Forming an LLC from a DBA in NY

jsado

jsado

New Member
Jurisdiction
New York
Hi! My wife and I live in NY and formed a home-based business a little over 2 months ago. It's a retail business that primarily sells online, but occasionally sell locally. Currently we operate under a DBA. I just filed the LLC application with LegalZoom, but haven't received the type of assistance I thought we were going to get and I have some questions.

With the business being based out of a section of our basement, what are our liability concerns? For example, is our house considered the business and at-risk?

When does the EIN and NY tax authority cert need to be obtained for the LLC? Before the app is approved or can we obtain those after we have the LLC app finalized?

Also, since the LLC app seems to be moving through the process pretty fast, can we continue business under our DBA while we wait for EIN and NY tax cert to be approved? (EIN is basically instant, but tax cert takes a bit)

If we decide to get a street address PO Box, is there any real benefit as far as LLC liability is concerned?

Thank you for any help! I feel like I jumped the gun on starting the LLC process and probably should've found out the answers to these questions first.
 
jsado said:
I feel like I jumped the gun on starting the LLC process and probably should've found out the answers to these questions first.
Click to expand...

You got that right.

Why do you need an LLC in the first place?

If you, like most people, answer "Because it protects me and my personal assets" you'd be wrong.

The LLC form of business, like the corporation, protects the owners of the business from personal liability for the debts of the business. For example, if the LLC enters into a contract with a third party and breaches it, the LLC is liable for that, but the LLC members are not unless they personally guaranteed the contract, which is something that lenders and astute business people often insist upon. The LLC member is always responsible for his own debts and wrongs, including liability for the negligent acts he performs for the business (and for which the LLC might also be liable). There is also the possibility of "piercing the corporate veil" (google it) which is an even bigger risk for single member LLCs.

jsado said:
With the business being based out of a section of our basement, what are our liability concerns? For example, is our house considered the business and at-risk?
Click to expand...

Big risk there. Your homeowners insurance excludes any liability arising out of the operation of a business. There is only very limited coverage for business contents owned by you but there is no coverage for business contents owned by an LLC (an entity that cannot be added to a homeowners policy).

You will need a separate business package policy containing premises and products liability and coverage for business contents like stock and equipment.

If you use your vehicles for any business activity you will have to endorse your auto policy to business use at a higher price. If you conceal the business use from the insurance company and you have a claim, you can lose your policy and have the claim denied, leaving you on the hook for an uninsured accident that can put you into bankruptcy.

jsado said:
When does the EIN and NY tax authority cert need to be obtained for the LLC? Before the app is approved or can we obtain those after we have the LLC app finalized?
Click to expand...

Why do you need an EIN? An LLC is a disregarded entity for income tax and whatever state and local taxes are involved could also be done with your SSN. At any rate you can get your EIN from the IRS online in a matter of minutes. As for the NY tax authority cert, call up and ask.

jsado said:
Also, since the LLC app seems to be moving through the process pretty fast, can we continue business under our DBA while we wait for EIN and NY tax cert to be approved?
Click to expand...

Yes.

jsado said:
If we decide to get a street address PO Box, is there any real benefit as far as LLC liability is concerned?
Click to expand...

No. Not as far as liability is concerned.

Might be comforting to know that your home address isn't widely known but anybody who wants to sue you can find you through a variety of public records.
 
jsado said:
Hi! My wife and I live in NY and formed a home-based business a little over 2 months ago. It's a retail business that primarily sells online, but occasionally sell locally. Currently we operate under a DBA. I just filed the LLC application with LegalZoom, but haven't received the type of assistance I thought we were going to get and I have some questions.

With the business being based out of a section of our basement, what are our liability concerns? For example, is our house considered the business and at-risk?

When does the EIN and NY tax authority cert need to be obtained for the LLC? Before the app is approved or can we obtain those after we have the LLC app finalized?

Also, since the LLC app seems to be moving through the process pretty fast, can we continue business under our DBA while we wait for EIN and NY tax cert to be approved? (EIN is basically instant, but tax cert takes a bit)

If we decide to get a street address PO Box, is there any real benefit as far as LLC liability is concerned?

