I go back and forth on whether I want to take investment at some point. At the moment, mostly working on other things, but who knows what the future holds.
They are talking about the reverse of the case most people think about when they think about corporate liability protection. Specifically, they're talking about the way the law handles the case where your personal liabilities spill over into your company's liabilities.
For example: if, unrelated to your work, you hit someone with your car and end up losing a $100k lawsuit, your victim will investigate attaching that liability to your equity in your company. With C and S corporations, this isn't complicated: an attorney pursuing a collection can take your shares to satisfy the liability. This is possible because C and S corporations have mostly straightforward rules for transferable stock ownership.
But due to a quirk in the law, LLCs don't. LLCs are glorified partnerships; they are a way of getting most of the benefits of a corporate form with much less of the pain of forming an actual corporation. As a result, there is no straightforward way for a court to transfer partial ownership of the LLC to a creditor; to do so would be to impact all the other LLC members, who did not agree to partner with the debt collector.
The obvious result of this quirk is that people form LLCs to protect personal assets from collection. An attorney pursuing a collection can attach themselves in some ways to the beneficial interest in the LLC, but they cannot get any decisionmaking power for the LLC, and they cannot get transferable stock in the LLC (which stock doesn't exist). So, as long as the LLC never issues a distribution, the assets housed in it can potentially be judgement-proof.
Since this is a loophole for debtors big enough to drive a truck through, some states have legal precedent that gives special consideration to single-member LLCs to make them easier to collect against, since the whole rationale for them being difficult to collect against is the protection of other innocent partners, which don't exist in an SMLLC.
Now you know, and knowing is half the battle.
Single member LLCs may be more likely to have defective LLC operating agreements (apparently, a common error is to use a template agreement designed for a multi-member LLC) or be more prone to having the owner engage in the kind of behavior that would permit piercing the corporate veil, but that's not the same thing as the SMLLC form not having the same protection as other LLCs.
EDIT: Just to reiterate a point others have made in this thread, if you are making a decision on this for a business you plan to run, do consult an attorney knowledgeable in the laws of the jurisdiction you plan to operate in. Big picture discussions may give you an idea of the landscape and the concerns you need to be aware of, but you don't want to find out too late that a critical detail wasn't covered, and a couple paragraphs on HN aren't going to cover all (or, likely, even a sizable fraction) of the salient details of business law relevant to your circumstance.
As you state, it is correct the owner will generally be protected from the liabilities of the LLC. With the exception of piercing the corporate veil, alter ego doctrine, ect...
However, single member LLC can be liable for the debts of the sole owner. Meaning the business assets can be attached, charging orders issued and ownership can even be foreclosed. To distinguish if I own stock in say Google or Apple, and I am in a car accident and kill someone and I can't pay a judgement obviously the judgment holder can not collect against Apple/Google even though I am an owner; however, they could collect against an LLC I own if it is single member. Alternatively, if the same LLC was multi-member generally the judgment holder could not satisfy the judgment against the multi-member LLC.
Edit: In fairness, Patio11 expressed concerned about the liability from his LLC flowing to him personally. Nevertheless, I always feel it is relevant to consider personal liability flowing to the LLC.
In some jurisdictions, though, single member LLCs, unlike multimember LLCs, do not restrict creditors of the member to these kind of actions against the member's financial interest in the LLC, and allow the member's creditors to seek direct payment from the LLC as if it owed the debt.
(Also, in some states, charging orders aren't the exclusive remedy for members debts against multimember LLCs, either, which one reason you need to know the law of the jurisdiction you plan to operate in.)
Basically, the LLC derives its existence from "partnership laws", just as it sounds partnerships entail two or more owners. As a result, the majority (if not all) States have case law on point where the Courts do not extend asset protection where there is only 1 owner of the LLC.
Here is the Florida Supreme Court Case on point, but I am certain you will find a similar case in most other jurisdictions, and if you do not find a case from your state, more likely than not it is because they did not hear a similar case yet (LLCs have only been existed in the US since 1977, and States slowly adopted the concept over time), not because they have case law going the other direction: http://assetprotectionworld.com/wp-content/uploads/2012/06/O...
http://www.keytlaw.com/azllclaw/asset-protection/single-memb...
