AskPat 56 Episode Transcript
Pat Flynn: Hey. What's up everybody? This is Pat Flynn, and welcome to Episode 56 of AskPat. I'm here to help you by answering your online business questions five days a week. I'm so loving and enjoying creating this show for you, and thank you for all of your amazing questions.
Before we get to today's question from Tony, I do want to mention that today's episode is brought to you by LegalZoom. If you go to LegalZoom.com right now, you can join over one million entrepreneurs who have already used LegalZoom to help them start their own businesses and their path to successful business ownership, including me. I actually used LegalZoom.com back in December of 2008, twice in 2009, and couple of more times. I can't even count how many times I've used LegalZoom.com to start my LLC, to do another LLC actually, a DBA, wills, and also trademarks. I used it for all of those things. It's a great service. If you enter the discount code, “PAT”, that's P-A-T, into the referral box at checkout, you'll get a discount, and as a reminder, they provide self-help services, connect you with an attorney, but they're not a law firm.
Now, speaking of law and legal in business entities, let's get to today's question from Tony. Tony, please take it away.
Tony: Hey, Pat. This is Tony from DesignerHacks.com. I want to thank you for putting Smart Passive Income together. It's been really helpful for me, because I have some more background, so thanks for doing that, and keep on keeping on.
My question is, I'm wondering when it makes sense to turn my niche or hobby site into a limited liability company or to incorporate it, and when should I be worried about trademarking? Thanks.
Pat Flynn: Tony, thank you so much for your question, and this just as a quick disclaimer, I'm not a lawyer, you know, definitely not a lawyer. I have my own, but you know, I've used LegalZoom.com to help me get started in the beginning, just like I mentioned in the sponsorship roll at the beginning. But I'm going to tell you a quick story about how I got started.
I built my site, which was initially at InTheLead.com, before I had to change it to GreenExamAcademy.com. This is a site that I built to help people pass an exam in the architecture industry. I built that just on my own, as a sole proprietor. I didn't turn that into a business entity until much, much later. I actually created that site in late 2007, and I started to monetize it, or attempt to monetize it, in October of 2008. And then a couple months went by where I was making good money, and then I turned it into a business entity.
I used LegalZoom.com—like I mentioned at the beginning, discount code “PAT”—and I used that to create an LLC. And, you know, I had a lot of questions, and I asked a lot of people, and I got a lot of different answers. And I feel like you really have to talk to somebody who is a professional, maybe somebody in your network, or even an attorney on your own, even if you're going to use LegalZoom because the fees are much cheaper—but I would talk to somebody to make sure that you're going to create the entity that's right for you and your business and the way you want to do it.
Now, how do you know it's the right time? Well, for me, I knew it was the right time when I started making money. But I also knew it was the right time when, and this is the part that is going to be confusing for people, when I knew that I needed to protect myself and my personal assets. That's the benefit, that's the real reason why you'd want to create a business. I mean, there's many benefits to doing so, like, you can write off lot of your things for tax purposes and things like that. You become, sort of, more professional and authoritative when you're known as a business, and you're not just a sole proprietor. But really, you create that business entity so it, itself, becomes almost like its own person. If somebody were to sue you, for example, through your business, they would sue your business. They wouldn't sue you. If you do a good job of keeping your personal assets separate from your business assets, they can't touch your personal stuff. Again, I'm not a lawyer. I'm not an expert at this at all; I'm just telling you what's in my mind and also how I went through it. But there's all these things, like piercing the corporate veil, or whatever that's called, if you somehow mix up what you do personally with what you do in your business. For example, you might draw money from your personal account to buy stuff for your business. You should never do that, you should always have your own business checking account that is only used for business and separate from your personal stuff. Once you start to blur those lines, if somebody were to sue you, they could say, “Well, you're not even treating yourself like a real business, so I'm just going to start taking your personal stuff.” And of course, the legal stuff is always a huge hassle, and it costs a lot of money, but you want to protect yourself, and that's why you create an LLC or an S corporation, or you corporate in however it is best for you to corporate. And I'm not going to get into what type of corporation is best for you and what all that means. Obviously, there's even different rules in different states and things like that, and there's tax incentives, but tax implications as well. For example, I live in California, and as a business, I have to pay $800 a year to the state of California just to have that business. And I have a couple of businesses, which is crazy, but I choose to live here, and I choose to do business here.
But how do you know the real answer to, “When do I turn my blog or niche site into a business entity?” You have to weight the pros and cons and see how popular it is. I think it's okay, and again, this is just me speaking, to create the site, and see how it goes, and see if there's any pull there, or if it's going to be successful, or it seems to be growing. In that case, if you know you're going to be serious with it, and you know it's going to get massive exposure and start to generate money for you, then I would turn it into business at that point.
