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Social network startup... some LLC questions

    • 1 posts
    January 17, 2013 4:56 PM EST

    Hi everyone!  I'm new here (Robert - nice to meet you all), but in reading many topics over the last hour it became clear that this is the place I'm going to get the best answers from.  So without further delay -- and if you will please excuse any ignorance I demonstrate -- here's my situation...

    I'm looking to launch a niche social network.  Before I get any deeper into the dirty work of developing it and planning further, I want get the legal necessities out of the way...

    1.  The site will not be selling anything, but it will (as social networks tend to be) function as a place for information-sharing, opinion-sharing, content-sharing, etc.  This could eventually bring up certain sensitive legal issues, and I want to protect myself.  That said: should I start right off the bat by forming a one-member LLC?

    2.  If I form an LLC, I will only be making money at the start through small donations that will help fund the startup's initial operations (paying for the LLC fees, possibly trademark, software, servers, etc).  How will these funds -- which WILL be spent by the LLC -- affect taxes (or anything else), since it won't serve as "profit" once it's spent?

    3.  When the website is eventually "monetized" (through ad revenue or voluntary member donations), how will this revenue affect taxes?  If it's all spent, does it count as taxable?  Or only the portion "left over" in the end?

    4.  Finally, what if I just decide that the website won't generate money in any way, and I simply have the LLC for personal liability protection?  Are tax filings necessary in this case?  (I guess my real question is: with no money moving around, is the LLC essentially "hassle free" every year?)

    THANK YOU in advance for anyone offering up some friendly advice.  I've searched all over for answers, and while I've gotten some, none have been specific enough to my startup idea to be helpful.  :)

    • 926 posts
    January 18, 2013 11:17 AM EST

    Bumpshaman,

    I can't give you specific answers to your questions without much more information. However, I will offer the following general comments:

    1. If you want to provide personal separation and asset protection - then operating the business as some form of legal entity would be a sound move. Whether you should choose an LLC is a specific question.

    2 The word "Donations" is not properly used for this comment. Money flowing into a "for profit" entity is a loan, a capital contribution (equity purchase) or revenue. In your scenario, it would be income.

    In an LLC the taxable obligation is passed through to the "owners" (members). The amount of the tax obligation is basically the revenue (money in) minus the expenses (money out) However, some "money out is not treated as expenses (ie purchase of real estate)

    3 In general, revenue is revenue - so it would be the same as 2 above.

    4. If by hassle free you mean zero cost - not really. Most States require some annual "activity" to maintain the current status of an LLC. The filing also requires some payment. The amount varies significantly from State to State. 

    Hope this helps. If you want to discuss your situation in detail, feel free to send me a PM or contact me directly.

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