I think this has a good summary of the potential pitfalls.
FWIW I'm 7 years in on my fully bootstrapped, profitable, strongly growing, multi-million dollar business, and couldn't be happier.
So I find the term somewhat derogatory. Instead, I would call a profitable, sustainable company, a "company" -- the presumed norm.
There's nothing wrong with getting on the other-people's-money treadmill, but there's nothing inherently superior about it, either. It's one choice, and AFAIK a relatively unusual one in the wider world.
I interpreted the options such that "high growth" includes any company that's intended to eventually IPO - regardless of how long it takes to get there. In that model, these two options are really blurry.
We're bootstrapping, haven't raised any outside funding yet, and it's an open question if/when we will. We definitely want to rely on organic growth as much as possible, but we also intend to build a Really Big Company. We just intend to do it our way, on our timeframe.
I picked the first option. shrug
I envy you and one day hope to get there myself. Good luck and I hope you get to grow your business to tens of millions.
Switching to full-time is going to be very interesting. Dayjobbing has been good for buying me some time to really think through what I'm doing and climb some learning curves, but a: it takes up the best hours, and b: the unlimited runway makes me lazy and sloppy. Once I'm full time, the clock will be ticking, and I don't ever want to have a dayjob again.
Haha, when I read that part I LOL'ed.
In that case, one of the reasons why I switched to a day job (after spending about the years in-between, during and after college working on small business ideas) was because I didn't have a strong enough business to sustain myself with the lifestyle I wanted to have.
It was awesome at first, and I was able to direct my energies to really improving things here at my workplace, but in recent years, with the job morphing to such a degree that I'm no longer primarily a developer (more management at this point) the fun level is no longer as high as it used to be.
I completely separated from having my LLC for the first few years after I started my day job, but then a few years ago I started a side business selling software on my website (under the sole proprietor model, due to the $800 minimum tax I didn't want to have to pay again for LLCs in California) and so far that small business has been semi-profitable and keeps the hosting bills paid.
Recently though, with those changes I mentioned above with my day job no longer being quite as fun as it used to when I was more free to do development work, I've looked towards contacting local businesses via snail mail and seeing if they have any business problems they need solving (anything repetitive/time-consuming for their staff, which I feel would be ripe for some sort of software automation or process to be put in place) so that way I'll have some more interesting problems to solve and get some insight into what problems our local businesses have (the # of software developers in the area is close to nil).
I'd like to eventually build up something significant where I could hire a few people and maybe earn enough to maybe switch to being a full-time entrepreneur, but at the moment the day job pay is just too good to leave (all of my savings goes to long-term accounts I can't tap, such as a 403b, life insurance savings account, and Roth IRA, so I don't save too much each month...plus there's the credit card debt and personal line of credit I'm still paying off).
Now I feel lucky I was able to experiment much more (some with my money I earned through the business, but also with parental money, mainly my mom since she was awesome enough to believe in me and provide me that opportunity) while I was a late teen/early twenty-something and make mistakes I've learned from. Profitability is a big factor now whenever I'm trying something new.
But back to your situation. There's a question I like to ask everyone, stolen directly from Babylon 5... "What do you want?" You need to be able to answer that for yourself, honestly, and then work toward that. Is what you do now working for you? Why or why not?
I put in two decades in the software industry before I realized that what I want is total independence, by owning my own company, setting the direction, making sure it's as good as I want it to be. The enterprise is secure, and often challenging, but I'll never get rich and I'll never feel in control, not that way. On the other hand, after two decades of career gone, I don't have a bunch of spare rounds in the clip the way the average kid getting processed through a startup accelerator does.
I wound up here backwards. I didn't start with "I want a startup" and then cast around looking for an idea (the problem with so many startups is mediocre, timid ideas). Instead, the idea came to me, and I realized that it would best be done through a startup. And a startup fits my sense of how to live a lot better than the enterprise work I've been doing.
Luckily, the idea itself comes from those decades of experience in large-scale software development and its problems. Without all that real-world experience, I wouldn't even know of the existence of the problem I am trying to solve.
