Quick legal question about forming an LLC

[Ronald Regging]

I know it isn't specifically domain related, but it's related to my domaining/web business so thought I would ask here.

I know the general idea about how LLCs work. I also know that in order to protect yourself and not run the risk of someone being able to come after you personally, you need to keep business and personal finances completely separate.

My question is how this works when initially forming the LLC. For example, I own a bunch of domains and a website that are currently registered under my personal name. This goes as far as having personal registrar accounts, whois info in my name, hosting in my name, ad network accounts setup in my name, etc...

If I decide to form an LLC at some point, is there any legal process I have to take in order to change the ownership of my domains/website from myself to the LLC? Do I need to have documented sales receipts or something to prove that a legal transfer has occured, or can I just update all of the info with the company name? Not sure exactly how this works and if I do setup an LLC in the near future, I'd like to know I'm not making a fatal mistake from the onset.

Any insight would be greatly appreciated.

 

[Dave_Z]

is there any legal process I have to take in order to change the ownership of my domains/website from myself to the LLC?

Generally speaking, registrars don't care about legalities until upon receipt of
notice for a filed action. Depending on what registrar/s you're using, changing
ownership from your personal name to your eventual LLC can be a snap or a
hassle.

As you know, many registrars nowadays simply let you log inside your account
and change the details in a few steps. But I won't be surprised if there are a
few out there who still handle it the old-fashioned way via faxing documents.

I guess what you're really asking is how to demonstrate ownership of those
domain names if worse comes to worse?

 

[Ronald Regging]

I guess what you're really asking is how to demonstrate ownership of those
domain names if worse comes to worse?

Thanks for the response Dave. I apologize for not making myself more clear. My concerns are not of changing the info or demonstrating ownership to the registrar, etc... My concerns are that I personally own those domains, paid for out of my personal funds. If I start an LLC, is there anything I must do to legally transfer ownership of those assets to the LLC?

If you mix business with personal funds, you run a risk of losing the limited liability protection and could be held personally accountable. So my main concern is that I don't get sued at a later date, then they bring up the fact that the site/domain/hosting/etc was originally purchased with my personal funds, therefore I mixed funds and would be held legally accountable. Something to that effect.

Hope that is a bit more clear, but probably not

 

[DNQuest.com]

You would need to transfer the domains to your business for accounting purposes. The best way to do it is talk to an accountant. I beleive if you tranfer them, it would be under capital startup for the business. So instead of putting cask into the business, you are putting "assets" (and yes, it will be tricky with domain names since they are not property). Or, if you fund your business with cash, then pay the registration fee back to yourself.

With anyhting, make sure you document everything including the full list of domains and I would not try to play any games becuase you may be taking a loss on paper at some point, but in the long run, you are better off. I was lucky that I had a business already when I got into this business 6 years ago.

But talk to your accountant for the best way to do it.

 

[labrocca]

The key here is to remember that domains have no real value according to the IRS as they a rented non-material item. If anything it's an expense. Of course if you sell your contract with ICANN then this expense automatically will be a capital gain.

I wouldn't worry about claiming domains as assets until they are sold. If you need to show assets for your company LLC then use your computers, desk, and miscellaneous items you have laying around. Buy books from Amazon if you can too that relate to domaining, internet, or even legal crap and you can write those off as well. Owning a business gives you a LOT of opportunities to write stuff off.

 

[fonzie_007]

If you have records for what you paid for the domains, have your LLC "purchase" them from you for that amount. Essentially, you are transferring your personal assets to the LLC in the form of inventory. The LLC then would owe you money for the inventory. In a since, you are just loaning your LLC inventory at the cost of the inventory to you.

It doesn't hurt checking with an accountant, but I believe as long as you are the sole proprietor of the LLC, you will be okay doing this.

 

[Ronald Regging]

Great responses guys, I really appreciate the help. I guess getting an accountant would be the best way, because then they can explain everything to me. I'm a bit unfamiliar with the world of accounting, as I usually file a 1040EZ every year But I guess if I do start looking at getting into this as a serious business, I definitely should get some professional help. It's not something I'm looking at doing right away, but definitely in the near future.

Thanks again for the help!

 

[Dave_Z]

With anyhting, make sure you document everything

As one of my recent favorite movie lines go, "I need receipts."

Great info as well, everyone.

