Ask HN: What do I need to know before registering a 2 person LLC on Legal Zoom? | Hacker News Reader

Ask HN: What do I need to know before registering a 2 person LLC on Legal Zoom?

27 pointssi215 comments

What do I need to know before registering a 2 person LLC on Legal Zoom?

That the LLC form is really 1 page and 1 follow-up form. This will cost < $100 in total if you spend 10 minutes googling how to do it. (I'm not a lawyer, but this is what I know)

1. LLC FAQ http://www.sos.ca.gov/business/llc/llc_faq.htm

2. LLC Form (1 pg) http://www.sos.ca.gov/business/bpd_forms.htm (search for LLC-1) — $70

When you get approved, you will need to submit a Statement of Information which costs $20.

3. If you don't make money you can waive the first year's min. franchise tax of $800.

4. Lawyers will usually help you for free if you are starting a legit business, but it will be costly (we just got a bill for $10k for starting up our s-corp).

5. Good luck!

Absolutely right. LLC is intended to be, and is, very easy to self-file in most, if not all, states. It took me about half an hour to fill out the forms in Texas a few years ago.

Don't waste your money or time on third parties for something so simple. (Corporations are more serious, due to having stock, and you probably ought to have a lawyer involved, so online incorporation services are probably never a great idea.)

I've heard that the approval process is sped up if you actually go to Sacramento and file in person. Is this true?

I don't believe so. If you file in person you have to pay an extra handling fee. If you want expedited filing i think it costs an extra few hundred dollars.

First, I'll echo other people's advice: just file the forms yourself. Yes, its annoying having to handle physical paper and envelopes.

However, since you have a partner in this LLC, the really important thing is to set up your "operating agreement". This will decide how the company is controlled, revenue shared, what happens when someone leaves... etc. Don't wait until someone wants to leave or you're making decent $ before trying to figure this out. You can file the agreement with the state, too.

If I were you I would write down in your own words what you want in the operating agreement and then take the money you saved from NOT using legalzoom and have a lawyer codify what you have into legalese.

For more info check out "Business Law for Entrepreneurs"

One thing to keep in mind of a LLC is that the annual franchise fee is not limited to $800. If you start to make money, you will need to pay a fee calculated based on the "gross" revenue, not "net" revenue (which is sales minus expenses). Also, you will need to pay self-employment tax on any money leftover.

I summarize some of the tradeoffs in the following ...

http://www.lovemytool.com/blog/2008/01/bootstrapping.html

This $800 minimum franchise tax is only in California. Other states have other tax requirements.

FYI: You can defer that $800 payment if its your first operating year.

It's really easy to register an LLC in Pennsylvania, you can actually mostly do it online.

Splitting ownership exactly 50-50 risks deadlock in worst case scenarios. Give someone 50+1 or give a mutually respected third party a tiny share to break ties if all else fails. You probably won't need it, but it's there just in case.

You can always put Felix Dennis' "Mexican Shoot-out" clause in place. If the owners are in a deadlock, one can chose to execute the clause. When that happens, each owner places a sealed bid to buy the entire business. Whomever has the highest offer, wins... Brutal, but fair.

Something like that is another good option. I hadn't heard exactly that variant; the one I've heard the most about has one partner offer a price, the other has to either take it for their half or pay that same amount for the other half.

Within the last year I read some research suggesting a further refinement that better ensures the partner who valued the business highest winds up with it... but can't find the reference right now.

Legal zoom charges you on top of state fee's. Your state will normally charge you 4-500 bucks. Legal zoom will charge you 100-300 + state fee's.

The forms are easy enough to fill out yourself.

That if you're looking to raise funding, being an LLC will be a continued point of annoyance that will become worse as the level of funding rises. You'll be forced to convert to an S corp as soon as any experienced angels or VCs become involved beause they simply won't do deals with you otherwise - which can be a big headache, legal expense, and drain on time.

An S-Corp is actually worse from the VC standpoint than an LLC, b/c S-Corps don't require incorporation (DBA's can apply for and receive S-Corp status). This means it's easier to take the money and run.

Some VCs prefer LLCs because it gives them the risk-minimizing benefits of a corporation, while at the same time giving them a hand in managing the business (a la partnership form). HOWEVER, many VCs, especially the smaller ones, are unfamiliar with LLC law, and avoid it b/c they don't know about it. Some VCs prefer S-Corp because it ideally gives them access to the founders' personal assets, but in practice, a bankruptcy court will try very hard to deny this benefit.

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