From experience: this is dangerous and completely wrong advice. The corporate veil can be pierced if the LLC is determined to be an "alter ego" of the individual, which isn't a difficult argument for a one-person side project.
I went with a more futile attempt to do everything anonymously, pay hosting with bitcoins, etc. But this is basically impossible from an opsec point of view (which should restore some faith in the legal system in the sense that I never figured out a way to opt out of it).
Subpoenas[1] basically cost nothing(<$100) for your typical lawyer to issue. Everything you touch will very eagerly give up all your info when subpoenaed (e.g., your typical domain registrar will spew your name, address, payment information, ip addresses logged in from, etc).
Form it where it makes legal sense, not where you reside. You can also get a forwarding address there as well.
It also would be in your benefit to follow the laws of that area as well.
Pro tip to people reading this, don't take generic advice about something that might have financial/legal implications...consult a lawyer/accountant.
Without consulting a lawyer, you don't know what you are chancing. I hardly call that a good bet.
Not knowing how to get a lawyer or accountant is not a good excuse for not consulting one.
If you consult a lawyer for 1 project, you do learn from the lawyer and become a bit more knowledgeable for the next project and may not need to consult a lawyer a second time if the new project is similar.
Step 1 - Find a Lawyer:
1a. Ask people you know. For example, if at a company, maybe you can ask the legal dept for a referral for your personal project. Lawyers know lawyers. Even a divorce or real-estate lawyer will know other lawyers in different specialties or reputations of firms. Ask bankers, dentists, any small business people, etc. - they use lawyers too.
1b. Use Google. Call 5 lawyers and setup a meeting to meet them.
Step 2 - Interview them:
Interview them like you interview any potential employee. What is their experience with small IT projects? Are you small potatoes to them? What are their fees? Do they have legal associates to do the grunt work for cheaper than a legal partner (partner will still review and be responsible)? What do they suggest you to do for your side project? Ask why to see if they can explain themselves well. How well do you communicate with them? Do they respond to your emails or telephone calls quickly? Do they have other partners who can cover for them when they go on holidays or are busy with other urgent cases? Can they let you do some of the work such as incorporating and registering a trade name because it is easy (to keep legal fees low)?
Step 3 - Evaluate them:
As they work, get them send you all their documents. Read the legalese and ask more questions. Do they still explain themselves well. How long do they take to do the work? Attention to detail is important. If their work sucks or you don't communicate well with them go find a new lawyer.
(This can't be the actual answer, can it?)
Lawyers and accountants industries are whole mess on its own. When you come to lawyer/accountant, he is really interested to charge you as much as he can, which creates a lot of conflicts of interests, and whatever he is saying to you can't really harm him.
One has to take calculated risks, and do research on his own to not be screwed by lawyers/accountants.
Reputation is one proxy you can use for trying to gauge competency - ask friends, family, or coworkers if they have someone they're happy with.
Ultimately, there's a few big things they need to do, and you can try to evaluate those things instead or as well:
1) Clearly explain things you need to know. This might be making you aware of paperwork you need to file, tradeoffs between choices, rationale behind why they're suggesting you do something, or what the tradeoff is so you can make your own decisions.
Some (many? most?) lawyers are willing to do a free initial consultation, so you can get a feel for this in person, if you don't have a recommendation or don't want to trust only reputation. Basically: Can they communicate effectively?
2) Keep you out of trouble. There's a limit to what a lawyer or accountant can do of course, but a pattern of surprise financial difficulties, or getting into frequent contract disputes or lawsuits are a bad sign. The IRS frequently correcting an accountant's filings would be another.
3) Stay on top of things. Is the accountant filing taxes late resulting in IRS fines? Paperwork not ready when they said it'd be? Asking for the same information several times because they keep misfiling it? Going incommunicado for months when you have questions?
It seems simpler in practice: It came up in conversation that my friend had gotten his will done. I mentioned I needed to get my will done. He liked his lawyer, and was able to explain some about what he liked about her approach and give me her name. So I scheduled a consult with her on her website after trading some initial questions over email, showed up as scheduled, and then traded more questions at her office. I didn't know all the right questions to ask - mine were mostly of the form "uhh, so what do I do?" - but she was able to volunteer explanations about state inheritance law that put her questions for me into context. And then she had recommendations for things to do and why, as well as things she'd recommend not bothering with and why (and the contexts under which that could potentially change in the future), without being pushy.
Based on my answers, she drafted a will for me, and I was able to come back and sign it a month later when I scheduled it. I think I paid half after the initial signing but before she drafted the will, and the other half after the signing? Now I can recommend her to my friends, or ask her if she has any recommendations for an accountant, or even other lawyers for specialized needs.
Could I have done more to vet her? Sure. But I did enough for my tastes. Can't let the perfect be the enemy of the good enough and all that.
And yes, that is the reason that CA charges $800 for LLC registration. Because if $800 is too big of an expense...then you're not running a business.
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.
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).
Does this mean there was an article or something online before you were contacted about the lawsuit?