 

[circa1850]

If you have records for what you paid for the domains, have your LLC "purchase" them from you for that amount. Essentially, you are transferring your personal assets to the LLC in the form of inventory. The LLC then would owe you money for the inventory. In a since, you are just loaning your LLC inventory at the cost of the inventory to you.

It doesn't hurt checking with an accountant, but I believe as long as you are the sole proprietor of the LLC, you will be okay doing this.

BINGO. You can transfer in assests to an LLC and transfer out assets. Even if it is your property.

I own an LLC and run my domains as well as other businesses through this.

You also do NOT need to register an LLC in your home state. Look at Delaware for the LLC registration. Great rates and tax benefits. If I am not mistaken, more than 60% of the Fortune 500 companies are registered in the state of Delaware. Look also for those that guarantee no agent fee increases (you need and agent to represent you in nearly every state). Not to mention protecting yourself and personal assets should a legal issue arise...if it is in the name of an LLC. Again, talk to an accountant about this.

Once you get an LLC, simply go into the control panel and update your domains' contact info to reflect this. Usually changing the contact info will not set it back to the 60 day ICANN't transfer BS.

If you going to run you domain ownership, sales, sites, purchases like a business, then make it a business. Do it by the rules including getting a federal tax ID so your SSN is not on anything.

GOOD LUCK!

 

[IAmAllanShore]

Just a couple things to remember:
1) "Piercing the corporate veil" - is the LLC just a shell for your actions? LLC's are new, state operated legal entities that have not really been tested to any real extent. The record keeping is a lot easier, and all income is pass-through, so you don't have to worry with any really difficult accounting or anything, but it also is very tempting to start monkeying around - resist the temptation
2) Forming in an LLC in another state can subject you to personal jurisdiction in a state that you may otherwise have no contact with. I have no doubt that Nevada would suit my purposes perfectly, but heaven forbid I get sued out there when I'm in NC (AKA: the "venue" is almost always appropriate where one inc's).
3) Check on the annual report fees in addition to the filing fees, if any, as the upfront costs are jockeyed around by some states to lure folks in without realizing that the yearly upkeep costs twice as much as more as the filing fees.
4) This isn't legal advice, just some information to take into consideration.
5) Yes I am the single partner of 2 LLC's and use them in 2 other member managed investment groups (And one LLP), so while I bring up "cautionary points", I do still rely on them.
-Allan :gl:

 

[labrocca]

Essentially, you are transferring your personal assets to the LLC in the form of inventory.

Incredibly bad idea. You are calling domains inventory...DO NOT DO THAT. Even if your accounting thinks you should. Most accounts do not know damn about domains. Ask instead about rental agreements and contracts for them. Domains are an EXPENSE! They are NOT an asset. They become capital gains AFTER you sell the "rental contract". The contracts themselves are worthless according to the government. How can you place a value on something that's valueless.

The reason you do this is because you will have to pay taxes on INVENTORY...hence...no inventory...no taxes. DO YOU UNDERSTAND. I been a S Corp for many years now. I have experience in this matter.

 

[circa1850]

Incredibly bad idea.

Yes, an expense that you can claim. Sales? Are you claiming them as capital gains?

Perhaps assets was not the correct word as I am at work trying to monitor whats going on here (work) and here (namepros). Allan, also brought up some very good points.

 

[fonzie_007]

Jesse,
Can you point out any IRS publication that addresses this subject? All of my research led me to believe domains should be consider inventory (assuming you are purchasing them from a third party for more than regfee) and any renewal fees are expensed. Once domains are sold, you can then expense the initial cost of the domain.

 

[DNQuest.com]

Labrocca, in a corp or LLC, you don't want to do capital gains since the expense is only realised at the time of sale. So domains you buy and do not sell, you are unable realize that as an expense. Do a simple cash in/cash out method would work better. So everything you buy is an expense, everything you sell is revenue. Am much easier method.

 

[labrocca]

Jesse,
Can you point out any IRS publication that addresses this subject? All of my research led me to believe domains should be consider inventory (assuming you are purchasing them from a third party for more than regfee) and any renewal fees are expensed. Once domains are sold, you can then expense the initial cost of the domain.

No I can't ...but you can't point me to anything saying domains are considered inventory either. Domains are NOT inventory...they are a rental agreement. Inventory is items you own. You don't own domains. You have a contract period to rent them. The IRS is clear about rental agreements. Many large corporations prefer to lease or rent things like computers in order to keep them as a liability. If they buy the computers they have to become inventory and taxable. Of course they reinventory every year as depreciation and write it off that way. However it's better tax-wise to never inventory them at all. Companies do the same thing with car leases and other major items.

