College business student here asking for help

Hi everyone, this site is a great resource for info, and I appreciate all your expertise. A post similar to what I am going to ask was recently added, but I would like to get a bit more detailed for anyone who has a spare minute and would be willing to help me.

I plan to start an online business this summer, mainly just a project. I don't plan on it being a big moneymaker... just very small sign up fees and hopefully an affiliate marketing program related to the website content. If I can break even, it would be a worthwhile project for me as a business student looking to expand my abilities and experiences and also to build my resume.

I have been researching the legal/tax issues of starting a business, and I have a few questions:

1) Must I register as a sole proprietorship if I plan to make a profit from this venture?
2) My website will be designed to find customers for service providers, and vice versa. Say that I find a service provider for the customer through my website, and the service provider really messes up the job, or injures the customer while on the job, or anything of that sort. Can I be held liable in any way?
3) If so, what can I do to release all liability on my end? Can I just have the customer check an "agreement" form at the bottom when they submit a bid request form? If so, would that completely, 100%, keep me from being liable, or do I have to buy any type of insurance?

Thanks for any help! I really appreciate it. I've been doing plenty of research, including reading through IRS docs and plenty of other boring stuff, but I would like to hear it from some of you folks if you could. Thanks.

 

DP members, I know JFeens well and, as the old saying goes, he has "been like a son to me" (hint, hint).

He is a very diligent young man, entering his third year of college, and is embarking on his first personal website venture. I've tried to help him with his questions 1-3, but my site is nonprofit, so I haven't the expertise needed to answer his business-related questions. Any help would be greatly appreciated by JFeens and me. Thanks, friends out there with web-business expertise.

 

I'm no lawyer but I did take a Business Law class, pwned. Anyway here we go...

You can earn income without be a legal busienss entity...

Two people can always sue you for their problems.
Three Sole Proprietor is Unlimited Liablity, so form under LLC: limited liability company or Corporation.
Four in order to get your busienss insured you will have to include a liablity waver for all your clients. Because those insurance companies are not stupid.

Hopes This helps..

 

Thanks for the response. I hope to avoid forming as an LLC, because there appears to be more work and more tax forms to be filled out. This is basically a fun, learning project (with the possibility of making a profit), and I would like to experience what it takes to get an official "business" going with as little formation work as possible. Therefore, a sole proprietorship is the best option. However, you mention that you can earn income without being a legal entity... does that mean you just register an ABN (Assumed Business Name) and start doing business from there? That would be my best option, assuming I've figured out how to remove myself and the website from liability.

 

To get a business bank account you need a Tax ID # and a DBA (fictitious name registration). You can also just use your personal account if you are not signing up with any affiliates that require a tax id #....

As for #2 & #3, a lawyer will write a Terms of Service for a reasonable amount. If you do not have a family attorney, most state bar associations have a service that can refer you to someone with relevant experience.

 

In most states an LLC is a 1 page form that needs to be filled in, and can often be submitted online. You do nothing different in terms of taxes, it would be schedule C income. For the small fee of registering it would be a very good idea to do so, especially since you're looking for experience.

The only way to even come close to removing yourself from liability will be to have a lawyer write up a waiver and form a legal business entity. Even then you won't be completely protected. You're never completely protected.

 

1) No. It will be enough to file schedule C with your tax return. Your tax ID is your social security number. Your business name can be your personal name or a made up trade name. No need to register it.
2) Yes. Write (or have a lawyer write) an agreement (TOS) and have your customers approve it
3) Who knows. If you do business under an LLC at least they can't go after your personal finances. As far as forming an LLC there is no additional tax forms involved. Nor additional paperwork if you have a registered agent (in Delaware or Nevada for example) open it for you. The only thing is additional cost (something around $250 per year).

 

I can help you with No 3. regarding number liability.

I had the same question when I started my web business and went to a lawyer for help. My lawyer wrote for me a set of terms and conditions for my web service that said I was not responsibile for what visitors wrote in advertisements they placed on my website and that I could not guarantee that any visitors would be able to find a suitable provider. Before visitors can place or search advertisements they need to tick the checkbox saying that they will "abide to the terms and conditions" which is recorded in a database. My lawyer said by ticking the box, they have agreed to the terms and I will be covered as long as I can prove they have ticked the box.

Hope this helps.

 

Great advice! Thanks for the suggestions. Putting everything together, this is what I've concluded, and corrections are welcome:

1) A sole proprietorship is the easiest and cheapest to form. It would only cost me $50 to get an ABN in my state, and I would be good to go.
2)Although I would be personally liable for any suits under this setup, if I can have a lawyer write a Terms of Service/Conditions (and I can prove that the customer agreed to it), I am basically free from liability. The customers will find service providers through my site, and if the service provider botches the job, although I "backed" the provider through my site, it was only to the best of my knowledge. It sounds like if I consult a lawyer and have the TOS, I can release myself from liability, at least generally.

Thanks everyone.

 

what is "ABN"?

 

ABN stands for "Assumed Business Name". If you are a sole proprietor and don't conduct business as your legal first and last name together, then you must register an ABN, at least in my state.

I think it's also called DBA, or "Doing Business As".