But the nice thing about doing online business is, you can test different things. For me, I created this sort of an umbrella company, an umbrella LLC, Flynn Industries LLC is what it's called, and that's where I run most of my separate projects that are under that one umbrella. I do have another company, which is LOLer Apps LLC. Actually, that's the DBA, the doing-business-as, so it's known as LOLer Apps, or Laugh Out Louder Apps, which is an iPhone application company. But again, I created that through LegalZoom. Giving them a lot of plugs here, but that's just who I is.
But also, you asked about trademarking, and again, this is a whole another thing that I could, and probably should, have an attorney come on the Smart Passive Income podcast, my other podcast, to talk about. There's a lot of implications there, as well. There is the first use of a term, where you don't necessarily have to trademark it to own it. However, if it's just a book title, then it might not have as much power as if it's a . . . No, even a domain either. But if you are using graphics and promoting material that is related to a trademark, gosh, to be honest with you Tony, I would seek a professional, and for all of you out there, I would seek more professional help. And this is from me, who has been doing business for a while. And I think the point of this is, you don't have to know everything, but you should seek help from people who do know those things that you don't know how to do.
When should you be worried about trademarking? You should be worried about trademarks when you're creating things. For example, I didn't even consider trademarks, and that this is not me creating a trademark, it's me not understanding what would happen if I used another person's or another company's trademark. And I actually know InTheLead.com, which was my lead exam website, “lead” was a trademark, and I got contacted in May, or was it April or May of 2009, to stop what I was doing. I got a cease and desist letter, because I was using somebody else's trademark. Actually, the full story behind that was, even though they loved what I was doing on my site, there were other people out there creating sites using that trademark “lead” in the domain name, and in order for them to enforce and be able to remove those legally, they had to remove them all, which included mine, which sucked. At first, I freaked out, because I just got this letter from the attorneys over at the United States Green Building Council, and I just thought they were suing me. I thought my life was over. I thought I wasn't cut out for business. But then I realized it was just a cease and desist letter. Again, I contacted help. I got in touch with a lawyer who just said, “Hey, you just have to change your domain name,” which I did, and that's where Green Exam Academy came from, and all's been good on that front since then. But I've learned to really be careful to not use trademarks as much as possible. Whether it's in a domain name, or in the name of products, and it's a crazy thing, this whole legal stuff that goes on with this. If you're going to create a unique name for something, and you really want to protect it, and you want to have the most power you can have if you were to see somebody else use that, and you want to take them to court, if you want to have the most power, you would file for a trademark, and you can do that through LegalZoom. You could do that through an attorney or a lawyer that you might know right now or might be in your area. Just using a term first will give you a little bit of an edge but still, not really. If you want to give yourself the best security for a name, or a trademark, or something, the best thing to do is trademark it. And I have trademarked a lot of pieces of my business, like Smart Passive Income, I did trademark that.
Tony, I hope that answers your question at least a little bit. You know, I know it's a little bit fuzzy here, but I'm just going to be honest, I'm not the best person to tell you when to do that. We're all about transparency here. But I feel like, if you can connect with the right people, and also, if you feel like you know that you're going to be taking this niche site or your hobby business into a full-time thing, or even just something very serious that you're going to be doing for a while, and you want to protect what might happen within that business from what's going on in your personal life and in your personal assets, then setting up a business entity would be a smart thing to do.
Tony, thank you so much for your question. I really appreciate it. An AskPat teeshirt will be headed your way. And if any of you have a question that you'd like to ask here on AskPat, head on over to AskPat.com, of course.
Now, I'm going to re-mention our sponsor for the episode, which has to do perfectly with the content that we just talked about, that is LegalZoom. Again, if you go to LegalZoom.com, you'll get a discount if you enter the special discount code, “PAT”, during check-out. You know, starting a business entity traditionally is pretty costly and it takes a lot of time. You have to go through an attorney, and it can be pricey, but LegalZoom.com makes it much, much easier and much more affordable as well. Again, I've used it several times for two LLC's, one DBA, actually a couple of DBAs now that I think about it, and what else—a will, a trademark, and it's just really easy to use. Again, if you go to LegalZoom.com, use discount code, “PAT”, during checkout, you'll get a discount. They're not a law firm, but they can help connect you with an attorney if you need one.
Thank you so much for listening in, and of course I'm going to end with a quote, and this quote is one of my own. It's just a reminder, “Building a business doesn't mean not having fun.” I've seen too many people who have started with hobby blogs that they are having lots of fun with, and they turn them into a business, and they forget why they started that business in the first place. Just because you're building an entity or going to be starting to monetize your website and go big with it, that doesn't mean you still can't have fun. You should always be having fun with what you're doing. And this is a reality check for you. Are you having fun in your business right now? If not, why not? You should always be having fun in your business. I'm having a ton of fun with AskPat. This is seriously one of the coolest things I've ever done, and so many people have come up to me and said how much they've enjoyed the show. If that was you, or you're just in your head are thinking about how much you've enjoyed the show, thank you. You're amazing, and I'll see you in the next episode of AskPat. Cheers.
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