Author Topic: Sole Proprietor to LLC for Growing Online Side Business  (Read 921 times)

Michael in ABQ

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Sole Proprietor to LLC for Growing Online Side Business
« on: November 12, 2020, 05:54:50 AM »
A couple of years ago I started selling stuff on Amazon. It has now morphed into a reasonable side business that will probably generate about $5-8k in profit this year and hopefully more in the future. I am currently a sole proprietor and I file a Schedule C and just use my social security number. I am looking towards the future and potentially selling this in the next couple of years once I grow it larger. To that end I want to make the switch to an LLC and start using an EIN (I got one previously but Amazon doesn't allow sole proprietors to use an EIN). That will also allow me to open a new business bank account as I'm using an old personal account now that's just in my name.

I believe this will help add some credibility/legitimacy when talking to potential suppliers. Also, Amazon displays my name and residential address right now to anyone who clicks on my seller name. In addition I want to start getting some additional things in place like registering with the SBA as a veteran-owned small business which requires having a D-U-N-S. I can't meet the requirements to get a D-U-N-S since they want an EIN confirmation letter, article of incorporation, utility bill, lease agreement, etc. none of which I have. 

I want to do this before the end of the year so when I file my 2020 taxes it will be as "Business LLC" instead of in my name. I know a lot of banks, etc. will require two years minimum of tax returns before they'll think about a loan so I want to get the clock ticking now.   

I came across a local provider that will create an LLC and operating agreement and provide some associated services such as mail forwarding, business address, registered agent, etc. for $200. There's no ongoing fees but they'll act as a registered agent for $75 a year which would keep it completely anonymous. That's not a huge deal to me and I'm not sure if it will just create more hassle when I try to get something like a business credit card or bank loan where my name wouldn't show up in any public records (i.e. Secretary of State's website). However, $75 a year is cheaper for a business address that getting a box at a UPS store and they'll forward the first couple of pieces of mail for free (don't expect to get a lot).

v8rx7guy

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Re: Sole Proprietor to LLC for Growing Online Side Business
« Reply #1 on: November 12, 2020, 08:40:43 AM »
I have started two LLCs over the last 3 years or so and would absolutely recommend doing the same for someone in your position.  As you mentioned, it brings a lot of credibility, opens up doors for Business Bank accounts (& CC bonuses / churn opportunities), allows you to qualify for things like being a veteran owned business with the SBA, etc.  I was able to apply for the LLC and become my own registered agent rather than paying someone else to do/be both.  I am sure there are disadvantages to being your own registered agent, but I have not come across any to this point.  I am not sure that it will provide the anonymity that you think it will to have a registered agent.  I can search for a business that I know has a registered agent locally on our  SOS website and see both who the owner is and who the registered agent is (Washington)... I am just basing this anecdotally on wondering who owned a business locally a few months ago and saw both pieces of info there.  Not sure if this helps, but I think in general it's a great idea and I am super happy that I made the jump for both of my ~10-20K side businesses.

Edit: Just re-checked the SOS website to see how I knew who the owner was even though they had a registered agent.  The owner was listed as the "Governer" for the business, while the Registered Agent was a local lawyer and had his address listed for correspondence.  So if you're looking to protect your address, it seems (at least in WA) that a registered agent will do that.  But your name will likely still be listed as the Governor
« Last Edit: November 12, 2020, 08:59:06 AM by v8rx7guy »

Michael in ABQ

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Re: Sole Proprietor to LLC for Growing Online Side Business
« Reply #2 on: November 12, 2020, 07:52:10 PM »
I have started two LLCs over the last 3 years or so and would absolutely recommend doing the same for someone in your position.  As you mentioned, it brings a lot of credibility, opens up doors for Business Bank accounts (& CC bonuses / churn opportunities), allows you to qualify for things like being a veteran owned business with the SBA, etc.  I was able to apply for the LLC and become my own registered agent rather than paying someone else to do/be both.  I am sure there are disadvantages to being your own registered agent, but I have not come across any to this point.  I am not sure that it will provide the anonymity that you think it will to have a registered agent.  I can search for a business that I know has a registered agent locally on our  SOS website and see both who the owner is and who the registered agent is (Washington)... I am just basing this anecdotally on wondering who owned a business locally a few months ago and saw both pieces of info there.  Not sure if this helps, but I think in general it's a great idea and I am super happy that I made the jump for both of my ~10-20K side businesses.

Edit: Just re-checked the SOS website to see how I knew who the owner was even though they had a registered agent.  The owner was listed as the "Governer" for the business, while the Registered Agent was a local lawyer and had his address listed for correspondence.  So if you're looking to protect your address, it seems (at least in WA) that a registered agent will do that.  But your name will likely still be listed as the Governor

New Mexico LLCs can be anonymous. I ran into this in my previous career as a commercial real estate appraiser. XYZ LLC would be listed as the buyer or seller of a property and when I'd try to find the owner to call them and ask about the sale I would sometimes run into the fact that only the registered agent was listed.

Roots&Wings

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Re: Sole Proprietor to LLC for Growing Online Side Business
« Reply #3 on: November 13, 2020, 05:32:39 PM »
Wyoming LLCs can also be anonymous (https://jjluna.com/llcs/). This guy wrote a book (https://www.amazon.com/dp/B0065QZVB6/) that previously recommended New Mexico LLCs as the most anonymous way to hold property and register cars, I'm looking into it myself. Keep us posted what you decide!

Michael in ABQ

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Re: Sole Proprietor to LLC for Growing Online Side Business
« Reply #4 on: November 13, 2020, 09:10:24 PM »
Wyoming LLCs can also be anonymous (https://jjluna.com/llcs/). This guy wrote a book (https://www.amazon.com/dp/B0065QZVB6/) that previously recommended New Mexico LLCs as the most anonymous way to hold property and register cars, I'm looking into it myself. Keep us posted what you decide!

I decided to go ahead. $250 for registering the LLC, two years of having a registered agent with some mail forwarding and scanning, a business address I can use, and a bunch of document templates like articles of organization, resolution to open a bank account, etc.

It was processed within an hour or so and it's already on the Secretary of State's website. It just show's the agent's name and the virtual office business address. My name or other information is nowhere to be seen.

Roots&Wings

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Re: Sole Proprietor to LLC for Growing Online Side Business
« Reply #5 on: November 14, 2020, 06:02:07 AM »
That's awesome it was so quick! Did you have to file for the EIN separately or was that included? Do you mind sharing which registered agent you ended up going with (or PM)? Thanks!

Michael in ABQ

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Re: Sole Proprietor to LLC for Growing Online Side Business
« Reply #6 on: November 14, 2020, 08:32:25 PM »
That's awesome it was so quick! Did you have to file for the EIN separately or was that included? Do you mind sharing which registered agent you ended up going with (or PM)? Thanks!

I'll get the EIN myself. I've done it before and it takes just a few minutes. However you can only do it during normal business hours. The registered agent I went with charges $50 for it if you want them to do it.

I'll send you a PM with the name.