If you are anything like me (and I can only assume that you are), you would love to have a more money at the end of the month, rather than more month at the end of the money.  So you stay up late, staring at the ceiling, waking up your spouse with bad business ideas and false epiphanies at 2:00 a.m.  Then–fast forward to 3 months later–you still have nothing to show for all your brainstorming.

My God you are sick. . . . . Just like me!

I, however, have a darker perspective from my day job.  I am general counsel at a construction company and I am confronted daily with the inherent hazards and unforeseen risks of doing business in California.  Lawsuits are rampant, regulation is stifling, and your customers are liars or worse!   What kept me up for many nights is the idea of taking on all of that potential liability.  So, I would get a good idea and then fret over how to insulate my existing assets from the lawyers, creditors and customers.

Finally, it hit me.  I would attempt to make a living on the internet.  This being 2008, I only missed the party by a dozen years or so.  I initially felt like the janitor picking up the auditorium at 6:00 a.m. on November 1st, after a Widespread Panic Halloween show.  But hey, I did my research, talked to friends about how they used the internet, and I figured that I would try my luck with a business online.  I have a good plan now (don’t you worry), but more on that later. . .

Selecting The Best Business Entity:

Sole Proprietorship, Partnership, LLC, “C” Corp or “S” Corp

Since I am an attorney, as soon as I decided to start a business my immediate attention went to the choice of entity to utilize and the tax consequences and potential liabilities of each form.  I ultimately elected to use the LLC because (1) it will require fewer formalities to run than a corporation would but still (2) provides some legal protection for the members, and (3) the LLC is not taxed at the corporate level, so all income is taxed at my personal rate.  The downsides of this election are that (1) a corporation has some tax advantages and (2) the corporation provides near certain legal protection for the owners, provided that they do not do something illegal or fail to uphold the corporate formalities and structure.

For me, a partnership was out of the question.  For one thing, I am just one person.  It takes two (at least) to have a partnership.

A sole proprietorship was also out of the question.  No matter how risk-free my new business may appear to be now, anything can happen.  So, I was left with a choice between and LLC and a corporation.

In California, LLCs are very common.  They have survived multiple challenges in the courts.  I am familiar with them because it is a common practice for builders to form an LLC for a single job.  They do this to protect the larger corporation from any catastrophe on a single job site.  Now, you are surely thinking that a corporation would do the same thing.  But the LLC requires fewer formalities and much less documentation to obtain that legal protection.   That combination of legal protection and user-friendliness was exactly what I wanted!

This site provides an excellent discussion of some of the considerations in choosing the correct entity.

Forming an LLC

In California, you can go to the Secretary of State’s website and search to see if your chosen nom de guerre is already in use.  Make sure that you search using the correct box.  I actually usually search in both to make sure that the name is not in use by a corporation or an LLC (you don’t want to violate a trademark or get into a battle about a name).

Once you find a suitable name for your LLC.  You can reserve the name using the form found here.  It costs $10.00, which is a small price to pay to make sure you get the name you want.  However, I usually skip that step and just go ahead and write up the Articles of Organization.  Fill in the form with your information, write a check for $70.00, and send it out.  Your Articles will get there just as fast as your name reservation form, and you save ten bucks.

After sending the form out, I usually wait three or four days, and then I start to check the website (using the name search) to see if the LLC is formed.  When it shows up with your name, you are good to go.

But you still have a little work to do.  First, I apply for a Employer Identification Number (EIN or FEIN) from the IRS.  They now allow you to go through that process online, and it is free.  This is a huge improvement from having to send in the forms and wait.  Believe me.  Secondly, you have to complete a Statement of Information Form for the Secretary of State.  The fee is $20.00.  I usually just wait for the State to send this form to me, but if you are excited, you can fill in the form here and send it in.

Final Documentation

The final step for now, is writing your LLC Operating Agreement.  By the way, if you are not familiar with Docstoc.com, go check it out through that link.  They have great selection and most documents are perfectly acceptable.  Now, I am a lawyer, so I wrote my own Operating Agreement.  If you are not a lawyer, or do not feel capable of doing this yourself–Go talk to a lawyer.  This agreement is everything.  Should any disagreement take place in the future, this document will govern how things play out.  You want it to be comprehensive, but elastic enough to cover unforeseen situations too.  So, go to a good lawyer and spend some money on this.  It is a great investment.

Also, you should go talk to your accountant about your new business.  Doing so now–after formation–will save you many headaches at the end of the year.  I know, I hate talking to accountants too.  

You Are Now The proud Owner of an LLC

There you have it.  Now you have to plow ahead and open a bank account.  Make sure to note your contribution in the Operating Agreement.  And then you can begin to move!

Stay tuned. . . next week, I will outline my Business Idea, and detail where I am in the process. . .

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Greetings!

I would like to introduce myself to you with flowery adjectives and a polished sales pitch, but the origins of this site are not suited for that.  Rather, I must admit that www.2pct.com was born from the realisation that I spend entirely too much time browsing the internet to compile resources and authoritative information for my multiple areas of interest and for my day job.

The lightbulb lit up for me when I realized that my bookmarks folder, the subfolders, and sub-subfolders were begging for better organization.  As I was reading a “10 best” blog post, it hit me that my bookmarks were a pretty damned good compilation of resources.  In fact, they were better than the list on the blog I was reading.  So, I decided to write a series of posts about starting a business. . . MY business.

Let me back up.  I have another admission to make:  I am a practicing attorney.  Before you hit the back button on your browser, let me tell you how this site can help you!

The first series of posts will be about starting a business, finding financing, and planning for success in a manner that can accomodate the potential strategic changes you will need to make as you begin conducting business.   These posts will be written as I go through the process of setting up my own business online.  You will be able to watch my progress as I try to take my own advice, and hopefully a reader or two might be able to learn something from my failures and my successes.

I am not allowing comments on this site, so if you wish to contact me, please email me:  matt at 2pct.com

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