Personally, I think you should.
The costs of forming an LLC is cheap compared to the personal asset protection it provides.
LLC filing fees range from $40 to $500 (the average fee is $132).
There are risks with all businesses, even if you just have a website.
Wait until you make money = bad advice
I hear a lot of advice in the online business world about waiting until your income hits a certain level before you form an LLC.
I don’t think this is a good idea. In fact, this is bad advice.
Making money has nothing to do with risk and liability.
If you don’t have a couple hundred dollars to form an LLC, you should consider saving up before starting your online business.
No LLC = Sole Proprietorship by Default
If you don’t form an LLC, you are by default, operating as a Sole Proprietorship.
Most people that operate as a Sole Proprietorship just feel overwhelmed about the process of forming an LLC and they’ve been misguided.
They think it is more complicated than it really is.
They think it will cost thousands of dollars.
It’s not complicated. And we can help.
The average LLC filing cost is $132.
And yes, some states have LLC filing fees that are $300 (Texas and Tennessee). View our Texas LLC application instructions for more details for Texas LLC formation.
Even worse, an LLC costs $500 in Massachusetts.
But still, those costs are minimal compared to the liability protection that you get when you form an LLC for your website.
To check on filing fees in your state, click here: LLC fees by state.
Legal Risks of Owning a Website
Just because you have a website or online business does not make it “safer” than a physical one.
There are vulnerabilities with all types of business.
And unfortunately, we live in “sue-happy America” and people can sue you for any reason, at any time.
Here are a few things to consider:
Libel or Slander
Consider the fact that just by writing words on your website, they could be interpreted as libel or slander.
Do you link out and promote to any affiliate offers? That also carries liability.
List Building/Email Collection
Does your website collect personal information from an email opt-in or newsletter? If so, then you need to make sure your website complies with data protection laws. If it does not, you have liability exposure.
Does your website contain gossip? If so, be careful. This can often be considered defamation.
Copyright & Licenses
Does your website contain copyright material owned by others, such as images, videos, or audio?
If so, you need to make sure this information is properly licensed.
Back when I started in web development, I accidentally used photos from Google Images, thinking they were royalty-free. I ended up getting two letters, one for an $800 lawsuit and one for over $1,000 claiming copyright infringement.
Products or Services for Sale?
Does your website sells products or services? If so, these industries are often heavily regulated, and many small business owners fail to remain in compliance.
Look, the above information is not meant to “fear you into” forming an LLC. It’s just meant to make you aware of the risk that comes with owning a website.
An LLC keeps you protected
Forming an LLC for your website keeps your personal assets protected.
In the event that someone wants to sue you, they’re actually not suing you personally, but instead they’re suing the LLC.
Your personal assets, like your home, your cars, and your bank accounts, are protected in the event that your business is sued.
Forming an LLC for your Website
Forming an LLC requires 5 to 6 steps (depending on your state). They are:
1. Researching your desired LLC
You’ll need to research your LLC name to make sure it’s available for use. You need to make sure your desired LLC name is unique and distinguishable before filing your paperwork with the state.
If your name is not unique the state will deny your filing, and some states will hold onto your money until you correct your paperwork.
2. Selecting a Registered Agent
A Registered Agent is a person or a company who agrees to accept Service of Process on behalf of your LLC.
Service of process is any paperwork pertaining to a lawsuit or a subpoena.
Most online filing companies (unfortunately) trick you into hiring them as your Registered Agent.
You or someone that you know (like a friend or family member) can act as your LLC’s Registered Agent, so long as you or they have a physical address located in the state where your LLC is formed.
3. File LLC formation documents
Your state will require that you file LLC formation documents and pay a filing fee in order to form your LLC.
LLCs are formed at the state level, therefore each state has its own documentation and unique filing instructions. You need to ensure your LLC is properly filed.
The average turnaround across the U.S. is about 7 to 10 business days for approval, however some states take longer (2 – 2.5 weeks).
4. Draft and sign an LLC Operating Agreement
Once your LLC is approved with your state, you’ll then complete your LLC Operating Agreement.
The LLC Operating Agreement is a contract among the members (even if there is just one member) which spells out how much of the LLC each member owns, how the LLC is managed, and how the LLC pays taxes.
An LLC Operating Agreement is typically 3-6 pages, but some can be longer depending on the industry that you’re in and the complexity of your business.
5. Obtain your Federal Tax ID Number (aka EIN) from the IRS
Your Federal Tax ID Number (aka EIN) is like a social security number is to an individual… it identifies your business/LLC to the IRS for tax purposes.
You also use your EIN for opening up a business checking account.
Obtaining your EIN is a free service provided by the IRS.
Don’t let other websites trick you into paying exorbitant fees to have them do this for you.
If you become a member of our online course we will walk you through the IRS’s online questionnaire to ensure that you get it filled out correctly.
This process takes approximately 10 minutes and at the end of the application you will receive your EIN in a PDF print out.
Remember: only file for your Federal Tax ID Number (EIN) after your LLC is approved. Having an EIN attached to the wrong LLC is not fun. Dealing with the IRS to make corrections and cancel EINs is a pain in the butt!
6. Keep your LLC in compliance by filing your Annual Report
Over 90% of the states require LLCs to file an Annual Report in order to remain in good standing.
The Annual Report can take on many names such as the Annual Registration Fee, Annual Review, Biennial Report, and many other names.
We will refer to it as the Annual Report for simplicity.
In a handful of states (about 5-7 of them) there are no fees associated with the Annual Report, but in most states there is a filing fee, with the average being between $50 and $100.
LLC Annual Reports are usually due on an annual basis (go figure!), but many are due every other year.
Are you serious about your website/online business?
If you are serious about your website, then I strongly recommend that you set up an LLC.
The cost is minimal compared to the personal liability protection that an LLC provides.
Just because you’re running the website does not mean that you are safe from exposure to liability.
A great quote from Brendon Burchard is, “Don’t let your small business make you small-minded.”
Forming an LLC for your website is not only a good idea from a liability perspective, but it also adds credibility when dealing with customers and partners.