So an example here might be that you were working for a client and work wasn't fully completed on time. You made a good faith effort to get the work done, so while the company you were working for might be entitled to compensation from your LLC they can't come after your house.
Finally, let me caveat all this by saying that the standards for "piercing the corporate veil" vary by state and as always you should consult with a lawyer before making a final determination. Also, another work around is to form a multi-member LLC and hold formal annual meetings. This is normally enough for most states to consider the LLC as a separate distinct entity and prevent piercing of the corporate veil.
Here in NY, piercing the corporate veil is a bit easier than in other states. More importantly, if someone attempts to go down that road, you have to spend the time and resources ($$$) to defend your position. In general you're best off just starting in the strongest possible position to start with, and usually that means splitting the decision making responsibility. If you want to avoid all that hassle, just go the SP route.
In my original comment I made the mistake of saying "any" instead of "all"
The way you wan to do it is set up an LLC but then "loan" the business money and act both as it's owner but also it's creditor. This separates you in the eyes of the court.
In practice this protection isn’t worth as much as it is for larger businesses because, for example, any bank lending to a new single person LLC will require a personal guarantee anyway, and most single person LLC don’t have a lot of situations where they might incur a life destroying liability, like an accident in a warehouse or something, but that protection still definitely exists for single person LLCs.
How do you hold meetings with minutes in a single person LLC? With clients/subcontractors/advisors maybe?
I'm not being sarcastic, my accountant wants me to form an LLC and if doing this helps with liability I'd be happy to go through the ceremony of it.
The only silly part is calling it a meeting, but people do seem to agree that's the terminology the IRS wants to see.
Actually, I guess there are two silly parts, although the second is arguably more sad than silly: you must be 100% clear that you are engaging in these activities with a profit motive and not for the love of learning, doing, helping... and if the IRS decides that your motive is not sufficiently (im)pure, you will owe considerable back taxes, interest, and fees.
Best advice for anyone, especially a foreigner without SSN/ITIN, is to get a lawyer. Note for all foreigners, IRS changed their rules to get an EIN 5/10/19 and this is significantly delaying new foreign owned/controlled businesses.
The caveat, is you must operate like a business - including proper insurance levels. If you're not acting like a business, then you don't get business-like protections.
Source: Single member LLC who has discussed the issue with my lawyer.
An insurance broker will happily talk you through what each gives you, and what is most relevant to your co, but it will almost always include GL (general liability), E&O (errors and omissions), and some sort of "cyber" (to pay for resulting damage from hacking). Expect other flavors of insurance to also be applicable.
So, for instance, document the seed money to the LLC, and any other money you put in, carry on the books. Similarly, pay yourself a salary or if doing “equity draw” again keep it full documented.
Never pay for personal things with company funds.
It’s literally the name of the thing, the two L’s stand for “limited liability”
If you conduct the business in a businesslike manner and keep proper separation of personal issues, and keep required records to document its corporate actions then you have the law’s liability protection.
That’s also true for a 2 or 200 member LLC.
And my lawyer.
Look, do what you want. If you want a business start it. You’ll need a CPA and a book keeper. These are easy to find and low cost. I pay my book keeper $200/month and my CPA a few thousand each year.
I literally have never bothered with taxes. I hand them to my CPA and just double check the numbers when he’s done. Same with my book keeper. I don’t deal with IRS letters and whatever I just scan them and forward them to him and he deals with it.
Tax/accounting/finance are the easiest part of a small business. These jobs are easy to outsource because they’re well commoditized. Tax/finance/accounting for a small business can be challenging for a lay person but it’s routine for these professionals.
Lastly, if you fuck up your taxes and accounting it’s not that big of a deal. The IRS is happy to have you sort it out and pay them what you owe with interest later. They’re very polite people. I should know.
The dirty secret about starting a small business is that everyone’s back office is a total shit show. Ask any freelance bookkeeper or CPA what state their clients were in when they acquired them.
I’m not sure why you felt the prior comment was “offputting”; they don’t say not to start a business, they’re pointing out that financials are an area that a business owner needs to address, and that outsourcing it is often the correct route.
2) Either learn basic accounting (if you don't already) and keep excellent records of all revenue and expenses business-related (ideally categorized into standard business categories) or find a CPA to keep your records straight monthly. A huge number of people get burned simply because they didn't keep proper records and then ran into tax or regulatory trouble later.
3) Definitely keep your business finances as separate from your personal funds as possible. Different checking account, different credit card, etc.
4) Think really hard before you hire anyone for anything, and if you do, make sure you're either doing 1099 correctly or get a professional to help with W2 stuff. Again, this is something that often comes back to bite people.
And lastly, remember that most businesses fail and that failing at business is not something to be ashamed of. If it's not working out, don't make yourself miserable and mortgage your future to try and save it indefinitely - walk away and try again with the lessons you learned.