In one my previous posts I talked about what a Limited Liability Company (LLC) is. I shortly touched on the advantages that an LLC offers for an entrepreneur. In this post I will examine the advantages of a Limited Liability Company for particularly an Internet Entrepreneur.

Limited Liability Companies are the most popular form of business structure chosen by internet entrepreneurs. It would have to be an exceptional case to start an internet company around a website or service as something other than an LLC. However some companies might change their structure to a S-Corporation in order to be able to go public.

Limited Liability

The LLC provides limited liability for its members meaning that the owner’s (member’s) assets outside the company are protected given that the company goes bankrupt, gets sued, or is in debt.

Pass-Through Taxation

When working for a large company (ex. formed as a C Corp) as an employee, you almost always pay taxes on your income. Your employer also pays tax on the companies earning. This is called double taxation. In an LLC you can file all your income taxes through the company on the same tax forms as your personal tax and you only have to count that income once.

So LLC protects you from being double taxed.

Simple Record Keeping

We, webmasters, tend not to keep any records - especially in hard copy format. In an LLC, unlike C Corps, you don’t need to hold annual meetings, and publish many reports. However, you do need to keep enough records to fill your tax forms and be able to defend them later.

Deductibles Expenses

At the end of each year you have to deduct your expenses from your earnings and pay taxes on them. You can deduct your own salary, and business expenses. Since you would be the owner you might be able to deduct your work related travel expenses (Blog Expo trip), cell phone bills (if you use it to give support), etc from your earning.

LLC stands for Limited Liability Company. In short an LLC is a business entity that allows you to conduct your business under its name. The main reason it is most popular is that it protects the owner from being personally liable for damages done by the business.

In my experience LLC is the most common form that internet entrepreneurs form their business under. It is easy to create and has many advantages for us (small business owners).

The main advantage of an LLC is that it is processed as “Flow Through Taxation“. What that means is that your business losses, profits, and expenses can be filed along side your (the business owner(s)) personal tax form. This would allow you to avoid the double taxation of paying corporate tax and individual tax on earnings.

It is also very easy to create a Limited Liability Company. It takes very short time. From the time I started filling out forms online to the date that I had my Tax ID number took less than a week. It is also cheap. It cost me less than $200 to create Timsar Solutions in Indiana.

You might wonder why you should start a business when you can just work under your own name (and sometimes get away with paying income tax on your online earnings). First and most important, an LLC will protect you from being personally liable for your website’s damages. Imagine if someone decides to sue you for using certain online software without license and the court orders you to pay $10,000 in damages. Your website might be only worth $400, but if you are operating the website under your own name, the suing party can come after your personal assets such as your house, car, etc.

Being an established business allows you to find and purchase wholesale products much easier, possibly process credit cards, have business credit card(s) and bank account(s), get special business discounts, and much more.

One more important factor is that when you start a business (whether LLC or not) you take your online activity much more serious. You tend to track your progress better and in all be more successful.