A couple questions for anyone that might know... a friend of mine and I are wanting to start an online business, do we need to file paperwork before we start selling items online? Or can we start and then if it gets big enough file for an LLC then? Are there penalties for not filing before you start an online business? Everything I find on this seems to relate to brick and mortar stores which this wouldn't be... any help would be greatly appreciated.
There is no easy answer to your question. As soon as two people start doing business together, you automatically have an entity. It is known as a general partnership. Under state partnership laws, typically every partner can bind the partnership and every partner is liable for any action of the other partner. That means if your partner signs a contract obligating the partnership to pay $10,000 to a web design firm, you are BOTH personally obligated to pay. Generally, a limited liability company (LLC) or a corporation provides a shield against many of the obligations that arise in a business. The protection from liability is not perfect (see How Limited is Limited Liability?) but it is much better than a general partnership if you are at all concerned about incurring obligations. If you have no concern about personal liability, then you can operate as a general partnership forever. You will need to comply with your state's assumed name laws (sometimes called fictitious names), but there is no requirement that you ever form an LLC.
Wow, I didn't realize that you could bind your partner into something like that. Thanks for sharing that info. One last thing, can we start the website going into making sales now while waiting on the paperwork? It appears that it can take some time to get these things set up and we want to make sure it's not going to bite us to be selling items before we're "officially" an entity. So for example, if we "opened" the website today and filed the LLC paperwork tomorrow would it be okay to be making sales in the time it takes for the state to give us an authorization? Or are we breaking some kind of law?
The thing so many people seem to forget is that an 'online' business is "still" a business and the rules of business still apply.. Some other rules to remember.. Partnerships suck.. Partnerships with friends suck more.. Partnerships with family are the worst.. In most instances these things can be taken as fact.. Before you start selling your friend and you need to sit down and write up a partnership agreement that clearly defines who is responsible for what aspects of the business, how the expenses and profits will be shared, and how the company will be dissolved or sold..
The thing so many people seem to forget is that an 'online' business is "still" a business and the rules of business still apply.. Some other rules to remember.. Partnerships suck.. Partnerships with friends suck more.. Partnerships with family are the worst.. In most instances these things can be taken as fact.. Before you start selling your friend and you need to sit down and write up a partnership agreement that clearly defines who is responsible for what aspects of the business, how the expenses and profits will be shared, and how the company will be dissolved or sold..
tl;dr - I just need to know if I can begin sales before some kind of state confirmation as long as I report that income. long answer: I don't think people forget as much as getting your business officially set up with the state is still in the pre-internet stone age. It's ridiculous that there's no way to do it online. I, however, actually realize that an online business is still a business which is why I'm going to be filing LLC paperwork. The question is when can we start selling? Can I start now as long as I still report earnings or do I have to wait for some kind of confirmation from the state? It's rather ridiculous if you have to wait a long period of time (7-10 business days for expedited according to legal zoom, 25-30 without) before opening... I understand that for a brick and mortar business that amount of time is most likely not a hindrance since there's a lot of other things you also need to get setup that probably takes just as long. I'm honestly trying to do this legally and not looking for a loophole. I just want to know if I'm going to get in trouble with the IRS or something if I start sales before the official paperwork is in, or if it's okay as long as you've filed the paperwork and you're waiting for a response.
Sure, you can start selling right away.. But does your location and product require you to collect sales tax?? If so then you 'could' run in to legal issues by either not collecting, or collecting without a license to do so.. Every location is a little different.. Where I live you can just start selling as a sole proprietor.. In California this would have been a bad thing to do..
You probably should not start selling without forming the company. Every state is different but in most states the date you file is the date you started your LLC. So even if it takes a week or two for the state to return an acknowledgment to you that the LLC has been formed, once you get that piece of paper you will see that the formation date was the date you file. You say that "It's ridiculous that there's no way to do it online." In fact, more that half of the states do permit direct online filing. In some cases, you may be able to file directly online but LegalZoom may not be able to because they cannot sign for you. A complete list of all of the state filing offices, with telephone numbers and website addresses can be found on Limited Liability Company Center. I would suggest that you contact the state or visit the state's website to get the unfiltered information on the timing issue. Of course, even if you can file online, that only gets your LLC formed. It is essential that you and your partner get a good operating agreement that accurately represents the understanding of the two members of your LLC on critical issues. This should not be an "off-the-shelf" form document but should reflect the personal decisions of the two of you,
Thank you all so much for the information, it's been very helpful. I've decided not to use Legalzoom because they're a bit shady on the time it takes to get an LLC done. They say that it takes 20-35 business days unless you get their "Express Gold" package which comes with a bunch of extra junk and only takes 7-10 days... only I called my state's offices and it takes 3-5 days. That and it's only $100 to file myself vs $459 to file with "Express Gold"... It looks like we're going to have to wait a bit to open. Once we file the LLC articles of organization we then have to file for collecting taxes which I hadn't realized was a whole separate thing. This has been a learning experience for sure. My partner and I are going to sit down tonight and put together an operating agreement. Any suggestions as to what we should cover from others that have dealt with partnerships or just LLC's in general?