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You're 100% right from a technical standpoint, but I disagree with your opinion on the liability issues. I know it seems inconceivable when you start your busin

You're 100% right from a technical standpoint, but I disagree with your opinion on the liability issues. I know it seems inconceivable when you start your business, but being sued is a possibility for just about anyone. It's entirely possible for your business to be sued because of the actions of an employee, for example. If that happens, and you're a sole proprietor, you are the one being sued. This might sound like paranoia, but I'm living it, and you're right about another thing. It sucks. We have a corporation, one person in the organization did something none of the other members were aware of, and now we're being sued. The plaintiff even went so far as to try and sue all of the partners personally. Fortunately, the courts set the bar really high for breaching the corporate firewall. Being sued personally is no joke. If someone gets a judgement against you for some exorbitant sum of money, it's hard to resolve. It can follow you around for a long time. Setting up a corporation is so simple, and so inexpensive that I don't understand why anyone wouldn't do it. I respect the fact that you've built a very successful business entirely on your own, and entirely organically, but operating without a corporation seems like flying trapeze without a net.

arethuza 16y ago
Having been a co-founder of a company that was on the receiving end of IP litigation I can say that I found the whole experience incredibly stressful - I hate to think what it would have been like if it was me personally, rather than the company, being sued. Fortunately the case was completely groundless - but it still took months of time and quite a bit of money paid to lawyers to make it go away. That's the thing that really sucks about being sued - the chances are that even if you are completely in the right you may well still end up having to spend a chunk of money on lawyers.
- rexreed 16y ago
  Does anyone advise getting insurance to cover these sorts of liability? Would General or Professional Liability or even IP liability insurance cover all the legal costs? I'm thinking that in addition to corporate structure as a way of handling this unknown (but significant) risk.
patio11 16y ago
So, having looked into this a few times, my personal opinion is that a quickie instafigleaf will wilt like the fig leaf it is under legal scrutiny. Regardless of whether it is a LC or not, my software business has substantially less in assets than a taco truck, and any tortious behavior it carries out is definitionally certain to have been carried out by me personally. My expectation is that a lawsuit means I get held personally liable and that means bankruptcy. I could drop five hundred bucks tomorrow and be BCC LLC, but that does not change my estimate of risk of bankruptcy. I would certainly get something formal if I had partners, like you did. I sincerely hope it works out for you.
- deleted 16y ago
  [deleted]
- bradleyland 16y ago
  That's a valid point regarding partners and mitigating risk. If you're a one-man company, it's a lot easier to manage the risks, so forming a corporation may be superfluous. I think it depends on your product as well. The chances of being sued while providing a simple product like bingo cards is minimal. If you're providing a service to businesses, you stand a much greater risk of being sued. It's all a balance. BTW, I'm not suggesting that you should form a corp. Just to be clear on that. I do think this conversation is beneficial for the topic starter though. I hear the "weak corporations are worthless" argument a lot. I will say that our simple little corporation is holding up really well, and we didn't spend a bunch of money forming it. We did not use one of those insta-corporation sites though. We paid a local attorney, with whom we sat down and met with, to establish our corporation and provide guidelines for maintaining it. It cost us less than $1000. IMO, the bottom line with litigation is that it comes down to who has a bigger war chest. A weak corporate structure doesn't appear to be the shot that will sink our ship. Being unable to sustain the fight is the top threat. When the personal lawsuit hit the door, the first thing I did was investigate bankruptcy. It is possible to discharge debt resulting from a judgement, but it depends on your circumstances. I definitely lack the depth of understanding required to explain it fully, but the gist of it is that receiving a discharge for a judgement isn't always as straight forward as something like credit card debt. Anyone engaged in a business with non-trivial risk of legal exposure should understand the implications before dismissing the benefits of having a corporation.

arethuza 16y ago

Having been a co-founder of a company that was on the receiving end of IP litigation I can say that I found the whole experience incredibly stressful - I hate to think what it would have been like if it was me personally, rather than the company, being sued. Fortunately the case was completely groundless - but it still took months of time and quite a bit of money paid to lawyers to make it go away. That's the thing that really sucks about being sued - the chances are that even if you are completely in the right you may well still end up having to spend a chunk of money on lawyers.

rexreed 16y ago
Does anyone advise getting insurance to cover these sorts of liability? Would General or Professional Liability or even IP liability insurance cover all the legal costs? I'm thinking that in addition to corporate structure as a way of handling this unknown (but significant) risk.

patio11 16y ago

So, having looked into this a few times, my personal opinion is that a quickie instafigleaf will wilt like the fig leaf it is under legal scrutiny. Regardless of whether it is a LC or not, my software business has substantially less in assets than a taco truck, and any tortious behavior it carries out is definitionally certain to have been carried out by me personally. My expectation is that a lawsuit means I get held personally liable and that means bankruptcy. I could drop five hundred bucks tomorrow and be BCC LLC, but that does not change my estimate of risk of bankruptcy. I would certainly get something formal if I had partners, like you did. I sincerely hope it works out for you.

deleted 16y ago
[deleted]
bradleyland 16y ago
That's a valid point regarding partners and mitigating risk. If you're a one-man company, it's a lot easier to manage the risks, so forming a corporation may be superfluous. I think it depends on your product as well. The chances of being sued while providing a simple product like bingo cards is minimal. If you're providing a service to businesses, you stand a much greater risk of being sued. It's all a balance. BTW, I'm not suggesting that you should form a corp. Just to be clear on that. I do think this conversation is beneficial for the topic starter though. I hear the "weak corporations are worthless" argument a lot. I will say that our simple little corporation is holding up really well, and we didn't spend a bunch of money forming it. We did not use one of those insta-corporation sites though. We paid a local attorney, with whom we sat down and met with, to establish our corporation and provide guidelines for maintaining it. It cost us less than $1000. IMO, the bottom line with litigation is that it comes down to who has a bigger war chest. A weak corporate structure doesn't appear to be the shot that will sink our ship. Being unable to sustain the fight is the top threat. When the personal lawsuit hit the door, the first thing I did was investigate bankruptcy. It is possible to discharge debt resulting from a judgement, but it depends on your circumstances. I definitely lack the depth of understanding required to explain it fully, but the gist of it is that receiving a discharge for a judgement isn't always as straight forward as something like credit card debt. Anyone engaged in a business with non-trivial risk of legal exposure should understand the implications before dismissing the benefits of having a corporation.