Thank you for any help! I feel like I jumped the gun on starting the LLC process and probably should've found out the answers to these questions first.
Click to expand...

Spend $500 and buy some time from a lawyer, you might also need a CPA.

You spend a little today,or you'll regret it next week.
 
adjusterjack said:
You got that right.

Why do you need an LLC in the first place?

If you, like most people, answer "Because it protects me and my personal assets" you'd be wrong.

The LLC form of business, like the corporation, protects the owners of the business from personal liability for the debts of the business. For example, if the LLC enters into a contract with a third party and breaches it, the LLC is liable for that, but the LLC members are not unless they personally guaranteed the contract, which is something that lenders and astute business people often insist upon. The LLC member is always responsible for his own debts and wrongs, including liability for the negligent acts he performs for the business (and for which the LLC might also be liable). There is also the possibility of "piercing the corporate veil" (google it) which is an even bigger risk for single member LLCs.



Big risk there. Your homeowners insurance excludes any liability arising out of the operation of a business. There is only very limited coverage for business contents owned by you but there is no coverage for business contents owned by an LLC (an entity that cannot be added to a homeowners policy).

You will need a separate business package policy containing premises and products liability and coverage for business contents like stock and equipment.

If you use your vehicles for any business activity you will have to endorse your auto policy to business use at a higher price. If you conceal the business use from the insurance company and you have a claim, you can lose your policy and have the claim denied, leaving you on the hook for an uninsured accident that can put you into bankruptcy.



Why do you need an EIN? An LLC is a disregarded entity for income tax and whatever state and local taxes are involved could also be done with your SSN. At any rate you can get your EIN from the IRS online in a matter of minutes. As for the NY tax authority cert, call up and ask.



Yes.



No. Not as far as liability is concerned.

Might be comforting to know that your home address isn't widely known but anybody who wants to sue you can find you through a variety of public records.
Click to expand...
 
jsado said:
Seems like our best bet as a new business would be just to continue to operate under a DBA.
Click to expand...

With the proper insurance and taking care in how you run your business you can operate as a DBA indefinitely and never lose a minute of sleep.

I had a few businesses in my time and never needed an LLC. Not even when I was a private investigator. High risk you would think. Nope. I had the right insurance for it and didn't worry about a thing.

But, with or without the LLC, having the proper insurance is critical.
 
So, the original intent of us getting an LLC was to protect our personal assets. If we sell an item to somebody who ends up using it carelessly, damages property or hurts somebody, wouldn't an LLC offer us the protection we're looking for?
 
Theoretically, yes. In reality, there are too many ways it can go wrong, especially with sympathetic juries.

Even you went with the LLC you would still need the proper business liability insurance with you and the business as Named Insureds.
 
jsado said:
what are our liability concerns?
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How could we possibly know? You've told us virtually nothing about your business.

jsado said:
For example, is our house considered the business and at-risk?
Click to expand...

I don't understand what "is our house considered the business" means. A house is a house, and a business is a business. As for your house being "at-risk," I'm also not sure what that means. If you're asking whether someone who sues you and gets a judgment against you can execute the judgment against your personal residence, that depends on a lot of factors. At the very least, a judgment against you can be passively enforced by creating a judgment lien against the house. Converting your business to an LLC may provide you with a layer of protection.

jsado said:
When does the EIN and NY tax authority cert need to be obtained for the LLC?
Click to expand...

Before the LLC begins business operations.

jsado said:
can we continue business under our DBA while we wait for EIN and NY tax cert to be approved?
Click to expand...

You've provided no reason to believe you lack this ability.

jsado said:
If we decide to get a street address PO Box, is there any real benefit as far as LLC liability is concerned?
Click to expand...

No.

jsado said:
So, the original intent of us getting an LLC was to protect our personal assets. If we sell an item to somebody who ends up using it carelessly, damages property or hurts somebody, wouldn't an LLC offer us the protection we're looking for?
Click to expand...

In most circumstances, yes. However, if you fail to capitalize the LLC properly, fail to obtain proper liability insurance, and/or fail to keep your personal finances separate from those of the LLC, you could find yourself being sued under an alter ego theory.
 

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