1) Doing taxes correctly as anything other than a sole proprietorship is a huge pain in the ass, especially if you're selling things across state borders, and doubly so if you're in California. I recommend finding a tax professional to handle that for you (the time it takes to do it yourself is generally not worth it). Also don't forget that if you're actually making money you'll need to pay estimated taxes quarterly.
2) Either learn basic accounting (if you don't already) and keep excellent records of all revenue and expenses business-related (ideally categorized into standard business categories) or find a CPA to keep your records straight monthly. A huge number of people get burned simply because they didn't keep proper records and then ran into tax or regulatory trouble later.
3) Definitely keep your business finances as separate from your personal funds as possible. Different checking account, different credit card, etc.
4) Think really hard before you hire anyone for anything, and if you do, make sure you're either doing 1099 correctly or get a professional to help with W2 stuff. Again, this is something that often comes back to bite people.
And lastly, remember that most businesses fail and that failing at business is not something to be ashamed of. If it's not working out, don't make yourself miserable and mortgage your future to try and save it indefinitely - walk away and try again with the lessons you learned.
Note that a single-person LLC can file taxes as a pass-thru entity, which is essentially the same as a sole proprietorship. You do still need to separate your finances/accounts/etc tho.
I talked to a lawyer about this and the feedback I received was while technically they might be able to sue to try and receive compensation even from your personal assets if you are a single-member LLC as long as you can show you were acting in good faith and as an agent of the company (i.e. you didn't personally guarantee the work and sign your name instead of the company's and you maintain distinct records and finances for the business), then it is unlikely to get approved in a court of law.
So an example here might be that you were working for a client and work wasn't fully completed on time. You made a good faith effort to get the work done, so while the company you were working for might be entitled to compensation from your LLC they can't come after your house.
Finally, let me caveat all this by saying that the standards for "piercing the corporate veil" vary by state and as always you should consult with a lawyer before making a final determination. Also, another work around is to form a multi-member LLC and hold formal annual meetings. This is normally enough for most states to consider the LLC as a separate distinct entity and prevent piercing of the corporate veil.
I also discussed this with the SBA and multiple attorneys (attorneys make up most of my clients, btw).
Here in NY, piercing the corporate veil is a bit easier than in other states. More importantly, if someone attempts to go down that road, you have to spend the time and resources ($$$) to defend your position. In general you're best off just starting in the strongest possible position to start with, and usually that means splitting the decision making responsibility. If you want to avoid all that hassle, just go the SP route.
In my original comment I made the mistake of saying "any" instead of "all"
I'm late to the party, but used to work for a collections attorney who specialized in SMB who were close to or are defunct. The biggest mistake anyone ever made (when setting up an LLC) was to mix personal and business funds. It made it trivially easy to go to the court and "pierce the corporate veil" as you so aptly put it.
The way you wan to do it is set up an LLC but then "loan" the business money and act both as it's owner but also it's creditor. This separates you in the eyes of the court.
Being a single person LLC absolutely does gives you the legal advantages of an LLC, provided you maintain separation of personal and business, eg keeping business bank accounts and routing all income and expenses through them, keeping proper accounting books, signing contracts as the LLC and not as yourself, holding company meetings w/ minutes, etc.
In practice this protection isn’t worth as much as it is for larger businesses because, for example, any bank lending to a new single person LLC will require a personal guarantee anyway, and most single person LLC don’t have a lot of situations where they might incur a life destroying liability, like an accident in a warehouse or something, but that protection still definitely exists for single person LLCs.
Write down your plans, decisions, and reflections. It's something you should probably be doing anyway.
The only silly part is calling it a meeting, but people do seem to agree that's the terminology the IRS wants to see.
Actually, I guess there are two silly parts, although the second is arguably more sad than silly: you must be 100% clear that you are engaging in these activities with a profit motive and not for the love of learning, doing, helping... and if the IRS decides that your motive is not sufficiently (im)pure, you will owe considerable back taxes, interest, and fees.
Haha it is rather ridiculous, but you can formalize big company decisions in a sort of company secretary’s binder. Honestly though, keeping the finances and contracts separate will basically always be enough to avoid personal liability. Basically you just want everything to be partitioned enough that no one you do business with would ever think that they are dealing with you in a purely personal capacity rather than as a representative of your company.
Generally, anyone that a company has duly authorized to sign will be able to sign on behalf of the company. I'm just guessing at what the GP meant, but I think the most important thing is to just negotiate the contract as the LLC. I suppose it makes sense to be particularly clear on the signature page that you're signing as manager/agent of the LLC.
