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LLC or sole-proprietorship for website?

San Jose, CA |

I run a website and have no debt, i'm not taking out any loans, and my sales/expenses are minuscule. The site is like a forum with social features. Do I need business liability insurance? Will forming an LLC be ideal? What will the site's terms protect me against and if an attorney drafted them for me is this something I still need to be concerned (and hence need an LLC or insurance for) about?

Attorney Answers 4

  1. Yes, business liability insurance is a good idea. The type of entity that's best for you depends on many factors, like whether you want to pay franchise tax this year, whether you want to be able to deduct pension contributions, etc. etc. You don't state what kind of content is on this site, but you probably need a business lawyer to draft a DMCA "takedown" policy, terms of use, minor's policy, disclaimers and disclosures for your content and disclosures, contract language for your sales, etc.

    You've already failed to hire a lawyer to vet your website trademark and domain name and page content, so you may be exposed to trademark and/or copyright infringement problems. Hire a lawyer immediately before you do anything else.

    Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.

  2. Your "business" doesn't really sound like a business but more of a hobby. Miniscule sales --is that because you are starting out and have intention to do mass marketing and have lots of sales, or is this really more of a fun social media thing with some "friendly" sales. Here's a pragmatic answer. Whether or not you need an expensive business lawyer, legal entity creation and or liability insurance, etc, is really a function of what exactly the website does and sells. Business liability insurance is for harm or injury which your product or website use may cause. If you are taking people's credit cards, there is risk there for sure. If the product can in any way harm someone even being used improperly, there is definitely risk there. If you are using the name someone else has trademarked, as the other attorney stated, that is infringement--You can find that out easily by searching the Since you did have an attorney draft the sites legal notice and terms that should give some protection, but not for any credit card theft or personal injury, even if it says so. People will sue anyway if they are injured. So analyze (or get a legal opinion) if whether your website use or product can even remotely cause harm or injury, that will answer your question. Fast Forward, even if the answer is no liability remotely possible, assuming the business is more than a hobby, there are many benefits of incorporating a business once there is a lot more than miniscule income.

    The foregoing is for informational purposes only and may not be relied on as attorney-client advice.

  3. Deciding when to form a limited liability entity (Corporation or LLC) is totally up to you and depends on a number of factors including sales, employees, employment agreements or other contracts, marketing/image, and how you want to grow in the future. If you only intend to do blogging or selling things on eBay, a sole proprietorship may suffice as California charges an $800 tax each year for running corporations or LLCs. However, if you plan to grow and hire employees, or make out of state sales or start a marketing plan, I highly recommend you consider forming a legal entity or at least consult with a lawyer about forming a legal entity right away.

    Legal Disclaimer: Kindly note, nothing in this legal answer creates an attorney-client relationship nor is it to be relied on as legal advice in a court of law. You should consult with a competent attorney in your jurisdiction as these words do not create any legal rights of any kind.

  4. Are You Planning on Opening a New Website?

    Below is a checklist for legal issues I use for new e-commerce clients.

    1. Busines entity - Are you going to be a C corp, an LLC or a sole proprietorship?
    2. Terms of Service - This is your contract with your visitors and is the most important item for any e-commerce site. A little work here brings big dividends in the future.
    3. Privacy Policy - Every e-commerce site needs a privacy policy!
    4. FTC guidlines - The FTC has been regulating business advertising for almost a century. All of their advertising guidlines apply to e-commerce sites.
    5. Trademark - Do you have a brand name free from conflict? Should you start with just common law rights? Should you register the mark, and when?
    6. Copyright - If it is on the web, it already belongs to somebody. Did you buy a license for the images you are using? Do you have a DMCA notice on your web site?
    7. Do you need and have an EIN? You can get that for free.
    8. Do you have employees? - If so you need written policies regarding their authority and use of the internet.
    9. Do you know the difference between a "browser wrap" and a "click wrap" and which do you need?

    When I discuss this list with clients other issues arise. Finally, I always discuss with my clients their need for good accounting services. An accountant's advice as you start up can save you many dollars in tax that you might not save if you wait to speak to an accountant until your first tax return is due.

    I hope this list will give you pause to think about those issues for which you might need to seek professional advice.

    Please feel free to contact me concerning your issues (No Charge.) I also offer a new client special to perform this work. The complete package comes in at $1,499.00.
    Andrew M. Jaffe
    Attorney at Law

    This post is provided for general informational purposes only and is not intended to be legal advice specific to you. This general information is not a substitute for the advice of an attorney in your jurisdiction. The attorney client relationship is not established by this post.

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