[gijoe985]

Hello all,

So I know a good amount about different business entities and I am pretty sure I know which one I would like to go with, but I was kind of curious about the timing. Do I need to have my business entity all formed before I sell my first shirt? What if I only sell a dozen in my first 6 months of having a website up?

Part of why I am asking is because I know there are costs involved with getting the business all set up and I figure that I'd want to push out those costs if they are not needed right off the bat.

Once I am ready to go public with my designs, I plan to start a website and also sell on eBay (for the advertising). If I am not selling a lot (or any) shirts, then I feel like I can hold off on forming the business.

Any thoughts and ideas are welcome. I'm trying to learn as best as I can!

 

[vadan]

Where are you based?

 

[gijoe985]

Washington, but I'm thinking about basing out of Wyoming...

 

[OriginalShortees]

Yes, yes, yes. You should set up your legal business entity before you actually sell anything. 99 people may get away with this but if you are the one who is followed up on you will learn it would have been worth the trouble to get set up properly first.

I can only speak with authority on California but I think it would be safe to assume this holds true for other states.

If money is an issue consider doing a sole proprietorship. You loose the protection that incorporating gives you but it will be less expensive and fairly quick/easy to set up.

 

[gijoe985]

Something I have never really understood, even after going through a few books/tapes on incorporating, is whether you can switch from a SP to a Corp?

That would not be a bad idea if so. Though I still think doing it through Wyoming is a good idea.

But as for when to start, the way I have understood it is that if you are not really certain whether your company will be a "hobby" or a real business you can hold off until you become a little bit established. I.e. if I sell 6 shirts in 2010 because I have barely gotten a website up and haven't really advertised yet, I don't want to be dropping the bucks on incorporating.

Obviously there are limits as to how much income you can make before you must claim it. I might as well see how long that takes.

 

[jwalk2515]

yes you can switch from sole prop to corp. I was looking thru legalzoom.com and that was one of the options

 

[gijoe985]

Well I guess I could run this by my CPA friend. My main point is that if I am treating this like a hobby and I am not making much profit, then the IRS won't mind, (I've read that from good sources) but if I start making enough income to qualify it as a business, then I have to register in on form or another. So I figured I might as well get the ball rolling with the website first. But we'll see what the CPA says...

 

[Rodney]

Well I guess I could run this by my CPA friend. My main point is that if I am treating this like a hobby and I am not making much profit, then the IRS won't mind, (I've read that from good sources) but if I start making enough income to qualify it as a business, then I have to register in on form or another. So I figured I might as well get the ball rolling with the website first. But we'll see what the CPA says...

Even if the IRS doesn't mind (I'm not sure how true that is), I still think it's best to get registered as a business from the start.

Regardless of the IRS, having an actual business structure will help you with other things like setting up a bank account to keep things separate, tracking expenses, setting up accounts with vendors, sales tax reporting (a BIG issue which is totally separate from anything with the IRS)

 

[vadan]

U can't help much, but from a Uk point of view. Yes, incorporate. It shouldn't be that expensive. In the uk you can get reg'd ltd for £40. Occluded there are other expenses to consider like accounts but this is 12 months down the line. If you understand the basic red tape you should be fine. Also here, if I reg as sole trader or partnership I can always change to ltd. Ltd in my opinion is always the bet way to go especially online. You have limited liability if something were to go wrong.

 

[TeesForChange]

i think it's a good idea to have everything set up first and then start selling. that way you can start to collect sales tax for any orders in your state right away.