LLC's. Therefore, the right answer depends entirely on your business' structure and your goals.

    Before you do anything, you should speak with an attorney who focuses on start-up ventures. Spending time and perhaps a bit of money to set your business up properly can make the difference between success and failure.

    At Shoffner & Associates, like many other law firms, we do not charge for the initial 30 minute consultation. You also can obtain advice from organizations such as SCORE.

    If our firm can be of further assistance, please feel free to call us at 617-369-0111.


    This answer is not intended to provide specific legal advice. No attorney client relationship between you and Shoffner & Associates or any of its attorneys is established, intended ,or implied. This answer should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction regarding your particular situation.

  2. Galen Gentry

    Pro

    Contributor Level 13

    Answered . If you are 25 on a real slim budget but hungry and motivated, then you should worry about what you do best first. I assume that you know about or are interested in the entertainment business. Focus on the task of marketing and providing excellent goods and/or services. The purpose of corporations, LLCs and other business entities is to provide protection from personal liability for business debts and to memorialize the rights and the obligations of the individuals who are shareholders or members.

    You're jumping the gun worrying about things like the pros and cons of Delaware incorporation. It doesn't matter to a small business with minimal cashflow. Also, assuming you do incorporate or form an LLC to obtain capital (borrow money) you will almost certainly have to provide a personal guarantee for the loan. This means that one of the reasons you're probably considering creating an LLC, protecting personal assets from business debts, will not be possible until you have several profitable years.

    Having said all that I applaud your interest in laying the ground work for a business. I suggest you go to www.nolo.com and check out the company's concise, easy to understand books on starting a business and running one as well as books on creating your own LLC or corporation.

    If you're going into business treat it like a business. Open a checking account that is used only for business expenses and into which you put seed money and payments. Find an accountant; income taxes on a sole proprietorship are paid via a schedule C on your 1040. Small businesses often trip up on taxes. Boston Metro should have information relating to registering a business and local business taxes on the internet. Good luck.

  3. Galen Gentry

    Pro

    Contributor Level 13

    Answered . Dear Boston,

    Sorry, but I missed the sentence about having an investor. (And said 'entertainment' not internet in my first response). If you have an investor you can create an LLC or a Limited Partnership. You will have to come to an agreement regarding certain important financial issues not the least of which is whether you are going to be personally responsible to the investor for paying him back if you don't make money. An LLC should have an operating agreement and you should spell out your rights and obligations in the LLC documents. Again, this is something you can do without a lawyer if you avail yourself of the www.nolo.com reference books (I have no financial interest or relationship to nolo.com).

    You could also keep it simple and have a personal loan (that you memorialize with a writing) from the investor. If you're going to have an employee you must obtain an Employer Identification Number from the IRS and one from your state. You must withhold taxes on the employee. So, balance the benefit of an employee with the cost not just in money but in administrative headaches. Remember, accountants are your friends particularly if your venture is successful.

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