So back to you. What do you want? What kind of life do you want to lead? What sort of impact do you want to have on the world? Answer that, and build toward that.
I work in London, and used to work for a FTSE 35 company. I was there for about 2 years, and worked primarily as an Android developer.
I'm not sure about the situation where you are, but here in London there's tons of Android contracts.
I made the decision to jump about a month and a half ago after getting screwed over a promotion that was promised to me. Any loyalty I had to the company died at that point.
I had a month's notice, and two weeks holiday before I quit. Two weeks before I officially handed my notice in, I let my manager know I was contemplating going contracting. She was very understanding, and tried to make me stay.
I started phoning round recruitment consultants letting them know my experience & what I was after.
After two weeks, twenty plus recruiters, 30 plus contracts, and two interviews, I landed the third interview.
The one thing holding me back the most, and probably the reason I didn't land a job sooner was that in contracting land, you're expected to start pretty much the next day, and I had a 2-4 week wait before becoming available.
I got the job, started my company the same day (£15 & 15 minutes time). Got an accountant via recommendation & started two weeks later.
I'm not going to lie, the jump was terrifying. Losing the security of permanent employment, & imposter syndrome play a big part in keeping people in perm jobs.
After a week in this job though, I'm incredibly happy.
I'm not getting full contract day rates (£400+), its more around £250, but I'm two years out of uni & doubled my salary by quitting.
That's not even including the tax benefits of getting paid via your own company.
My advice would be make damn sure you're good enough (not by validating your own abilities, but by getting other contractors to evaluate you), and start getting in touch with recruiters.
Your world isn't going to come crumbling down by having a conversation.
Oh, and don't trust recruiters. They're a necessary evil.
This helped me: http://www.contractoruk.com/
This can be true, but can also be a load of cobblers from recruitment agents. On top of that if you contract in banking, the reference/background/credit checks take at least 2-3 weeks anyway.
>> Oh, and don't trust recruiters. They're a necessary evil.
I'd change that to "don't trust all recruiters". If you can find a good one that tells you the truth, stick with them.
This is where it again gets a bit tricky - don't over-commit, you don't want to deliver bad work because you're rushing, this business is very much about reputation. And don't forget the overhead. You can and should automate the meta work (invoicing, accounting, etc.) as much as possible, but it will still take some time. Don't forget to take a break and relax either. Give yourself a 20% Friday to play with new stuff or just go swimming. Enjoy the freedom of being your own boss.
Now, if you've done it well, you can pick your projects. If you get a lot more requests than you can work on, raise your rates until things balance out. Don't be an idiot and undervalue yourself, it's an open market, use it or get exploited.
That initial cash reserve? Keep it. Rebuild it when it drops low. It both acts as a safety belt (what if you break an arm and can't type for a month, huh?) and it gave me the piece of mind I needed - I don't think I could've done it without the assurance of looking at an Excel sheet that said at the bottom "n more months before you either have to make profit or go be a wage slave again" (yeah, make a budget, you'll thank me later).
My first client was the company I left. Most of my other clients are from contacts I have made during my work life, either their side projects or places they had moved on to, or because friends they recommended me to. Networking, reputation, and a bit of luck will get you there. Or maybe not. Not everyone is cut out for it, and if you aren't loving it, maybe consider that the slightly sticky embrace of employment wasn't so bad after all. I for one can't imagine going back there.
You tend to work through agents who have client companies that want someone with extensive domain knowledge to work with them (and usually exclusively with them) for short terms (several months).
The money is better than permanent work, and you get to do all sorts of interesting things, though you do need to be prepared for dry patches. I just bit the bullet, quit work and went for it. In the last two years I've worked with three different clients, and my latest client is an established consultancy in their own right who are hopefully going to keep me on their books as more stuff comes up.
This seems to me far easier than hunting down clients by yourself.
Depending on where you are (I'm in London), lots of contracts are offered through recruitment agencies so put your CV out there and you will get spammed by recruiters (several of them contacting you for permanent position in a different country and using things not even mentioned in your CV, you can safely mark those recruiters as spam).
One important thing is to not bother looking if you're not free pretty much immediately, you're supposed to be free in less than a week or immediately so if you're looking for clients with a 1-2 months notice, you won't get any.
