I'm planning to start a small online store later this year. A friend says I should form an LLC now, before I even launch, to "protect myself." But I haven't sold anything yet. Is it really necessary to register an LLC before the business is actually running? Would love to hear what others have done.
LLC Formation
Should you register an LLC before launching the actual business?
I formed mine before launch mainly because I wanted a business bank account and to look legit to suppliers. It was pretty cheap in my state. But if you're just testing an idea, maybe wait until you have sales?
Liability protection doesn't kick in retroactively. If you're doing nothing that could get you sued, waiting is fine. But if you're handling client data or selling physical products, maybe not.
lol @ "protect myself" from what? imaginary customers?
I registered an LLC 6 months before opening my taproom. Mostly because I needed the EIN and bank account to sign a lease. If you don't have those needs yet, I'd hold off. Annual fees add up.
Also, some states have minimum franchise taxes even if you make zero dollars. That's a reeal downside to registering too early.
Wait, you can just form an LLC and do nothing with it? I th ought you had to have a business plan or something. Not sarcastic, genuinely asking.
Yeah, you can form one and not operate. But you still need to file annual reports and pay fees. Some states will dissolve it if you don't.
Just don't name it something you'll regret in 3 years. My first LLC was "Taco Empire LLC" and I never sold a single tacoo.
I'd say it depends on your risk tolerance and what you're selling. If it's just digital products, you might not need it right away. If you're shipping anything physical, insurance might be more important than an LLC at first.
The bank account thing was the biggest reason for me. Hard to keep personal and business finances separate without one. And commingling funds can pierce the veil anyway.
Thanks apl, this is helpful. Sounds like I should wait until I have actual transactions or a lease.
Wait, OP came back just to say thanks? That's rare.
One more thing: if you do wait, you can usually form an LLC in a day online. So it's not like you need to plan months ahead.
Also, if you're a sole owner, a sole proprietorship is the default. You can always "convert" later, though it's more paperwork. Some people just get a DBA and liability insurance.
This thread is way too reasonable. Where's the guy who insists you need an LLC, a trust, and an offshore account before you even pick a name?
He's probably busy forming his third LLC for a lemonade stand.