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ftcThe ongoing debate regarding Kyanonymous and his computer business is a study in how NOT to start or run a business. Deric is making the many common mistakes that young professionals make when starting their own business.

His first big mistake is thinking that Registering as a LLC is all he needs to do. The problem is it is only one step in many he needs to make before even excepting a dime from a customer. There are many rules and regulations he has to follow at the federal, state county and even city levels.

By far, the most important is licensing which should be in place BEFORE he establishes his LLC since certain Professional services by a single individual would be better off being listed as a different kind of business.

A LLC has unique regulations that he will need to comply with on an ongoing basis. A LLC is also the kind of business that is subject to the most public disclosures that are not required by other business types.

irsNext comes the second most important part of any business and that has to do with taxes. He will have unique requirements concerning both the paying and collecting of the various taxes and fees levied by all levels of government.

ncdorhttp://www.dor.state.nc.us/faq/sales.html

As a Corporation, he will be required to pay his taxes IN ADVANCE on his estimated income for the next fiscal quarter. If he underestimates his income, he will have to pay both the shortfall taxes and his estimated income for the next quarter.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies

He then has to pay his corporate taxes by Jan, 1st rather than April 15, as most of those who are employed have to do. Also, as a corporation he has to pay himself a reasonable wage and apply the various “social taxes” that an employer would have to do. This is the primary DISADVANTAGE of registering a business as an LLC. Corporate laws and regulations are quite strict and detailed.

Then, there is the issue of sales taxes at both the state and local level. These requirements vary from state to state. In some cases he would have to collect the sales tax for the person living out of state and pay those taxes to THEIR taxing agency. One only has to look at companies like Amazon to see what states require them to collect sales taxes and which do not. If he does not collect the taxes, he may well find himself paying them himself along with any interest or penalties that are levied.

http://www.dornc.com/

Some states also require a state sales tax number before he collects a dime from anyone. He would then have to file a monthly or quarterly statement even if no taxes are collected. The laws vary widely from state to state or even city to city.

Then comes the worst requirement of all. It is called the fair trade practices act that regulates how any business conducts interstate commerce http://www.federalreserve.gov/boarddocs/supmanual/cch/ftca.pdf

Deric is also required to have on file how he protects private and sensitive information he may have on his business clients. This includes protecting ssn numbers, credit information and other personal information such as name, address, contact information and so forth:

https://www.ftc.gov/news-events/media-resources/protecting-consumer-privacy/enforcing-privacy-promises

If a company is found to have caused a customer to have their identity stolen or other kinds of fraud take place because of a violation of the privacy regulations, they will find themselves both civilly and criminally liable. The criminal violations can be quite severe.

ANYONE thinking of operating any kind of business is well advised to learn all of the laws and get themselves a good Certified Public Accountant as the latter can save the new business owner a lot of grief. It might also be a good idea to get a lawyer who is versed in business law on retainer as well.

Stay tuned

MURT