You may not have considered it, but if youre starting an Internet business, youre starting an actual business and that means constructing a legal entity, usually a sole proprietorship, an LLC, or a corporation. By default, you have a sole proprietorship, but this formation offers you little in the way of protection or tax benefits. So what about your other options?
Limited Liability Companies (LLCs)
The Upside: Your personal assets arent exposed in a lawsuit relating to your business. This is especially important if you sell products that are costly, or inherently risky, like heavy machinery or used manufacturing equipment. With an LLC, an unhappy customer can only sue your business; they can’t come after your personal assets, like your home, cars, or personal bank accounts.
The Downside: You, as an owner, are legally unable to draw a salary. You may, instead, take a percentage of the companys profits. This usually means that, after the business expenses are paid each month, you and any partners equally divide the remaining profits. But you need to remember that, because you dont deduct taxes from a regular paycheck, you have to pay estimated taxes...
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