Protecting Yourself First

The first step to starting an online business, ironically, has nothing to do with being online. No, the first step is to protect yourself by creating a business entity. 

Online businesses are just like any other. You may get into it for the purpose of making money and pursuing a passion, but you risk being sued at any moment. Given this, you need to protect yourself by incorporating. By creating a business entity, you place a shield between the business and your personal assets. If a lawsuit judgment is returned against the company, you will not be held personally liable. This simply means you will not lose your personal assets such as homes, cars, savings and so on.

There are two entities that most website owners choose from when moving to protect themselves. The first is a corporation. This is a business with a long history and one that provides excellent protection from personal liability. Many choose to go with the "S" version of the entity for tax purposes.

The second choice is the limited liability company. This company has been around in the United States since 1979 when it was first enabled in Wyoming. The entity provides protection for owners, but comes without the formalities often found in an S corporation. There can be issues if the business will have only one owner, called a "member", so an in depth discussion needs to be had to determine whether the LLC is a good business entity for most. 

Most people are confused when it comes to the use of business entities. They view the work an attorney does as the actual creation process. It really isn't. Forming a business entity isn't difficult. The difficulty comes in determining how best to use the entity and whether it makes sense to use multiple entities to protect a business. A couple examples can shed some light on this.

Let's assume you have a successful online business selling a product. You are the sole owner of the entity. You then decide that you want to enter into a business relationship with someone else on another project. If you do this under your current business entity that holds the successful site, you expose that site to claims if the new venture doesn't work out. That is obviously not a good move, which is why other strategies need to be used.

Now let's consider a situation where you have developed some form of intellectual property that can be used in different ventures. For instance, let's assume you've created a piece of software that is critical to getting HD videos to load and play extremely quickly. You are going to want to license that technology to big players on the web. To do so, you are going to want to create an entity that holds just that software. Any technology that has wide spread use is going to invite lawsuits at some point. By separating the technology from your main business, you isolate the risk of any such lawsuit taking you down completely. 

These two examples may or may not apply to your situation. It doesn't really matter either way as they are simply meant to show you how each situation needs to be considered carefully and then a particularly business strategy applied. You are getting into the online business game to make money. If you fail to protect yourself up front, it is highly likely you will end up being ruined. That would be a shame. 

Contact me today at 619-637-6043 to learn more about your options. I look forward to talking with you.

Richard Chapo, Esq.