Re: talk Digest, Vol 36, Issue 14

[-rada-]

Hi Brian

I have an LLC and have some thoughts for you.

1. For cost reasons, please consider a DBA (doing-business-as) instead of an LLC. It's cheaper (by at least a couple grand) and the piece of paper you get from the City Hall allows you to open a bank account just as well as the LLC formation letter.

2. Generally, if there is a problem on a contract, you are not liable for more than the contract is worth, unless you are willfully negligent or overstated your professional capabilities AND caused major material damage to the client. Given that you do web development (as opposed to, say, server admin work) and that your work is incremental (the client signs off on deliverables) I believe your liability issues are not worth the cost of forming an LLC.

3. If you have an office, your landlord will force you to get general liability insurance regardless of your business entity. It should cover you for things such as clients falling down on a wet floor in your office.

4. From my own painful personal experience I can tell you that no amount of paperwork, liability firewall, etc. helps when things go down between two partners. Where it does help to have an LLC with two partners, is in marriage. I "sold" my husband 99% of my LLC as a passive investor and this saves us the whole self-employent tax thanks to a tax loophole (the legal kind :).
Let me know if you want to know about this further.

5. Speaking of taxes, I can recommend my accountant:
medowscpa.com

6. Where you might need an LLC, is doing consulting corp-to-corp. As a hypothetical situation, you may work for a client on a consulting basis full-time for a year, and then sue them for back health insurance and taxes claiming that since your work was essentially full-time, they owe you the same empoyment benefits as their full-timers - whereas if you were an LLC, this would not be an issue. However I've never had a company raise this fear with me. They either don't know, or don't care. As long as you have a registered business entity, everyone seems to be happy.

7. Do not waste your time looking into forming an LLC in another state unless you are 100% virtual. If you do business in New York, you will have to foreign-qualify, and the costs will be just the same if not more in some cases.

Hope that helps!
Rada Varshavskaya

On Tue, Oct 13, 2009 at 15:09, <talk-request@...> wrote:

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Today's Topics:

  1. [OT] LLC and contract business (Brian O'Connor)
  2. Re: [OT] LLC and contract business (Kristina Anderson)
  3. Re: [OT] LLC and contract business (Eric Gewirtz)
  4. Re: [OT] LLC and contract business (tedd)
  5. Re: [OT] LLC and contract business (Michael B Allen)


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Message: 1
Date: Tue, 13 Oct 2009 13:25:32 -0400
From: "Brian O'Connor" <gatzby3jr@...>
To: NYPHP Talk <talk@...>
Subject: [nyphp-talk] [OT] LLC and contract business
Message-ID:
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Hey guys, I hope this isn't too off-topic, as I'm sure there's a few people
here who are in the self-employment arena that can shed some advice.

As a prefix, I'm going to assume no one is a lawyer and such won't hold you
accountable (unless you otherwise say I can).

I've been doing some side web development over the past 6 months with a
designer and things are going great, and we seem to be getting clients at a
great pace.  Obviously, the question is arising as to whether or not we
should LLC our "group" and make things official and to prevent losing
everything we own, and to look more professional.  However, I've heard
conflicting things about what to do.

I was always under the impression that LLC was the way to go, but now I
might not be so sure.  What are the rules to getting an LLC?  Do I need an
address in the state I registered the LLC in for it to work?  Does the LLC
need an official bank account in order for the checks to be cashed / money
to be transferred?
 How do the taxes work if there's 2 members of the LLC?

I'm very curious about how this all works!

Thanks in advance,
Brian O'Connor
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[Tedd-3]

At 9:40 AM -0400 10/14/09, -rada- wrote:
>Hi Brian
>
>I have an LLC and have some thoughts for you.
>
>1. For cost reasons, please consider a DBA (doing-business-as)
>instead of an LLC. It's cheaper (by at least a couple grand) and the
>piece of paper you get from the City Hall allows you to open a bank
>account just as well as the LLC formation letter.

A DBA doesn't protect you from anything. It only allows you to do
simple things like banking. Whereas, incorporation is designed to
protect you.

>2. Generally, if there is a problem on a contract, you are not
>liable for more than the contract is worth, unless you are willfully
>negligent or overstated your professional capabilities AND caused
>major material damage to the client.

If you think your liabilities are limited to the amount of the
contract, then you are woefully remise. Your education is lacking
considerably with respect to liabilities. There are reasons for $1
million coverages in errors and omissions insurances.

As far as "overstating your professional capabilities" -- I think
offering advice like that is an example of how right you might think
you are but how wrong you actually are. There is a difference and
that can be exploited in court.

>Given that you do web development (as opposed to, say, server admin
>work) and that your work is incremental (the client signs off on
>deliverables) I believe your liability issues are not worth the cost
>of forming an LLC.

Until they are!

Web development carries with it considerable risk. Let's say you do
something dumb that reduces your client's raking in search engines?
You don't think your client has a case against you for more in
damages than what they contracted you for? Think again.

