4 ms·

Definitely retain counsel no matter what for anything important. I'm just saying I'd be surprised if there were a situation in which a lawyer would advise that

by buu700 8y ago

Definitely retain counsel no matter what for anything important. I'm just saying I'd be surprised if there were a situation in which a lawyer would advise that registering an LLC is reasonable protection from all legal repercussions of your solo side project.

mcbits 8y ago
But would a lawyer ever advise against forming an LLC for a side project that might have liabilities, or just advise on the best language and jurisdiction? To me there is a big difference between "if you really screw up, they could try to pierce the veil and go after you personally" and "if you do everything right and your business still fails, you're automatically personally liable."
- buu700 8y ago
  Probably not. I'm not saying "don't form LLCs" — it's probably in itself a good idea for any slightly serious project — but rather that it isn't a substitute for complying with the law. I say this from experience because I once made exactly that mistake (formed an LLC that was otherwise unnecessary specifically to protect against potential legal consequences of a side project, only to find out from a Google Alert six months later that a lawsuit had been filed against me personally).
  - ccostes 8y ago
    > find out from a Google Alert Does this mean there was an article or something online before you were contacted about the lawsuit?
    - buu700 8y ago
      Yep, that one was an interesting surprise.
  - riku_iki 8y ago
    I am very curious what lawsuit was about..
    - buu700 8y ago
      https://news.ycombinator.com/item?id=5547151 https://news.ycombinator.com/item?id=5547151 https://techcrunch.com/2013/04/14/napster-fm-is-an-open-source-social-music-player-that-can-be-hosted-by-anyone-in-case-of-shutdown https://techcrunch.com/2013/04/14/napster-fm-is-an-open-sour... https://www.law360.com/cases/52953cd03fdd847f5200a5c8 https://www.law360.com/cases/52953cd03fdd847f5200a5c8
jkaplowitz 8y ago
All legal repercussions? Definitely not. You're generally personally responsible for torts and crimes you personally commit, even if the company may be too. And personal guarantees around contracts or statutory liability provisions around wages and taxes can increase personal liability further. But yes, when the proper formalities and separations are maintained, there are many situations where registering and operating through an LLC will limit personal liability. Example: company signs a contract with no personal guarantee but with a commitment to make 12 monthly payments. The LLC later lacks the funds (contract was signed in good faith). No personal liability. Disclaimer: I'm not a lawyer, just a law geek layman and former law student. I agree that retaining counsel is the right advice for anything important.
- gamblor956 8y ago
  Example: company signs a contract with no personal guarantee but with a commitment to make 12 monthly payments. The LLC later lacks the funds (contract was signed in good faith). No personal liability. I use to make good money going after contractors who thought their LLCs would protect them when they vanished with client money. Veil-piercing is actually quite simple for one-man LLCs. As a practical matter, the burden is really on the one-man LLC to prove that the veil should not be pierced, since it's usually pro forma for the plaintiff to show some evidence that the proper formalities and separations were not maintained. (For example, paying for a personal expense like lunch with LLC funds, even once, is enough to shift the burden to the LLC to show that the veil should not be pierced. Not having proper receipts for gas. Attempting to claim a business deduction for part of your garage if you're not charging the LLC market-rate rent. It's a really long list of don'ts. )
  - jkaplowitz 8y ago
    I think we're agreeing, mostly. The proper formalities and separations need to be maintained, and bad personal behavior is not shielded. I did it correctly when I had a one-man LLC, but you're right many don't. Misconduct like "vanishing with client money" is a separate personal tort and/or crime (depending on the specifics) and would make it easy to pierce the veil anywhere regardless of formalities and separations. That said, for more normal situations that aren't about misconduct, different states take different levels of strictness in analyzing the veil piercing question. YMMV.

by buu700 8y ago

mcbits 8y ago

But would a lawyer ever advise against forming an LLC for a side project that might have liabilities, or just advise on the best language and jurisdiction? To me there is a big difference between "if you really screw up, they could try to pierce the veil and go after you personally" and "if you do everything right and your business still fails, you're automatically personally liable."

buu700 8y ago
Probably not. I'm not saying "don't form LLCs" — it's probably in itself a good idea for any slightly serious project — but rather that it isn't a substitute for complying with the law. I say this from experience because I once made exactly that mistake (formed an LLC that was otherwise unnecessary specifically to protect against potential legal consequences of a side project, only to find out from a Google Alert six months later that a lawsuit had been filed against me personally).
- ccostes 8y ago
  > find out from a Google Alert Does this mean there was an article or something online before you were contacted about the lawsuit?
  - buu700 8y ago
    Yep, that one was an interesting surprise.
- riku_iki 8y ago
  I am very curious what lawsuit was about..
  - buu700 8y ago
    https://news.ycombinator.com/item?id=5547151 https://news.ycombinator.com/item?id=5547151 https://techcrunch.com/2013/04/14/napster-fm-is-an-open-source-social-music-player-that-can-be-hosted-by-anyone-in-case-of-shutdown https://techcrunch.com/2013/04/14/napster-fm-is-an-open-sour... https://www.law360.com/cases/52953cd03fdd847f5200a5c8 https://www.law360.com/cases/52953cd03fdd847f5200a5c8

jkaplowitz 8y ago

All legal repercussions? Definitely not. You're generally personally responsible for torts and crimes you personally commit, even if the company may be too. And personal guarantees around contracts or statutory liability provisions around wages and taxes can increase personal liability further. But yes, when the proper formalities and separations are maintained, there are many situations where registering and operating through an LLC will limit personal liability. Example: company signs a contract with no personal guarantee but with a commitment to make 12 monthly payments. The LLC later lacks the funds (contract was signed in good faith). No personal liability. Disclaimer: I'm not a lawyer, just a law geek layman and former law student. I agree that retaining counsel is the right advice for anything important.

gamblor956 8y ago
Example: company signs a contract with no personal guarantee but with a commitment to make 12 monthly payments. The LLC later lacks the funds (contract was signed in good faith). No personal liability. I use to make good money going after contractors who thought their LLCs would protect them when they vanished with client money. Veil-piercing is actually quite simple for one-man LLCs. As a practical matter, the burden is really on the one-man LLC to prove that the veil should not be pierced, since it's usually pro forma for the plaintiff to show some evidence that the proper formalities and separations were not maintained. (For example, paying for a personal expense like lunch with LLC funds, even once, is enough to shift the burden to the LLC to show that the veil should not be pierced. Not having proper receipts for gas. Attempting to claim a business deduction for part of your garage if you're not charging the LLC market-rate rent. It's a really long list of don'ts. )
- jkaplowitz 8y ago
  I think we're agreeing, mostly. The proper formalities and separations need to be maintained, and bad personal behavior is not shielded. I did it correctly when I had a one-man LLC, but you're right many don't. Misconduct like "vanishing with client money" is a separate personal tort and/or crime (depending on the specifics) and would make it easy to pierce the veil anywhere regardless of formalities and separations. That said, for more normal situations that aren't about misconduct, different states take different levels of strictness in analyzing the veil piercing question. YMMV.