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Is there any general rule of thumb for whether or not you should have an LLC as an independent developer? Would this help against patent trolls and nefarious clients, or is there some other way to protect yourself?

Comments
  • 8
    The main point of an LLC, or a Ltd, or any other such company setup, is to make sure than you are not personally liable for the company's debts, losses or liabilities.
  • 3
    it should, I think the only thing it doesn't cover is liability for your own work.
  • 5
    I’ll speak from experience running a single owner LLC to do IT consulting work in the US.

    Let’s do a thought experiment.

    You freelance without a business or as a sole proprietorship (essentially the same thing). Let’s assume you’re just starting your career, fresh out of school or self taught, and learning how to do things as you get contracts for them. You build a client a website to do web transactions to sell homemade candles. They use it happily, pay you with no trouble (hah!) you forget about it, and life moves on.
  • 5
    Five years later they call you and tell you their customers are calling them saying their credit cards are being used illicitly. You log into their forgotten cloud server on some dinky platform you forgot you you made and realize they’re running a PHP 5.4 application you wrote, with all kinds of public facing exploits and a MySQL database holding hundreds of credit cards and passwords in clear text. You haven’t updated or maintained it since it was one of your first projects and you were learning as you went.
  • 6
    Who is legally responsible for the data breach?

    Is it the cloud provider? Is it your old client? Or is it you, as the application developer?

    If it turns out it’s you, your client could sue you for literally everything you own and more, as a way to try and cover the “damages” of the data breach.

    Get an LLC. It’s worth the protection.
  • 5
    @Diactoros Exactly, and all the plaintiff could sue the LLC for is the money that is in the LLC. Depending on the country, an LLC may have a minimum capital requirement, though there is none in the US AFAIK.

    The central trick is to withdraw money from the LLC by giving yourself a salary. Which is also when the money gets taxed in the US.

    Within limits, though: what creditors won't accept is taking some big time credit with the LLC and then moving the money over to you as salary, i.e. claiming the money and leaving the debt in the LLC which then goes bust.

    That would basically be fraud, and LLCs do not shield against criminal acts.
  • 1
    @Diactoros if it turns out to be you they can still sue you for everything. I had a couple of people wiser than I inform me of that when I was bitching one day about all the hell I was going through trying to get my tax number straightened back out.

    If you clearly wrote it up in the contract that the client was responsible for maintaining the website after delivery it would probably save you but mostly its to cover you if say an employee or bookkeeper you hired made a mess of things.
  • 2
    Talk to an financial consultant, he will help you to set it up in a way that you can save money.

    For example if you open a letter box holding company in Hong Kong which owns your llc company in which you'll do business in. You could avoid paying taxes by never making profit with your llc by geting charged for "services" from its letter box holding which you own.
  • 1
    @heyheni Take care, the finance authorities know this trick of transferring money. It's easy to get caught in tax withdrawal proceedings.

    Also, then the money is parked in Hong Kong, and you can't reach it from the US for, you know, paying your life.
  • 1
    @M1sf3t @Fast-Nop This is the part I was never 100% clear on, but my understanding was that as an employee of an LLC I was not liable for the contracts I made with customers through my LLC. I never put myself in a situation that the waters could become murky but then I was basically paying my rent with house calls for tech while I was in school. The research I did when starting up led me to believe that Fast-Nop was correct. I’d love to hear how I could have still been sued, I may do things differently in the future if that turns out to be true.
  • 1
    @Fast-Nop thats what i was told to begin with, that's why I got one for my mechanic work, but when I started looking into the legal stuff I would need to take care of to set it up as an saas the legal guys I was talking to said it applies to general negligence as well.

    Its up to the judge of course, but basically if they can prove that I just half assed a repair and it wasn't a legitimate accident or faulty product that I could still be personally sued.
  • 0
    The bigger thing is not having everyone you work for have to issue you a 1099. If you are just working for your self you have to have it for every transaction over $600. For your business it’s just on your normal P&L and you can just take salary from the business. (Not tax advice, entertainment/awareness only. consult a CPA)

    https://irs.gov/businesses/...
  • 1
    @Diactoros they make in unclear on purpose, that way you have to hire their ivy league ass just to get anything done. Same thing with the the tax laws
  • 2
    @M1sf3t Seems you are right as per https://nolo.com/legal-encyclopedia... . Your personal actions are not exempt - that's where a liability insurance would help out.

    (Deleted my previous reply above because it was misleading.)
  • 1
    Sure you do, you are the chairman of that said letterbox holding company and you pay yourself a salery. Or you charge your letterbox company for naming rights. Or you could hire someone to own the company like they do with CT Corporation, 1209 North Orange Street, Wilmington, Delaware USA. That one building that houses more than 300'000 companies like Apple, ebay, Walmart. https://en.wikipedia.org/wiki/...

    In any case having some business knowledge is a plus and therefore he should get counseling.

    Also intersting idea is Estonias E-Residency. Which allows to easily start a EU company. https://e-resident.gov.ee/
  • 4
    A lot has already been covered here, it's generally a good idea. just be aware of the following additionally:

    - you may need to cover numerous types of insurance if you're consulting for a company such as but not limited to general liability, errors and omissions, cyber security insurance and/or data breach insurance for the LLC in addition to personal/professional liability.
    - filing bankruptcy for an LLC for which you are an officer will prevent you from being an officer of another company, incorporating other companies or filing DBAs (in some locales) for up to 8 years
    - Many companies have gotten wise to tricks we sneaky developers use to get ourselves things we wouldn't otherwise have like "benefits" and "competitive pay," as have recruiting firms. Due to this, you may still have to sign on as a W2 employee with another firm as they or their client won't accept "Corp to Corp" contracts as part of their own liability mitigation scheme.
    - the previous point means you also want to pursue master service agreements with firms you do business with if at all possible.
    - you need to file quarterly taxes, same as if you're an independent contractor. Nothing new here, just more paperwork.
    - some details, rights, availability, regulations, costs, procedures, limitations and instruments vary based on where you're incorporated and the jurisdictions in which you conduct business.
  • 1
    @Fast-Nop From your link I would read you are only liable if:
    - You intentionally misbehave (liability insurences won't like this a s well)
    - Negligence at work (liability insurances can cover that)
    - Using the LLC for personal matter.
    - And not paying taxes (who would have thought)
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