For the interviews part, all the one I had were very simple, some without a single technical question.
As desarun said, an important thing is to get an accountant and create a company (not sure outside of the UK).
Anyway to give you an idea, my first contract was 3 days a week and I was still making more than my previous fulltime job.
Again if you're in the UK, this book is really good: http://www.amazon.co.uk/Contractors-Handbook-Expert-Guide-Fr...
Edit - I do have the problem you are describing though. Where to find clients who will pay a reasonable rate. Don't mean to spam but since this seems relevant, full story here - https://news.ycombinator.com/item?id=7821974
I've asked around a little bit whenever this topic comes up and the majority of people who I've talked to say that their best source of customers comes from people that they know.
Not a very satisfying answer for me, since I don't know a whole lot of people (maybe that's just my view of things, I could be wrong), and of those people, very few of them need someone with my skills and expertise (or, to be more frank, I doubt any of them would be able to match the paycheck I currently get from my employer). It's equally likely I'm not imaginative enough.
In any case, if anyone is "living the dream" in the Seattle area, drop me a line - I'd love to chat with you and maybe have a coffee (haha).
Best single sentence sound byte I can offer is unfortunately straight out of Glengarry Glen Ross: “Always Be Closing.” Which is to say, the way to develop those customers that just happen to be people you know is to constantly be putting yourself out there. I’ll go to several networking events in Seattle next week, several more in Portland, then will be back in Portland a week later. Then I’ll hit several more in Bend, Oregon a few weeks after that. I’m not a “sales guy” I’m a tech guy by training and experience, but if you want to be in business for yourself at any level, you have to take the initiative to develop those relationships.
You need to set showdead=yes in your HN profile.
Automated spam filtering would be my guess. Using a throwaway account with no history probably didn't help.
I'm in NY, which is home to one to publication requirements, so I only form LLCs for projects when the potential for profit exceeds $10,000 a year. Otherwise, it's really not worth the hassle to start working on the business.
I described a hack my old employer (a law firm) utilized to accomplish the NY LLC publication requirement. Pretty cost effective, total was $519.90 to organize/file the LLC with the NY Secretary of State and complete the publication requirement.
For what it's worth: "this runs counter to the general principal of SV where they are pro-Corp."
I believe this is because in California, there's a minimum tax of $800 on LLCs, so you might as well become a big boy corporation and not eat the 13.3% profit fee, get lower taxes (and/or or tax "hacks" (cheats)), and (especially pertinent to VCs) be able to be publicly traded.
This doesn't affect the terms your past or current contracts, but it does mean that you can't take contracts with government agencies and some potential clients will research your company and see that you're non-compliant. This can lead to a loss of business and the terms of most of contracts (that I've come across, at least) stipulate that you must be a valid LLC in good-standing -- if you go ahead and sign that contract, you're operating counter to the terms that you've entered into and may be liable for damages to the other party (or your actions could invalidate their responsibilities to you). Note that severability clauses do not cover you in this instance because publication is a legal requirement of the state.
And you're right -- you can't sue others as an LLC or fully defend your contracts in a court of law while behind on your liabilities.
You're also not technically supposed to do business while non-compliant.
disclaimer: not a lawyer, but it's not my first time at the rodeo and this stuff isn't that complex
Am I reading that right?
Congrats on the long haul success.
Here's something I've learned.
Truly novel ideas--something that nobody else has ever thought of--are extremely uncommon. Like, once-in-a-lifetime uncommon. If you're waiting for the day when your biggest contribution to humanity is an original idea, you'll find only disappointment.
But that doesn't mean you can't be successful (whatever that word may mean for you). Most of the world's "innovations" simply rehash existing ideas, but do so in a way that stands out above the rest. To make something great like that takes a combination of talent and experience. While you can't exactly control for raw talent, you can, given time, build the requisite skills and experience.
This--for me and I hope for you too--is extremely encouraging. It allows me to dive deeply into my work and, yes, my ideas, without worrying about how original they are or if others are doing the same. Knowing that I can be successful if I work hard enough--all without ever having an original thought enter my head--takes a lot of the pressure off and allows me to free up space to be creative without worrying about the repercussions. As a result, and contrary to what you might expect, this makes it more likely I'll one day have that crazy idea that nobody else had.
