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The legalities of creating/owning/running a pet site!

Discussion in 'Guides' started by vplspride, Mar 6, 2012.

  1. To begin this thread, I though I would discuss the legalities of creating, owning and running a pet site.

    For instance, every petsite should be a structured as one type of the legal entities listed below:

    * Corporation - Considered to be a unique entity with owners being shareholders.
    * Limited Liability Company - A combination of a Corporation and a Sole Proprietorship.
    * Partnership - Owned by two or more persons who are responsible for all liabilities or debts.
    * Sole Proprietorship - Owned by one person who is responsible for all liabilities or debts.
    * Non-Profit - An incorporated organization from which its shareholders or trustees do not benefit financially.

    Every legal entity must be registered with appropriate federal and state entities (read this as IRS!).

    * Federal Employer Identification Number or Employer Tax ID
    * Appropriate State Government Tax ID Number

    Every legal entity should acquire a license/permit to operate in the city where it's owner (business) is operating out of.

    If the legal entity has employees, there may be workers' compensation taxes, unemployement taxes and disability insurance that may need to be paid.

    Every legal entity must file yearly Federal and State taxes (I strongly suggest using an accountant).

    If anyone has any other information, questions, please feel free to post! :)/
    #1 vplspride, Mar 6, 2012
    Last edited: Aug 13, 2012
  2. The UK has similar options for anyone interested. This is just basic stuff, aimed mainly for those who are sole traders which is generally the better option to go when you're just starting out.

    You must be registered as...

    Sole Trader - Owns 100% of the business, responsible for all debts, accounting and pretty much everything.
    Partnership - Owns half of the business and shares everything with the partner
    Limited Company (LTD) - Your company protects itself and you are an employee of your company. You must use PAYE to pay yourself and your company name is protected, however your accounts are open for public display at Companies House.
    Social Enterprise - You make money and invest it in community and charity.

    Ideally you need to have at least public liability insurance for your company.
    It must be registered with HRMC within 3 months of trading. You must do your taxes yearly, I generally advise doing your own book keeping and hiring an accountant to fill out your tax return for you. I also advise to put away 20% of your monthly earnings, or more, to cover your tax each year. And getting that form in sooner rather then later so you have longer to get the money together for it.
    You must also pay National Insurance (£2.50 a week) and Income tax (12%) if you opt to be a Sole Trader/Partnership earning under £70k (I think!).
  3. hmmm. what I really need to know is laws covering people from another country., if owners are from different counties etc. If they were permanent 'staff' would they be paid the rate of the country of the owner, by their countries rates, what about taxes. Or do the owners have to be clients of workers etc? Can't find anything :/
  4. WOW ... that opens up a whole new can of worms. Here's something I found by googling foreign partner in business, however due to the complexities of this type of business structure, I highly suggest you speak with a CPA or an attorney!
    #4 vplspride, Mar 6, 2012
    Last edited: Aug 13, 2012
  5. It would be awesome if @KeithKeith could tell us a little bit about the process, since Subeta is big and official.
    #5 Ardy, Mar 6, 2012
    Last edited by a moderator: Oct 16, 2013
  6. I'd suggest taking them on as sub-contractors, much easier that way. They sort out their own tax, accounts and all that jazz then and all you need to do is pay them. That's if you just want to go with the basics.

    If they're owners though I'm not sure how that works. If you go into a partnership call your countrys tax office and they will probably be able to give you more advice and direct you where to look.
    #6 Tyrant, Mar 7, 2012
    Last edited: Mar 7, 2012
  7. This is a very useful topic, may I suggest that it could be turned into a sticky? @cpvrcpvr
    #7 Ollie, Mar 7, 2012
    Last edited by a moderator: Oct 16, 2013
  8. I was just thinking about that. Done.
    #8 cpvr, Mar 7, 2012
    Last edited by a moderator: Oct 16, 2013
  9. My company is an LLC and we have several people on payroll in addition to plenty of sub-contractors. If you guys have specific questions about the formal process I'd be glad to try to answer them.

    Just so you know - for most of you guys opening pet sites as hobbies and such, much of this is information you don't even need. For the majority of your purposes a Sole Proprietorship is all you need.
    #9 Patrick, Mar 7, 2012
    Last edited: Mar 7, 2012
  10. Well, I wouldn't say that just because it's a hobby they don't need most of this. If they are "operating a business" of any sort or accepting real monies of any sort, they need all of this. They must be established as a legal entity (even as a sole proprietorship) and they must have all the requisite state, city licensing, etc and file the requisite tax forms (Schedule C, Earned Income, etc.) as may relate to their business. If they consider themselves to be non-profit (because the give away all their monies), they must have all the legal documentation establishing themselves as a 501 not-for-profit entity as the IRS in particular scrutinizes non-profits. My husband's business was a sole proprietorship for 20 years and the only thing he was not required to have was a Federal Employer Identification number because he had no employees. He had to file taxes for the business along with our personal taxes under his social security number. However, once he became an LLC (for tax benefits), he had to file for an FEIN regardless of whether he had any employees or not.
    #10 vplspride, Mar 7, 2012
    Last edited: Aug 13, 2012
  11. If you are doing this as a hobby and do not expect to hire people or earn much income you do not need to get so complicated.

    I ran a business as a Sole Proprietor for 10 years and needed to do nothing even remotely close to what I've needed to do since I opened an LLC. The amount of extra paperwork, fees, and lawyers I've needed since becoming an LLC is staggering compared to running a business as a Sole Proprietor/Partnership. The fact is that most of the people on VPL who are making pet games are kids who are doing it as a hobby and are not trying to run a business. If this describes you, all you really need to look into is establishing a DBA and declaring yourself as a Sole Proprietor when tax season comes around. Yes, obviously you need to file your taxes correctly no matter which rout you take.