Found this:
http://www.taxalmanac.org/index.php/Discussion:Domain_names_-_how_to_treat_them.

It's not 100% on the mark of our conversation because they are talking about sites. However the point of that thread is that IRS is behind when it comes to the laws of domains. One has to basically make assumptions on how to value them. I assume my domains are contract leases and I will stick to that.

Also just found this...great read actually.

http://www.moniker.com/domain-masters/ep-2005-05-18/page-1.jsp

It doesn't agree with some of what I said but hey...that's accounting for you.

Well I guess all this boils down to how you want to structure yourself which is exactly what this topic is about. Good convo.

 

[circa1850]

Also just found this...great read actually.

http://www.moniker.com/domain-masters/ep-2005-05-18/page-1.jsp

Excellent read. Covers very indepth the options. Plus, it IS directed at domainers. This should actually be a feature item for any one in this business looking to conduct themselves in a business.

Those that may be tuning into this thread need to strongly consider the options.

Damn, I might just have to start tuning into Monte's show.

 

[fonzie_007]

In line with the domain masters' article, this IRS publication appears to treat domain names as depreciable assets, not inventory or contracts:

Domain names may be acquired from domain name brokers. Third party domain name brokers gang register domain names with InterNic for a nominal fee on the speculation that the name may appreciate in value. The resale value may exceed several hundred or even several thousand dollars. These names are tentatively believed to be capital in nature with the cost being amortizable.

See http://www.irs.gov/businesses/small/article/0,,id=141491,00.html

 

[circa1850]

See http://www.irs.gov/businesses/small/article/0,,id=141491,00.html

I think it is very important to realize that this article goes much deeper than just "what should I do'.

It is not only a guide for taxpayers, but the IRS folks themselves as to how to treat domainers and how to nail the cheats. Pretty amazing. This is almost a guide (as boring as it is) or an intro to domaining for newbies.

My God, look at the glossary! Even tells the agents how to check up on domainers! Freakin scarey if you don't play by the rules.

"Um, yeah. I spent $38,000.00 on domain names last year, $4,500.00 on hosting, $1600.00 going to T.R.A.F.F.I.C. but didn't make a penny. Yup, all tax deductible. Where do I sign?"

 

[verbster]

One of the qualities of an LLC is that if it only has a single member (or managing member) and has no paid employees, it is treated as a sole proprietorship by the IRS unless specifically requested otherwise.

So if you initially form the LLC with only yourself as a member (and don’t request LLC status), you will be treated as having Sole Proprietorship status by the IRS until your amended filings show a second member…or if you file employee wages using your EIN (Federal tax number).

This would take some research, but you might use this as a loophole for expenses...filing the paperwork as an LLC with just yourself listed as the managing member…and then assuming the expenses as a sole proprietorship….and after that, add a second member to the paperwork to then utilize the LLC designation. I don’t claim this to be a legal solution, but it might be. If it is, I’m sure you (or your proverbial accountant) would have to do some paperwork filings to cover yourself….might work…might get you tossed in the clink.

Here’s the citation and quote from the IRS: http://www.irs.gov/faqs/faq12-1.html

“A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), a partnership or a corporation. If the LLC has only one owner, it will automatically be treated as if it were a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), unless an election is made to be treated as a corporation. If the LLC has two or more owners, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation. If the LLC does not elect its classification, a default classification of partnership (multi-member LLC) or disregarded entity (taxed as if it were a sole proprietorship) will apply.”

 

[W bar M]

Thanks to One and All!!

I have been looking for days on the web for the information I found in this Thread.
Thanks to one and all for the posts you have made on this subject.

With that said I, being a real NEWBIE in this realm (Ancient in real life(born in 1938))
have some questions still regarding obtaining a L.L.C .

I live in the state of Texas where the fee is 300 dollars for a LLC.

Getting laws changed in this state I have found (not originally from Texas);
could take longer than I have life left on this earth. They are in session
every other year in Austin, TX.

I don't have any domains yet. I want to find out all I can about
protecting what my permanent roommate (wife) and I have before entering
into the world of RENTING domains.

If you obtain a L.L.C. is there a renewal fee one should expect or are they
a one shot expense??

I am all for the idea of going to another state that has a less expensive filing
fee. As long as it is LEGAL.


Best Regards

W bar M