AP 0329: When Do I Need to Set Up an LLC?

AskPat 329 Episode Transcript

Pat Flynn: What's up, everybody? Pat Flynn here, and welcome to Episode 329 of AskPat. Thank you so much for joining me today. As always, I'm here to help you by answering your online business questions, five days a week.

All right, now let's get to today's question from Curtis.

Curtis: Hey, Pat. I'm just a regular Joe with a day job and pretty much nothing to my name. I've always wanted to be an entrepreneur. And when I found your podcast about a month ago, it's really got my gears turning. My question is, say I have product or website idea, but I haven't started anything yet. When should I form the LLC for my business? Before or after I start publishing content. My reason for asking is that the start up fees are a lot for not having any working capital. Can I start publishing under my name, then upgrade to an LLC later?

Pat Flynn: Hey, Curtis. What's up? Thank you so much for the question today. I really appreciate it. And this brings me back, because the way that I got started was back in 2008, before my LLC started, I started to create content. I started to create products. And it wasn't until I actually had my first sale that I thought about actually creating an LLC and protecting myself. Now of course the purpose of an LLC—there are a number of reasons for incorporating yourself—but the biggest reason is to protect yourself. And so you have to be careful. Because if you were to do something that you were to get sued for, for example, before you protect yourself through your LLC and your LLC would get sued, for whatever reason. I mean, I'm just, obviously that's worst case scenario, but I'm just saying, your personal assets would be at risk if you are not protected. And that's the big thing.

And of course when you are protected under an LLC you have to make sure that you separate everything personal from business so you can't pay for personal things with your business account and vice versa. I mean you could hypothetically, but then just reimburse yourself, but then it just becomes a big mess. But you want to prove that they are completely separate entities. Your personal stuff and then the business that you have, as much as possible. So you’re not piercing that corporate veil, as they say. So it's important to do that, but of course you're boot strapping, you're just getting started. And like myself and several other people out there, you want to make sure that things are really working for us before you dedicate a little bit more time and money and resources into what you have going on now.

There are economical ways to form an LLC. For instance, one of our other sponsors, LegalZoom.com, that's when I got my hands on to help me get started with building my LLC and creating this protection around my business and what I was doing. But again, I didn't have money or even motivation up front to do it when I was just getting started. Because I wanted to see what it was going to be like. It wasn't until that, you know, I sold some products and started building an audience, and I had something great and I wanted to do it right, that I then switched over and formed an LLC in December 2008. That's when it was officially done. And of course the site started far before then. Started monetizing in October 2008. And then again, formed that LLC in December 2008.

Now I was able to, through my bookkeeper at least, because I had kept track of everything that I had paid for, through email receipts and also just regular receipts and snail mail receipts, I guess you could say, I was able to, not get reimbursed, but you know, use those as business expenses sort of retroactively. Now you have to be careful when you do that. Make sure you obviously speak to a professional. A CPA or somebody that's going to help you with your business. And also make sure when you form your LLC that you get some professional help. Whether through LegalZoom and their counsel that they have to help you. They’re not lawyers but they have legal help to help you out with your decisions and things like that. Or an actual attorney. Maybe you have somebody you know who can help you out and give you some advice as well.

So yeah, I mean, I would get started with helping as many people as you can. And obviously use common sense when you do that. You don't want to copy anything, you don't want to do what I did, and actually use a domain name, or excuse me, a trademark in your domain name. Which is something that I did, and of course when I was told by the company that owned that trademark that I was supposed to stop doing that, I actually got a cease and desist letter in 2009. I had formed my LLC already, so even if things went terrible I would have been protected. But obviously if I did that and I wasn't protected I was just a sole proprietor, I would have been, you know, a lot more scared. Because my personal assets, my family, and all those sorts of things, would have been in trouble.

Now, obviously, I'm not a lawyer. I do speak to lawyers and I have an attorney and I have done this myself. But obviously, you know, seek professional advice for you and where you're located. And sorry for that disclaimer, but obviously you know, I have to say that. But again, that's how I did it.

Help as many people as I can and as soon as I felt comfortable and had the resources and money to, and knew that this was going to be a long-term thing, that's when I started to build my business in a real way, with an LLC and things like that. So, Curtis, I hope that answers your question. Thank you so much. And for those of you out there listening, if you have some advice or help that you want offer Curtis as well. Use the hashtag #askpat329. And we can continue this conversation on Twitter as well.

I would also say, in terms of starting with your idea, one of the best things you can do with a brand new idea is talk about it. And this is something that's not really related to your question, but something that came to mind. Because this is something that a lot of people struggle with, is when they have a new idea, they're not sure it's going to work, like you said. But the more you talk about it, yes, people will listen to you. And you might think that people are going to take your idea, but that's just the fear mindset. I mean you want to put that idea out there, so that you can get real honest advice about it and get third party perspectives on it. And get real honest answers from people.

I mean yes, tell your mom and your friends and your spouse, and they're going to tell you what you want to hear. But also tell random strangers, the people in Starbucks that are sitting next to you. I mean, they're going to give you the best advice; the non-biased advice that you need to hear. And maybe it's an amazing idea, but the more people you'll talk to, you'll see that there might be holes and you can fix things. And when you finally create your business, whether you LLC right away or not. Again, LLC is just one business type that you can incorporate into. There's S Corp, C Corp, and all these other things. You want to make sure that you get some help and figure out what's best for you.

I know we've just been talking about LLC. And that's what I kind of created, although I'm now taxed as an S Corp. There's a lot of things out there to think about, and if you don't know what you're doing, you definitely want to get involved with other people who do. So you can, you know, get started on the right foot. But then going back to what I was saying earlier. Make sure you talk about your idea with other people. This is something that I hear a lot of people say now and I agree. Talk about it, get advice, get outside perspective, so you can figure out what's going on. And so that you don't work on an idea that's terrible. But you work on an idea that's perhaps good and make it better. Or maybe an idea that's not so good and you didn't know that until you heard it from somebody else.

But, Curtis, again thank you so much for the question. This has been a great discussion. For having your question featured here on the show, we're going to head on over to Printfection, which is the company we use, to send over an AskPat t-shirt your way. So you'll see an email from my assistant in the next week or two, to collect your information, so that we can send you that. Free of charge of course.

For those of you listening, if you have a question, you'd like potentially featured here on the show, all you have to do is head on over to AskPat.com. You can ask right there on that page. Thanks to the widget from Speakpipe.com, an amazing company that's helping us keep track, and record all those voicemails and those amazing questions that you have coming in. And again, thank you again for all those questions. Because obviously this show wouldn't be around it these questions didn't come in.

So, thank you again for listening in. I appreciate it. I hope you have an amazing weekend. And as always, I like to end with a quote. And today's comes from Vince Lombardi. He says, “Winning isn't everything, but wanting to win is.” Cheers, take care, and I'll see you in the next episode of AskPat. Thanks guys.