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Decisions: Creating an LLC

04 Aug 2022

Looks like these days there is a plethora of nice looking online Services to help you quickly setup a business online. This, however, brings up the paradox of choice and the resulting decision making. Maybe it is not too complicated after all. Its just that I would like to minimize any issues down the line. This blog post is my attempt to write down my reasoning when creating my first ever LLC, so my future self can hopefully learn from any mistakes.

Decision: Incorporate in Home State or Delaware?

Stripe Atlas seems to only support creating an LLC in Delaware. One reason for this might be that it is geared towards Startups, and any Startups that may grow enough to need Venture funding could easily convert from Delaware LLC to Delaware Corp at a later date. Or maybe they just want to make money exploiting the fact that out of state owners of Delaware LLC will end up using Stripe as their Registered Agent in Delaware.

Stripe’s documentation leaves the problem for the customer to figure out:

If your company operates in any U.S. states other than Delaware, it might be subject to annual taxation, registration, and reporting requirements in the other states. Stripe recommends that you consult legal and tax professionals about what requirements apply to your business.

According to LLC University, best state to form your LLC is your home state. Otherwise, you have to register a “Foreign LLC” in your home state, which means you end up paying twice for State Filing, Registered Agent, and Annual Report. And you have to pay taxes where the money is made, so technically this would be the home state.

Decision: I will create LLC in my home state. This does imply that I cannot use Stripe Atlas, which is a bummer because it is the brand I recognize the most.

Some Resources:

Decision: Should I pay for a Registered Agent?

States require a Registered Agent with a physical address to receive official notices - lawsuits, subpoenas, etc. Most Services charge anywhere from $100 to $299 per year to be a Registered Agent for your LLC.

Decision: I am going to register myself with my personal address as the Agent. At the risk of my name and address getting publicly listed with the LLC, I have the optionality to pay for a Registered Agent later.

Some Resources:

Decision: Who should own the LLC - me, or spouse, or me+spouse?

If the entity ends up making money, I would like any self-employment taxes to go towards my spouse’s Social Security contributions, to satisfy her Work Credits. It is important for a person to satisfy Social Security Work Credits in order to qualify for Disability Benefits if the need arises.

So I should go with spouse or me+spouse.

Now, having a husband+wife partnership LLC makes tax filings a little complicated. See

Qualified Joint Venture LLC [Husband and Wife LLC] - LLC University​.

Since we are living in Washington state, which is a Community Property State, we can do a Qualified Joint Venture election with the IRS to get around the tax filing issue. However, this is not future proof, in case we move to some other state.

So, I have decided to go with 100% spouse ownership.

Decision: Which online Service should I use for creating the LLC?

Below are the Services that I considered:

  • LegalZoom

  • Clerky

  • IncFile

  • NorthWest Registered Agent

  • Stripe Atlas - Only files in Delaware.

  • Collective Hub - Only handles S-Corp.

  • doola - Full Service

Decision: I am proceeding with using IncFile because it is free. I will have to file separately to get an IRS TIN, and a Washington State Business License.

 

These are the action items after LLC Formation:

  1. Get an Email account - Google Workspace

  2. Get a Virtual Phone Number - If needed, I will go with Google Voice.

  3. Get an IRS TIN - How to get an EIN for LLC (Online) [2022 Guide] | LLC University®.

  4. Get a Business Bank Account & Credit Card - Brex.

  5. Get a Washington Business License - Business License in Washington | LLC University®​

  6. File an S-Corp Election within 2.5 months - Have Your LLC Taxed as an S Corp - S Corp Election Form 2553 (incfile.com).

 

I am going to figure out these open questions later:

  1. How to do bookkeeping?

  2. How to cheaply file taxes, especially when the revenue for the year is minimal or zero?

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