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.
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. )
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.
The only way to reliably fix this is to institute some form of judgment of whether or not an actor was following the spirit of the law. If they weren't they should have any advantages gained by skirting the law removed by force.
Of course this leads to a different set of problems with the potential for overreaching state actors. One way to combat this could be making the judicial branch much more independent than it usually is in most countries.
The spirit-of-law comes into play at the enforcement level in the form of executive discretion rather that at the adjudication level.
Civil/Social policy behind a law may be brought up during adjudication to help interpret a law -- but if policy is your strongest argument you are usually in a losing case.
Because that is their goal, they want government to work badly. So they obstruct change and improvement. Any system of laws needs to be changed as loopholes are discovered to improve the law. We can’t do that in the US because billionaires own one of our two parties.
And the generic sentiment about how horrid it is to "cut taxes on the rich" ignores the fact that taxes almost exclusively impact "the rich" as about 40% of the population pays essentially zero taxes. It's very difficult to cut taxes on those who do not pay them.
Income tax is actually quite low for even a significant amount of the 60% above that no-tax line.
It also ignores the fact that a significant amount of those in that 40% actually get paid credits back at tax time that they didn't pay in. That phenomenon is so well known that January-April sees a significant spike in Xbox and big screen TV sales from that money the government injects into the economy using EIC and other refundable credits.
Ultimately I'd rather see people who are investing in building businesses that hire people to get tax cuts, as those can meaningfully impact the economy. Our current tax scheme of high corporate tax and high personal capital gains tax directly disincentivizes investment and economic growth.
Personally I would draw it at an income where someone living within their means can afford to raise a happy, healthy, well-educated family and provide all with proper dental and medical care, including responses to unforeseen and serious emergencies, without being financially destroyed, and go on to retire in relative comfort.
Beyond that, you and I have deep ideological differences that I hardly think are worth airing in an internet forum, and I'm not going to bother.
Most people would disagree with your definition as well, that's normal middle class, not rich. And most of them don't pay much in taxes either.
Well, I didn't say you said that, so we're good. I'd say I more implied that you implied it.
> Most people would disagree with your definition as well, that's normal middle class, not rich.
Yes, that does sound more like a middle class lifestyle than a "rich" one, doesn't it?
> And most of them don't pay much in taxes either.
Most of who? A hypothetical middle class that meets my (possibly flawed) criteria for richness, or an actual middle class as defined by some percentile spread about the median household income?
What rate of taxation is "much in taxes"?
That's pretty reasonable. It's also hard to cut a number that small.
When you get into paying 50k, 100k+ in taxes, then a percentage tax cut will appear much larger.
I know plenty of people who have about 2k withheld throughout the year and then get 5k-15k "refunds" at the end of the year. That's what I was referring to with the xbox and tv comment, those refunds are often spent that way.
But when people speak of European colonial law v common law, they are normally talking about French v. British. The Napoleonic tradition followed in former french colonies is very different than the British common law. And there are places (Louisiana and Quebec) where these two legal traditions were forced to merge. When comparing the two we still see the catholic v protestant split, which is expected given the history. The french relationship with language, that there is a government agency to define words, also leans towards a more authoritarian view of legal interpretation. America today doesn't even have an official national language.
For instance, why must you legally have a privacy policy? Because of a law in California.
What does that privacy policy entail? ¯\_(ツ)_/¯
You can write a privacy policy that say you are going to go out of your way to make any private information given to you as public as you can or sell it all to the king of Saudi-Arabia and if nobody reads that privacy policy then it's kind of meaningless. And very few people read the privacy policy.
People seem to think, well this is popular... so they can't be doing anything bad or someone would stop them. And with internet properties, that's simply not the case.
There's no implicit privacy or federal/global definition of what privacy rights people should have, if anything the rights are diminished the higher up the ladder you get. So people have to navigate a sea of differing definitions in massive legal documents which they aren't properly trained to do unless they already hold a law degree.
Unfortunately, the Internet has made it easy to harm and fuck over people far outside your circle of friends and acquaintances, so playing around isn't a viable option anymore.
There are many ways it can.
For example, you could make an app that collects arbitrary amounts of personal data. You could "promise" your users whatever you wanted, especially in the health and fitness space.
BTW: You don't have to block them completely, just don't target them specifically (e.g. accept their credit cards).
For example for basic levels of protection, you at least want a terms of service and privacy policy on your site.
You'd think it's just copying and pasting some boilerplate. But say you want to allow user uploads, then you also need to not get screwed if someone uploads a picture owned by some copyright troll. So then you have to figure out how to get DMCA safe harbor status so you're not responsible for user content. And that requires: registering at a copyright office, monitoring email for timely takedowns, and communicating counter notices, etc. All of this work and we haven't gotten to GDPR compliance yet!
At one point you just go fuck it, it's a side project. Just wrap it in a LLC so it can't bankrupt you even if you do get sued. But now you have to deal with company formation laws which is yet another can of worms.