Dangers of NOT incorporating a hosting biz

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BlastPort

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Just curious as to whether there are significant dangers of holding off on incorporating your hosting business? I.e. potential liability issues, tax-related issues, etc? We are trying to hold out until we are purely profitable, which should be within the next few months, but it's something that's been lingering in the back of my mind.

I've started a different business in the past, and we waited to get incorporated until we were pretty much squared away and profitable with clients and regular income. It was a bit of a pain to play catchup and get "proper" with filing taxes once we did, but it wasn't too bad and the waiting didn't really hurt us in any way. However, that was a different kind of business, so I didn't know how the hosting business differed?

My main worry is if we (God-forbid) got sued, then us not being a registered LLC could possibly bleed us, the 2 business co-founders, out to dry. But that may not be accurate.. Thoughts?
 
Well apart from the suing part, I don't think there is any major problem. With regards to taxes, keep a proper book and divide the profits as individual income between the founders. Once you incorporate, start with a fresh book. This way you pay your taxes and still don't need to play catch up.
If you collect service taxes like VAT etc then it gets a little tricky.
 
node24x7 said:
Well apart from the suing part, I don't think there is any major problem. With regards to taxes, keep a proper book and divide the profits as individual income between the founders. Once you incorporate, start with a fresh book. This way you pay your taxes and still don't need to play catch up.
If you collect service taxes like VAT etc then it gets a little tricky.
Click to expand...

Thanks for the reply on this, and yea that's what I have been gathering. We luckily don't have to worry about any service tax collection on our side. Thanks again for the reply, good info to note!
 
node24x7 said:
Well apart from the suing part, I don't think there is any major problem. With regards to taxes, keep a proper book and divide the profits as individual income between the founders. Once you incorporate, start with a fresh book. This way you pay your taxes and still don't need to play catch up.
If you collect service taxes like VAT etc then it gets a little tricky.
Click to expand...

From a liability standpoint, a TOS and AUP can help better protect you. Make sure your clients agree to it before checking out. Although this does not completely protect one's self, this is a start.
 
I don't consider not operating a legal entity behind the business. Any brand or company record is related to the legal entity, unless a corporation operates separate brands and service marks (trademarks). I see only pros of operating a business behind a legitimate entity.
 
A Web Hosting industry is nowadays growing at very very fast speed, every single person is ready with a website to sell servers. On that note, incorporating your company builds a trust on your visitors which may or can help turning your visitors into customers as they find you an legal registered entity. Apart from visitors part, a legal registered company can take his part lawfully like Disputes, Charge backs, etc etc. Also registering your company gives your company a real name which can be trusted and reliable.
 
It is useful to register, with one business of mine, since we registered it more sales have come through, is strange but people trust it more.
 
In the web industry you get a lot of fly by night host. Building your brand and having a registered business to back it is key to building trust.

At NodeWest we incorporated once we started hosting public clients. Since we started small for family and friends we never felt a need, but as we grew we needed to protect ourselves and our company by forming our LLC.
 
Thanks for all the great responses. Agreed that having a good/solid ToS statement is key for at least minimal protection. We definitely have plans in the works for getting incorporated, but it's good to hear that others have done the same and didn't incorporate right off the bat.

Definitely agreed that it creates a heightened sense of trust with potential and ongoing customers.
 
I am curious of ToS (Terms of Service) can protect you from suit if all issues are clearly outlined. :confused: Although we have been in business for over 6.5 years, we're not incorporated yet. We have been profitable, but I don't wish to add further expense and be out of business because we can't keep up with our bills with the whole thing of getting an attorney, filing paperwork, etc. with the State.
 
BlastPort said:
Just curious as to whether there are significant dangers of holding off on incorporating your hosting business? I.e. potential liability issues, tax-related issues, etc? We are trying to hold out until we are purely profitable, which should be within the next few months, but it's something that's been lingering in the back of my mind.

I've started a different business in the past, and we waited to get incorporated until we were pretty much squared away and profitable with clients and regular income. It was a bit of a pain to play catchup and get "proper" with filing taxes once we did, but it wasn't too bad and the waiting didn't really hurt us in any way. However, that was a different kind of business, so I didn't know how the hosting business differed?

My main worry is if we (God-forbid) got sued, then us not being a registered LLC could possibly bleed us, the 2 business co-founders, out to dry. But that may not be accurate.. Thoughts?
Click to expand...

Well, first and foremost, you should either incorporate (it doesn't sound like you are) or you should stop calling yourself LLC (in your site footer.)

It sounds like you're not alone in this venture. Because you have a partner or partners you absolutely, positively establish a legal entity with an ownership agreement. It doesn't matter how much you trust the people you're working with. As a prudent business owner you want that document and you want it pronto. You want it even if you don't know that you want it. For your own sake, get it all down in writing. (Source: Winklevoss twins.)

Secondly, you need to start establishing business credit history now. Your future, larger-business-self, will look back and thank you.

The legal and financial liability stuff is important, too. The legal and financial liability limitations alone are reason enough to do it, but I just wanted to hit on the things that don't get said much.
 
rfwilliams777 said:
I am curious of ToS (Terms of Service) can protect you from suit if all issues are clearly outlined. :confused: Although we have been in business for over 6.5 years, we're not incorporated yet. We have been profitable, but I don't wish to add further expense and be out of business because we can't keep up with our bills with the whole thing of getting an attorney, filing paperwork, etc. with the State.
Click to expand...

In most US states you can incorporate for a few hundred dollars or less. If your situation is particularly complex, it may cost more.
 
TOS helps you with client not with government
all i know If you cross particular amount from profit you get from the company then you have to pay tax and if your company cross the limit then you will need to pay tax for the company :)
 
If you do not intend to take this industry seriously then it makes no sense incorporating your business. However, if you are looking at this from a long terms perspective, I would recommend becoming incorporated as soon as possible because it assists you in terms of Bank loans and getting a line of credit based on the number of years you were in business for. Let's not forget that you do need to have a successful track record in sales for this as well
 
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