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Sole proprietor liability -- how much do I have to worry?

Would an LLC be prudent or throwing away money?

7:22 pm on Jun 25, 2007 (gmt 0)

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I'm just starting out and, like a few other posters, debating between an LLC and a sole proprietorship. Thanks so much to all the people who commented on the tax, insurance and registration costs. I have a slightly different question...

To what extent do I have to worry about legal liability?

I don't sell anything but ads. My site is purely an informational site, giving travel-related advice and providing users the ability to share their views (forums, blogs) and pictures.

That said, in the near future, I may also provide some consulting services to travel providers.

I won't be taking on any debts or leases for this business.

I don't have any employees. I may use contractors in the future.

Theoretically, I suppose a user might upload copyrighted material, but I don't allow video or audio files, so I think the risk is relatively low. And I'm perfectly happy to remove inappropriate or unauthorized content as needed.

California charges $800/year for an LLC. I don't want to waste money. But I also don't want to expose myself to any significant liability risk.


10:25 am on June 27, 2007 (gmt 0)

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You might want to start with researching or picking up a book on Asset Protection. After that when you decide if its for you I would definitely invest the $ to have a Lawyer with experience in the Asset Protection area do it for you. A LLC or other type of Corp C or S alone wont protect you unless they are structured correctly. It sounds like your risk may be low but there are tons of Sue happy people out there looking for people with deep pockets.
3:46 pm on June 27, 2007 (gmt 0)

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The risk is low but it only takes one time to wipe you out. $800 now can go a long way later.
3:04 am on June 28, 2007 (gmt 0)

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One of the main problems in life is "too many lawyers and not enough chum". Until balance is reached, the world will be unharmonized...

Seriously though, one of the previous posters mentioned that a corp, s-corp or LLC has to be structured correctly. Also, there are certain rules to follow or a lawyer can 'peirce the corporate veil". You need to get expert advice on what this means. Here are some examples.

1. Even though I am the only shareholder, I have to have yearly shareholder and board meetings and document them.
2. You never want to say "I promise to get that done by friday".. You always use the royal "We" as in "We promise to get that done by friday"
3. Don't commingle funds. If you borrow from the company or vice versa, it has to be thoroughly documented. (See your accountant)
4. As you go along, you need to do some contiuance planning. I just came back from a wealth protection seminar. Free salmon and an interesting presentation. It wasn't exactly part of the topic, but I have to think about planning for the business if anything should happen to me so my wife and son will realize the maximum from it. There is a blog I was reading for a couple of years. The originator passed away suddenly. The second-in-command and the deceased's family came to an arrangement about continuing the blog. In some respects, incorporating can comlicate but it can also help.

If you really get into it, you can probably set things up so that if some burglar gets hurt breaking into your home, finds a sleezy lawyer (Sorry for the redundancy) and sues you, If you had a good lawyer set things up, you might be able to protect your business assets from the sleezballs. Once you start making some money it's worthwhile to look into this sort of thing.

Anyway, my .02 is to really look into incorporating. Find an accountant and lawyer you can trust. You will be paying a lot more in accountant's fees each year.

lawyer's fees are probably deductable if they sue the corp. . Also, as long as we do everything right, they can only go after the corporate assets, not our personal assets.