This is only my experience, of course. But my hope is that you'll realize it's okay and perfectly normal to be, as you described, "idea bankrupt," as long as you realize that ideas aren't your only currency.
It's not as negative as you make it seem, having your own company has many benefits and few disadvantages. Most of us probably wouldn't consider working 50-60 hours/week for someone else who can ruin everything with a few bad decisions and reaps most of the profits. Find out what works best for you and your ideas and don't be afraid.
What worked for me was using Clerky to setup our corporation and various corporate documents and then when we did take some investment the review of our corporation papers took a few days till we got the money whereas other people who had a non standard business entity (LLC in another state) recieved their money 3-4 months later due to the time and lawyer fees it took.
We used YC docs (http://ycombinator.com/documents/) for the employment contract among other things, with a few adjustments for things I wanted changed.
The due diligence, formation, agreements, etc. were all a very easy process. His team is excellent to deal with, very professional, and his people and lawyers were always available if I had questions. They're pretty much an entrepreneur's ideal.
Regarding the LLC. I think for this business it was quite desirable, as it has slightly unusual attributes and prospects. It was always understood it wasn't going to be a billion dollar funding company (that would eg take numerous rounds from large VC firms). It was always going to be profitable from early on, requiring no substantial further funding. You could say it's a partnership in a corporation's body.
If we were going to agree to an investment from Andreessen Horowitz tomorrow morning, we'd likely reform to a C corp for future purposes.
I echo your sentiment about getting hung up on corporate form though. The hassle involved can vary depending on your partners of course. With a partner like Cuban, if there's something that needs to be done, like shifting to a C corp for business or investment purposes, then it'll get done with minimal drama.
Most of these things simply are not going to be a major problem unless you have shitty partners that might cause problems in the process of reforming the company from an LLC to a C. Mostly these are trivial issues that people sometimes waste large amounts of time on because their partners suck.
We hired nanny for one year when my wife went back to work. The tax and paperwork nightmare of having even a single employee for a small business makes me never want to do it again. It's structured in such a way as to bias it towards larger employers who have accountants and lawyers to rely upon.
I will not provide any legal advice here, but the concept of letting "it lapse" verse filing articles of dissolution with the State to wind down the business can have significant impact on liabilities/legal rights of the owner/directors/officers/entity. I have seen very bizarre situations where each was the right thing to do under a given set of facts.
I am considering dissolving my single person LLC. Could you help me point to sources on web where I can read more about it? Especially scenarios where letting it lapse is the right thing to do.
Off the top of my head I could not point you to any resources that would suggest letting it lapse is the right thing to do. Most attorneys by default will over look these nuances anyhow and always suggest the right thing to do is voluntarily dissolve. However, in private corporate legal practice I have seen the following scenarios where the voluntary dissolution has been problematic:
1. If the company was not wound down properly, and assets are still in the company name, generally those assets may not be transferred out of a dissolved company, and if you do transfer assets out it would be legally invalid. In such circumstances it would be better the company lapse, so it can be reinstated to transfer the assets lawfully;
2. Another example I have seen first hand is in litigation. In this instance a major oil company was sued by a number of gas station owners. As you can imagine the oil company dragged this lawsuit out for decades. By the time it was over many of the businesses that owned the gas stations sold and then dissolved. Nevertheless, after the litigation they were entitled to large sums from the oil company. For companies who administratively dissolved they could reinstate and have standing to collect their judgment, alternatively many of the business who voluntarily dissolved lost out on their portion of the judgement.
Best to consult an attorney to analyze your specific situation.
I should probably get around to incorporating or figuring out what the best structure is for us since I'll likely begin to seek seed/angel funding in the next few weeks and the startup is going to exist in a fairly IP-heavy space so presumably there's a certain amount of added exposure there, but legal structure is definitely the least interesting part of this process for me.
I look at my role as a really strong conduit between client and my team. I can speak both their languages and since I am a developer myself and the team is so small, I can point to the exact changes done or required to make something happen. My current client loves this.
