I'll take this opportunity to plug my own question to the folks on HN - does anybody know how much protection an LLC generally provides you w.r.t. lawsuits and such? I'm currently looking at doing software consulting for a startup, but indemnification clauses have been touchy for the people I've talked to (and I'm paranoid about losing more than I gain in an unfortunate situation). My lawyer has told me that "piercing the corporate veil" is difficult and an LLC should protect me relatively well, but a good friend told me that I should basically always limit my liability to the amount I've been paid as in his opinion the LLC would be of questionable utility. I know HN isn't the place for legal advice, just wondering if anyone has friendly opinions.
I tried googling this, but the SEO spam is so bad I always converge to the same damn sites. Maybe google search for legal layperson questions is the next big thing?
Generally speaking, an LLC is going to protect you from debt that your company owes. So, you won’t lose your personal assets if your company goes out of business. However, it doesn’t protect you from criminal harm, nor does it protect you if you mix business and personal expenses. (e.g. if you personally guarantee a loan for your company, you’re still on the hook)
I’m just someone who has taken law courses in undergrad, not a lawyer, and you really should talk to one if you are seriously considering this. They will have much better feedback for your particular situation and questions like this will not be expensive to have answered.
My guess is the scenario they're worried about is neither debts nor criminal harm, but civil liability. Like say the counterparty claims you had an implicit warranty regarding X, but in fact you didn't, and that they suffered damages as a result. Then can they go after your personal funds to recover damages (if they win)?
According to this [0] I wouldn’t rely on an LLC to protect me from torts, especially if it’s a single member LLC. It also says that it varies by state, so this is an even better reason to chat with a lawyer about the particular issues you’re concerned about and how your state would treat it.
This is a fantastic question. I would love an informed answer to this question from someone who's actually been on the other side of a lawsuit in a 1-person company.
For context, as a layman, when I Googled this a while ago, the understanding I came away with was that while there can be some benefit to form an LLC in this regard, in reality it's Very Hard (TM) for a 1-person company to truly avoid the risk of the corporate veil getting pierced (regardless of the kind—LLC or whatever). The way I understood it, the entity suing you will look for any and all excuses in your records to try to pierce the corporate veil—and these can include anything from "mixed personal & corporate funds" to "did not properly keep detailed minutes of corporate actions", to other things I'm not aware of. And when there's only 1 person in the company, it's generally more difficult to abide by all the formalities in practice and keep proper documentation of them and convince others that you are indeed keeping doing things properly, whereas with 2+ people, it's much easier, and as a result of that fact (IIRC) judges are apparently much less likely to pierce the corporate veil when there are multiple people in a company.
But as I mentioned, I'm a total layman here, and I would love more info from someone who actually has any legal experience with this kind of concern.
> he way I understood it, the entity suing you will look for any and all excuses in your records to try to pierce the corporate veil—and these can include anything from "mixed personal & corporate funds" to "did not properly keep detailed minutes of corporate actions", to other things I'm not aware of.
It's not just a question of formalities, it's a question of general intent.
The Wikipedia article on "Piercing the corporate veil"[1] provides this example:
> A simple example would be where a businessman has left his job as a director and has signed a contract to not compete with the company he has just left for a period of time. If he sets up a company which competed with his former company, technically it would be the company and not the person competing. But it is likely a court would say that the new company was just a "sham" or a "cover"; and that as the new company is completely owned and controlled by one person that the former employee is deliberately choosing to compete, and so is in breach of that non-competing contract.
I don’t think you should be signing indemnification clauses at all. Think what you’re agreeing to - you’re going to defend the company in court on your own dime when they get sued?
I tried googling this, but the SEO spam is so bad I always converge to the same damn sites. Maybe google search for legal layperson questions is the next big thing?