What if I have an idea, but don’t know if I’m ready?

 

There is no substitute for action. Until you form the company and attempt to land your first partners and customers, all you really have is a paper napkin idea. I hate to break it to you, but this country’s chock full of paper napkins. It’s short on people who will believe in themselves and give it a try. You’ll be surprised how much and how quickly you learn once the company’s up and running. For a measly few hours of your time, you’ll springboard into the category of “business owner” and become part of the select few.

 

I am a not a U.S. Citizen. Can I start an LLC?

 

Yes. An LLC is a separate tax entity and owners/members can be foreign citizens, even if it is a one-person company. You, personally, will still be liable for tax burdens and reporting back to the U.S. government since LLC’s are “pass through” entities. So, can you start it? Absolutely! Will it become your secret tax shelter for U.S. based income? Sorry, it will not.

 

I am starting this company as a partnership. I am an International student and my partner is an American. How can we get it registered so that we are partners in the company?

 

You will file a regular domestic LLC form. In the filing, it asks you to list out all of the existing managers and members. Depending on whether your partner will be filling a managing role you will just add his/her name to the filing. If something changes in the future (different members or managers) there is only a nominal fee from the state to change this information. You should plan to bring all members’ names, SSNs (if they have one), address, and contact information to provide on the form. We can go through this at the workshop – it’s an easy one.

 

Will the registration of an LLC violate an international student’s F1 status?

 

The short answer is that starting an LLC shouldn’t have implications, but working for one and/or drawing profits out of the company is likely to impact your visa and tax status. The LLC will be its own tax entity. If you have detailed immigration questions like this one, please send them to our immigration attorney prior to the workshop. Her contact info will be posted here soon.

 

What is a “pass through” entity?

 

For tax purposes, the IRS looks at any revenue generated in the business as your personal income (individually if you are the only member of the LLC, or via partnership if there are multiple members). This means that, whether or not you actually take revenue from the company and pay yourself a salary, you will be tax on the net profit of the LLC. For example, if the LLC makes $100,000 in revenue and has $90,000 in costs next year, regardless of whether you take the $10,000 and pay yourself or leave it in the company bank account, you personally will be liable for the net $10,000, recorded as “income” on your personal taxes. This prevents people from stashing income in LLCs and never paying tax on it. In contrast, a corporation would be taxes at the entity level for any remaining profits…and then again if they distributed profits to owners via dividends, thus double taxation.

 

How do I do taxes for an LLC?

 

Several tax resources will be covered in the workshop including software, accountants, and the IRS directly. In basic terms: the owner of a single-member LLC will just file a Schedule C along with their 1040. Owners of multi-member LLCs are treated as partners in a partnership for tax purposes – the company files a separate informational tax return and distributes K-1 Partnership forms to each partner. Owners then file the K-1 along with their 1040. We will establish accounts with the federal and state tax authorities.

 

There may be other forms depending on the type of business you do. Accountants seem to like to charge around $750 to do an LLC filing. Turbotax Business is $100. IRS.gov is free. I keep my books in Quickbooks and export directly into Turbotax. The LLC filings only take about 20 minutes a year if you’ve got everything recorded well in something like Quickbooks or Quicken. Pretty straightforward.

 

As a foreign citizen, can I get an H1 Visa from an LLC that I start?

 

The answer is specific to each circumstance, but generally no you cannot. If, however, you have an existing, revenue-producing (at a serious level) company back home with a legitimate intent to branch into the U.S. market, then it is possible. Please refer this question to our immigration attorney on the night of the workshop.

 

How much does it cost to start an LLC?

 

Massachusetts charges an annual $500 fee for each Limited Liability Company. They want you to file so that if your company’s actions harm citizens, and those citizens look to the state to help extract remediation, the state will know who you are and how to find you. Other than the $500 fee at the Corporations Commission there are no other fees.

 

What does it cost to keep the LLC alive each year?

 

Massachusetts requires an annual fee of $500 for each LLC, no exceptions. Even if you are an LLC founded in another state, if you do business of any kind in Massachusetts, you are required to file and pay the $500.

 

What do I do if I want to close the company? 

 

Submit a 1-page memo or call the Corporations Commission and close the company down. Ironically, they charge you $100 to close the company. If you do not pay the closure fee, Massachusetts will continue to bill you $500 a year plus interest and penalties, indefinitely. Friendly Massachusetts! If you don’t pay, they seek you out.

 

Shouldn’t I start the LLC in Nevada, Delaware, or some other state?

 

That depends, but most likely no. First of all, no matter where you “form” the LLC, if you do business of any kind in this state, including living here, doing website design, customer service, you name it, even if you don’t actually sell something, you are required to register with the Massachusetts Corporations Commission. Either your LLC is a “Domestic LLC” (meaning you formed the company here AND you work here) or your LLC is a “Foreign LLC” (meaning you formed the company in another state or country but you work here); both pay an annual fee of $500. So, there’s no getting around the annual fee.

 

State law differs on how they treat LLCs, however. When LLCs first came out, many states either lacked case law precedent or were hostile towards them as entities, making them less attractive as the states to “launch” the company. Delaware and Nevada were early movers in clarifying their acceptance of LLCs as an entity. Today, though, LLCs are commonplace and there is a lot of case law backing up how states handle different liability issues. It matters much, much less what state you form the company in. And, every additional state you form or operate in requires their own annual filing fees and registration – no good. The clincher—even if your company was “formed” in another state, Massachusetts might not care and still try and prosecute you under their laws.

 

Finally, you can always re-form the company elsewhere. Sell LLC “a” for $1 to LLC “b” and relaunch in another state sometime in the future if the need comes up. Unless you have some really unusual circumstance or are selling a very high risk product, there is rarely an advantage to forming in another state. Except to a lawyer. Who can bill you more for having this discussion and saying, “Hmm, it depends!” at $525 an hour.

 

Do I have to do anything special to do business in another state?

 

Yes. Every state that you do business in will want you to register your company in their state. Since MA is your home state, you will file a “Domestic LLC” here in MA and a “Foreign LLC” in every other state you’re doing business. There are two principal reasons: 1) tax revenue (they want it), and 2) protection of their citizens. By registering, they can start collecting taxes from you; they also have a record of the entity so that if one of their constituents wants to sue you, the state knows who you are and how to find you. There are sometimes gray areas on whether you need to register, e.g. where did the “sale” in an internet sale of online services originate and terminate if everything stayed online? And many more. Let’s talk more about this at the workshop – good question.

 

I have an EIN but now will be registering a company at the workshop; can I do that?

 

According to the IRS, You will be required to obtain a new EIN since you are a sole proprietorship and will be taking on partners / operating as a partnership. We will do this at the workshop. (See http://www.irs.gov/businesses/small/article/0,,id=98011,00.html)

 

How do I leave the option open of sharing equity with future partners?

 

Essentially, the state and federal agencies don’t really care how you divide up the equity and whether you leave some on the side until next year’s tax filing. You lay out how you’d like to split equity in your Operating Agreement, a document we will touch on but not create in-depth in the workshop. Operating Agreements can be as simple or complex as you want or need them to be. Generally, what’d you do is carve out an equity pool (10%-20% is typical) for attracting new talent. Then, you divide the remaining 80% among your partners as you see fit. You will get a sample OA at the workshop and the legal counsel present can speak on this in more detail.