    Once you get into LLC and Corporation territory you should expect to spend thousands on the legal documents required, in addition to filling fees, yearly business fees, proper tax documents, etc. The accounting alone requires much more work and you should be expecting to pay over $1,000 a year just for those services. You need to pay all sorts of new taxes (payroll, workers comp, etc). You are now bound by new local ordinances that could easily result in thousands of dollars of fees if done incorrectly. Just last year New York State tried to fine my company $18,000 + $1,000/day for a mistake that they were responsible for. These things happen. I had to pay our lawyer even more money just to avoid those fees.

    Trust me. If you do not need to incorporate, don't. I easily spend 10% of my time now each year just making sure that the government can't put me out of business for some obscure technicality.
    • Like Like x 1
  12. Well, I don't believe everything is either all or none. Firstly, if anyone earns income from any venture, they must report the income when filing their taxes. Now whether this is done as a sole proprietorship or as another type of legal entity (LLC, Corporation, etc.) is really based on what the owners wants out of this "hobby". We established our LLC for the small cost of $200.00 (through LegalZoom). Filing for all of the appropriate Fed/State ID numbers cost the price of a stamp. Filing for a city business license cost $25 per year in our area. We have an accountant who does our yearly taxes (Fed/State) for approximately $250. This is because we get all our documentation prepared and summarized before we take our records to him. So getting established does not need to be difficult or expensive. But it does take some time and thinking as to what you as a site owner want to get back from the site you own and how you want to be protected (liability-wise) in the long run.

    Now as far as a "kid" establishing a DBA for their site, legally and for federal and state purposes I believe that no person under the age of 18 (?) can sign a legally binding contract. This would be a pre-requisite to establishing themselves as a business owner because as a business owner (depending on the type of entity they create), they can be legally responsible for all debts and liabilities of any entity they own. Also note that a DBA or a Sole Proprietorship means just that. One owner only, no partners allowed.
    #12 vplspride, Mar 7, 2012
    Last edited: Aug 13, 2012
  13. Do you report the "income" from the site any differently if you specify them as donations to the site?
  14. Oh absolutely! As I understand the tax laws, donations cannot be accepted unless you are a 501 not-for-profit entity. Regular income is taxable whereas donations are generally tax free. If you donate all the proceeds of a site to charity then you need to talk to a CPA about setting up a 501 entity, otherwise I believe all monies collected are considered to be income and taxable. The crux is that donations buttons make the "donator" think that they are giving to a charitable cause (thereby making them more comfortable with spending money on the site) when in reality the monies go to the site owner, so the use of a "Donate" button is a red flag for the IRS and the use is supposedly only for non-profits.
    #14 vplspride, Mar 8, 2012
    Last edited: Aug 13, 2012
    • Like Like x 1
  15. Does anyone here know how much you have to earn as a self-employed worker, in order to pay tax on it?

    Does it have to be regular income, e.g. a constant sum of £300-£500 per month, or can it be on anything?

    Right now, I'm looking into working as a freelancer to earn some spare cash (not VPS related), hopefully earning at least £25 per month. Since that's only £300-£600 per year at most, would I need to pay tax on it?

    Help would be much appreciated. :)
  16. You pay £2.50 a week national insurance if you go self employed.
    You don't need to pay tax on such a small amount either.

    From HMRC Website
    "This tax year (2011-12) the basic Personal Allowance - or tax-free amount - is £7,475. You may be entitled to a higher Personal Allowance if you're 65 or over."

    Hope that helps!
  17. I'm a Chartered Accountant with ICAS, if anyone needs any accounts or tax advice if they're living in the UK, feel free to contact me and I'll give you free advice. I won't do your tax returns or anything though (they're self-assessment anyway, so you can do them yourself), but I'll answer any questions you have.
    I can also point out ways which you can be tax efficient and earn the most income from your site while paying the least amount of UK tax - there's no sense in me giving a generic overview here, since it's specific to each business what will be best for them.
    And if I don't know, I work for PriceWaterhouseCoopers, which is one of the big four accounting firms, so I can ask my colleagues in the tax department (again, free of charge).
    I can give a lot of legal advice in regards to companies and incorporation, etc - but I'm not qualified as a lawyer, only a business person, so I'm not going to pretend I know everything. But I can do most of the stuff you'll likely need.

    I'm not qualified to give tax advice for other countries though, as the tax systems are different in every country. So please don't ask any questions if you're from elsewhere as I really can't help! I would if I could, of course, but I can't.
    I can probably answer the basics for other countries, but nothing too specific, because I don't know enough about the different tax systems.
    I did work for a short while in Payroll in the U.S (specifically in Atlanta, Georgia) so I can probably answer some basic questions there, but again, you'd be better contacting a tax adviser in your own country than me!

    Anyway, if anyone needs anything, I'm on my work e-mail address almost daily:
    Or you can use my personal e-mail address:

    I check both regularly, and will happily give tax advice if you contact either with any queries you have =)
    • Like Like x 4
  18. I think the line is drawn to virtual currency... I mean, it can be considered gambling, but not unless you are receiving real currency or real life items in exchange. So as long as your games are through using virtual currency and virtual rewards instead of real life gains then I don't think there is a problem with the laws. Again this really general and goes more by experience than by anything else so I may be wrong. ^^
  19. But the rub comes in that currency is currency, virtual or not. Casinos use chips and credit slips. All have a monetary value in a specific environment. You generally cannot use a chip to buy groceries at the store, but you can trade it in for "real" money. Same thing with most pet sites. They have a specific value tied to their "currency" that can be converted to "real" money value.
    #20 vplspride, Jun 24, 2012
    Last edited: Aug 13, 2012

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