Biggest hurdle - finding clients who have the need and budget.
Just posted this if you would like to offer suggestions - https://news.ycombinator.com/item?id=7821974
(Btw, I am a long time lurker, occasional commenter but first time Ask HN poster. Stupid question - Does anyone know how to make a post appear under 'Ask'? My post appears under 'New' but I can't see it under 'Ask')
Anything an LLC pays as "regular income" is an expense to the LLC and is not taxable at the LLC level, with the exception that the LLC will have to pay payroll taxes. Of course the wage earner will pay both Federal and if applicable State income taxes.
An LLC has flexible tax structure, and at the federal level may be taxed as: 1. a sole proprietorship; 2. a partnership; 3. a C-corporation; and 4. a S-corporation.
An LLC may provide legal protection (limited liability) to its owners; however, that protection is generally lost when it is a single member (only a single owner) LLC.
You are correct that the California franchise tax (minimum of $800 annually) is wildly expensive compared to annual compliance filing fees in other states.
https://www.ftb.ca.gov/businesses/bus_structures/LLCompany.s...
Don't take/plan to take investment and probably never would unless it was for a specific short-term opportunity.
I don't pursue it actively. If I see someone online who wants something built that fits my schedule, I offer to do it for them. To me, consulting is just a way to learn about new industries that I can build products for.
My focus is really on getting the product business generating a steady stream of cash instead of the small spurts it's doing right now.
I primarily write Java/J2EE code and the demand seems to be very high for that type of work. I have been on my current contract for over 2 years, and keep getting significant raises every 6 months when they renew my contract because they know I have domain knowledge and finding competent people is hard and expensive. My advice is to leverage your connections so that you can bill directly as possible. This is sometimes hard to do with vendor management systems at big companies, but if you're able to talk to the hiring manager directly, you can avoid the recruiter middle man and get $15 - $30 + more on your rate, which is huge.
In my opinion, if you really like to code and can produce quality stuff efficiently, you owe it to yourself to look into it. Times are good, you should get paid what the market will bear for your skills. In my case, I was able to triple my income in about 2 years. I was scared a bit at first, but the way the job market is right now at the very worst someone will pay you to do something . You can always go be an employee again. I have had 0 gaps in work thus far.
Trying to get to a point where there is not a linear correlation with my time and money, which will obviously require a different approach . But in the meantime it's a good situation to be in for someone who likes to write code.
I wound up getting full-time position eventually, but continued building my own websites. The s-corp acts as the corporate umbrella they all fall under. Maybe it'll be a "real" business one day, but it's a moderate one in the meantime, and worth the separation.
I also create products on the side like iPhone Apps via the Apple Developer program and Web products like www.helloreminder.com and run them under an LLC for liability protection.
I have a couple thoughts for paying side projects, but they're stuck (and have been for a long time) behind personal issues that really should be more important but I never seem to find time to fix. Yay procrastination!
More generally, if you are considering the LLC for legal protection, I would not advise the LLC if you will be the sole owner (aka single member LLC), despite the name you will generally not receive limited liability protection. As an attorney I always take a very conservative approach when it comes to legal protection.
Talk to accountant about tax hassles with LLCs.
So its either like a few thousand to setup an INC (LLC's don't exist here) or go the cheap but high liability route with a sole proprietorship.
Unless it is just the occasional side project there isn't much reason to NOT form some sort of legal entity to protect yourself.
Right now this is a side project, though it does have billing enabled and an LLC. I'm not sure if this is going to turn into a high-growth funded thing or a lifestyle business. Part of that depends on what I want, and part of it depends on how much traction I get when I start really promoting it.
So far it's got about a hundred regular users with basically zero advertising beyond a few posts and word of mouth promotion. That's been intentional -- I've wanted a small group of beta testers to make sure there are no major issues. With the most recent update and completely new site design I plan to start really advertising and promoting and seeing what happens.
So far reaction has been very positive from a lot of people, so I'm encouraged.
By now have had plenty of time to conceptualize a superior structure over simple INC or LLC but it would have to be a funded joint venture and I'm not where the money is. Yet.
:-)
So, yes, I'm for hire. :)