Plus, your client doesn't have to have any proof whatsoever to take
you to court. To defend yourself can easily run $20k -- been there,
done that!

Brian -- talk to an attorney and not this list! You won't find much
worthwhile help here.

Cheers,

tedd

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[Mitch Pirtle]

On Wed, Oct 14, 2009 at 11:36 AM, tedd <tedd@...> wrote:
> Plus, your client doesn't have to have any proof whatsoever to take you to
> court. To defend yourself can easily run $20k -- been there, done that!
>
> Brian -- talk to an attorney and not this list! You won't find much
> worthwhile help here.

++

All I can add of value is that I've learned from painful, recent
experience that a contract is not worth the paper it is written on
unless is has a value in the six-figure range, because it will need to
be that valuable before it is worth going to court over.

Court fights can take YEARS, and will easily exceed the value of the
contract you're fighting over.

I didn't learn this until after I had consulted with an attorney, and
that was right before going to court.

-- Mitch
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[Kristina Anderson]

> On Wed, Oct 14, 2009 at 11:36 AM, tedd <tedd@...> wrote:
> > Plus, your client doesn't have to have any proof whatsoever to take
you to
> > court. To defend yourself can easily run $20k -- been there, done
that!

> >
> > Brian -- talk to an attorney and not this list! You won't find much
> > worthwhile help here.
>
> ++
>
> All I can add of value is that I've learned from painful, recent
> experience that a contract is not worth the paper it is written on
> unless is has a value in the six-figure range, because it will need to
> be that valuable before it is worth going to court over.
>
> Court fights can take YEARS, and will easily exceed the value of the
> contract you're fighting over.
>
> I didn't learn this until after I had consulted with an attorney, and
> that was right before going to court.
>
> -- Mitch
> '

So true.  Unless the total value is less than $5,000 (in NYS that's the
small claims court limit), or over  $75,000 (because if it's not, good
luck finding an attorney who will come out of their torpor long enough
to take your call)...basically with the way things are, you're out of
luck.  

So really a smart thing to do with anyone you don't trust (aside from
not working for them) is to keep things in increments of $5,000 or less
if possible...

Kristina
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[Tedd-3]

At 10:01 AM -0700 10/14/09, Kristina Anderson wrote:

>  >So true.  Unless the total value is less than $5,000 (in NYS that's the
>small claims court limit), or over  $75,000 (because if it's not, good
>luck finding an attorney who will come out of their torpor long enough
>to take your call)...basically with the way things are, you're out of
>luck.
>
>So really a smart thing to do with anyone you don't trust (aside from
>not working for them) is to keep things in increments of $5,000 or less
>if possible...
>
>Kristina

That's really a great way to handle the money your client is going to
pay you In-State. In other words, keep the amount regarding the
current project below the small claims court threshold -- check your
own State for limits.

The problem that most of us have, or at least me, is that the
majority of my clients are out of State (some out of country). I
seldom have recourse in small claims court. And even if I do win
venue, then there's the matter of collection. While the court may
award you the right to collect, it doesn't guarantee that you will
collect or even help you find where their money is. Most people think
that when you win that the court somehow gives you a check, but that
is far from the truth. You have to do the collection yourself OR hire
someone to collect for you, which can be very expensive.

Cheers,

tedd

PS: I had to look up "torpor" -- good word.

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[Brian O'Connor-3]

Thanks for all the very informative replies, and sorry to reply so
late myself.

I always planned on talking to a lawyer, but I absolutely hate to go
into timed/paid meetings with someone when I don't have a clue about
what's going on. I wanted to get a better feeling for what I was
dealing with and figured people on the list could give me an idea of
what the standard was.

Thanks again,
Brian

On 10/14/09, tedd <tedd@...> wrote:

> At 10:01 AM -0700 10/14/09, Kristina Anderson wrote:
>>  >So true.  Unless the total value is less than $5,000 (in NYS that's the
>>small claims court limit), or over  $75,000 (because if it's not, good
>>luck finding an attorney who will come out of their torpor long enough
>>to take your call)...basically with the way things are, you're out of
>>luck.
>>
>>So really a smart thing to do with anyone you don't trust (aside from
>>not working for them) is to keep things in increments of $5,000 or less
>>if possible...
>>
>>Kristina
>
>
> That's really a great way to handle the money your client is going to
> pay you In-State. In other words, keep the amount regarding the
> current project below the small claims court threshold -- check your
> own State for limits.
>
> The problem that most of us have, or at least me, is that the
> majority of my clients are out of State (some out of country). I
> seldom have recourse in small claims court. And even if I do win
> venue, then there's the matter of collection. While the court may
> award you the right to collect, it doesn't guarantee that you will
> collect or even help you find where their money is. Most people think
> that when you win that the court somehow gives you a check, but that
> is far from the truth. You have to do the collection yourself OR hire
> someone to collect for you, which can be very expensive.
>
> Cheers,
>
> tedd
>
> PS: I had to look up "torpor" -- good word.
>
> --
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Brian O'Connor
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