Not exactly...So for example say you owned a share of Apple, obviously you will not be liable for debts of the company by your nature as an owner and the company will not be liable for your personal debts as an owner. With the single member LLC you are still protected from the debts and liabilities of the company, but a creditor/judgment holder/lien holder could likely collect against the LLC and even potentially “foreclose” on your ownership interest and take over the company.
Best advice for anyone, especially a foreigner without SSN/ITIN, is to get a lawyer. Note for all foreigners, IRS changed their rules to get an EIN 5/10/19 and this is significantly delaying new foreign owned/controlled businesses.
The caveat, is you must operate like a business - including proper insurance levels. If you're not acting like a business, then you don't get business-like protections.
Source: Single member LLC who has discussed the issue with my lawyer.
In my experience, insurance levels are determined by the work you do and clients you have, not by your entity type. Most of my 1099 contracts these days come with a professional insurance clause that is independent of the kind of business I run.
This is like asking "what insurance do you have?" Some people will carry health, auto, life, home, flood, and earthquake insurance. Some people opt for some or none, depending on applicability.
An insurance broker will happily talk you through what each gives you, and what is most relevant to your co, but it will almost always include GL (general liability), E&O (errors and omissions), and some sort of "cyber" (to pay for resulting damage from hacking). Expect other flavors of insurance to also be applicable.
Also not a lawyer but it seems unlikely. You can’t create a legal shell just to shield yourself from liability. There needs to be an actual entity. Or not, again not a lawyer.
Depends if you are keeping the entity and its finances separately. If you can demonstrate your finances are not commingled, they can be considered as separate and distinct even when reporting taxes as pass through.
So, for instance, document the seed money to the LLC, and any other money you put in, carry on the books. Similarly, pay yourself a salary or if doing “equity draw” again keep it full documented.
its limited, NOT absolute. If you are a single person LLC the claim can be made that the business is an alter-ego of the owner, and can then the corporate veil can be pierced.
I mean of course. But that’s true of all corporations.
If you conduct the business in a businesslike manner and keep proper separation of personal issues, and keep required records to document its corporate actions then you have the law’s liability protection.
The last point. I think its the number 1 thing every new founder should know. Getting success on the first try is tough and very rarely people achieve that. In fact, Microsoft was Bill's second business
All of these points are spot on! I learned some of this the hard way and wish someone told me these things years ago when I went from sole proprietorship to LLC. Spending money on a good Bookkeeper, CPA and accounting software is well worth the money.
I don’t like the tone of this advice. It’s very off putting.
Look, do what you want. If you want a business start it. You’ll need a CPA and a book keeper. These are easy to find and low cost. I pay my book keeper $200/month and my CPA a few thousand each year.
I literally have never bothered with taxes. I hand them to my CPA and just double check the numbers when he’s done. Same with my book keeper. I don’t deal with IRS letters and whatever I just scan them and forward them to him and he deals with it.
Tax/accounting/finance are the easiest part of a small business. These jobs are easy to outsource because they’re well commoditized. Tax/finance/accounting for a small business can be challenging for a lay person but it’s routine for these professionals.
Lastly, if you fuck up your taxes and accounting it’s not that big of a deal. The IRS is happy to have you sort it out and pay them what you owe with interest later. They’re very polite people. I should know.
The dirty secret about starting a small business is that everyone’s back office is a total shit show. Ask any freelance bookkeeper or CPA what state their clients were in when they acquired them.
Your comment amounts to the same advice as the comment you’re replying to: outsource your tax and overall finance management to a qualified 3rd party.
I’m not sure why you felt the prior comment was “offputting”; they don’t say not to start a business, they’re pointing out that financials are an area that a business owner needs to address, and that outsourcing it is often the correct route.
2) Either learn basic accounting (if you don't already) and keep excellent records of all revenue and expenses business-related (ideally categorized into standard business categories) or find a CPA to keep your records straight monthly. A huge number of people get burned simply because they didn't keep proper records and then ran into tax or regulatory trouble later.
3) Definitely keep your business finances as separate from your personal funds as possible. Different checking account, different credit card, etc.
4) Think really hard before you hire anyone for anything, and if you do, make sure you're either doing 1099 correctly or get a professional to help with W2 stuff. Again, this is something that often comes back to bite people.
And lastly, remember that most businesses fail and that failing at business is not something to be ashamed of. If it's not working out, don't make yourself miserable and mortgage your future to try and save it indefinitely - walk away and try again with the lessons you learned.