Becoming a Business, Part 2: Establishing the Business Entity (June 2019)
The previous article in this four-article series (Becoming a Business, Part 1: Planning Operations) presented what I needed to nail down about how I would go about the actual work. This article addresses the actions necessary to formally create the business and establish certain legal protections. As before, these articles are intended to reflect what I encountered and accomplished, not to act as a guide to establishing a business.
Establishing the Business Entity
Of all the things that needed to be addressed in creating the business entity, picking the name proved the most challenging. It’s hard to come up with something that works out of uncountably many possibilities. There were several candidate names that I entertained and eventually dismissed, “NoVa LP2CD” being the one that lasted the longest before being discarded. I eventually challenged several friends to come up with a name, and they collectively offered about a dozen ideas. “Play It Again, Paul” was derived from one of the suggestions offered. Once I picked the name, I searched federal and state databases to ensure that it wasn’t already in use. It wasn’t (though it is the title of record albums by three artists, but those don’t count).
The second action was to select a business model from among, in descending order of complexity, C-Corporation, S-Corporation, Partnership, Limited Liability Company (LLC), and Sole Proprietorship. While a sole proprietorship is the easiest thing to set up (it requires almost no paperwork, and Virginia isn’t even interested in tracking the business name), it’s not without some risks. Fortunately, the LLC model fit my needs, reduced the risks, and necessitated only modest paperwork, and I certainly didn’t want to pursue a more complex business model.
Registering the company with the Commonwealth of Virginia proved to be straightforward: fill out the appropriate State Corporation Commission (SCC) form and send them a check. The SCC notified Fairfax County and sent me a link to my company’s certificate of organization, which I printed, framed, and hung on the wall above my tape deck.
It was mid-November 2016, and Play It Again, Paul, LLC was officially a business, though I would defer starting operations until January 1, 2017. But there were several matters of a legal nature to attend to, some of which I had anticipated and others that I had not.
Legal Matters
One of the four things I had anticipated was the creation of a privacy policy. I wanted customers to know that I take privacy protection seriously and to detail what information I collect, how I use it, how I will never use it, how I protect it, and its final disposition (see Privacy Policy).
The second arose from a nagging concern that customers might expect fully restored audio from their worn or damaged media, and I wanted to ensure that their expectations were realistic. While text throughout the web site addresses what conversion and noise reduction can and cannot accomplish, I created the separate page Important Considerations to describe the capabilities and limitations in a more concise format.
The third was a note on copyright. As I didn’t want to come up on the music industry’s radar as facilitating bootlegging, I wrote a paragraph addressing what’s permissible under copyright law and what’s not. It also appears in the Important Considerations web page.
The last of the legal matters I had anticipated was the creation of a document that would serve as a contract between Play It Again, Paul, LLC and the customer, and the Customer Agreement serves that purpose. In addition to helping establish expectations of both parties, it serves to provide customers with assurances that the company will do its very best to deliver a satisfactory product.
One item that I had not anticipated was an operating agreement between the LLC and its members. I was aware that such documents existed, but I thought this would be irrelevant since the LLC has only one member (me), and I would be creating an agreement between me and myself. Regardless, my attorney advised me that the operating agreement could provide some legal protections down the line if things began to go wrong. (I’m not sure what that would look like, but since I was paying the attorney, I felt I really should follow her advice). Fortunately, I found a template on the Internet, and I had the agreement finished after about an hour of editing the template.
The other unanticipated item concerned who owned my audio equipment, since I had purchased it for both business and personal use. My attorney presented the pros and cons of my owning the equipment vs. having it owned by the business. I opted to keep the equipment in my possession except for the very few items I purchased only for business use, like a portable voice recorder. To ensure that this arrangement would stand up to legal challenges, I needed to arrange for the business to rent its equipment from me and to document the arrangement by creating a Tangible Property Rental Agreement between the LLC and me (which I had to sign twice, once as me and once as a member of the LLC). And now the business pays me a percentage of its quarterly gross receipts. While the business’s equipment rental expense is a legitimate deduction from the business’s net profit, I need to reflect the payments as personal income, and I end up paying income taxes on that money instead of the business. This makes no difference in what I ultimately owe in taxes; it just adds a little complexity to bookkeeping requirements and tax forms.
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