Ask HN: What is legally required to run a small service-based web application? • Hacker News Board

Re: Ask HN: What is legally required to run a small service-based web application?

#51

Post by nowarninglabel » Wed, Feb 02, 2011, 4:45 PM UTC

sunchild wrote: post #36

patio11 wrote: post #21

Earlier quoted context omitted.

You have permission to rewrite (any of) mine, if you want them. Wordpress also has theirs available under a very permissive license. NOLO presumably has one available in their books. If you pay a lawyer $1,000 to draft terms of service, your lawyer will have $1,000 more in his pocket than he otherwise would.

IAAL. If you do the self-service route for terms of service, make sure you do your homework. If you do a search/replace on someone else's terms (even those offered under CC or other permissive licenses), make sure you at least run some Google searches on the rationale behind each clause of the terms. There is a HUGE amount of common ground from one site's terms to another's, but you can still get badly burned if you…

I recently spoke to a lawyer, and the cost of starting a business through him seemed reasonable, until we discussed a privacy policy and terms of service. The cost suddenly doubled, even though he stated that he would be just copying them from a similar site and adjusting them to my site's needs. I realize the importance of these items, but I'm still not willing to pay multiple thousands of dollars for them.

Re: Ask HN: What is legally required to run a small service-based web application?

#52

Post by bradleyland » Wed, Feb 02, 2011, 4:47 PM UTC

larrik wrote: post #47

bradleyland wrote: post #38

Earlier quoted context omitted.

That's a valid point regarding partners and mitigating risk. If you're a one-man company, it's a lot easier to manage the risks, so forming a corporation may be superfluous. I think it depends on your product as well. The chances of being sued while providing a simple product like bingo cards is minimal. If you're providing a service to businesses, you stand a much greater risk of being sued. It's all a balance. BTW,…

I'm not a lawyer, but I've been lead to believe that in the US at least, if you are the only member of your company (which I believe Patrick is), then no corporate structure is going to to protect you from liability. I think even with only 2 people it's a bit iffy (especially if the other person is your spouse). If you are by yourself, Sole Proprietor is easier and simpler for taxes and the like. LLC is more complex…

As far as simplicity goes, consider this. As a sole proprietor, you must file a Schedule C with the IRS if you intend to take any deductions. Filing a Schedule C also dramatically increases your chances of an audit. Also, when you are audited, the audit covers all of your personal finances. If my corporation is audited, the audit does not automatically extend to my personal finances.

Having a corporation actually simplified my situation, even when I was a one-man consultant shop. I've always maintained separate bank accounts for my businesses, which gives me a clearer picture of my business performance by isolating my personal finances from the picture. I find the required filing to be minimal in contrast to the added clarity.

I can't make the argument that it requires less paperwork, but IMO, it does make the paperwork simpler.

Re: Ask HN: What is legally required to run a small service-based web application?

#53

Post by nitrogen » Wed, Feb 02, 2011, 4:59 PM UTC

patio11 wrote: post #19

tsycho wrote: post #15

Earlier quoted context omitted.

For a "sole proprietorship", is it necessary to register a company at all for doing what the OP asked (starting a website as a side project), or can he just do it as an individual and just pay taxes on the profits as regular income? PS> I am thinking of doing something similar to the OP, and not sure if this complicates things, I am on a H1 visa.

There may be local rules which require some form of business registration, but in the US the typical case is that the first -- and only -- time the government hears of the existence of a sole proprietorship is on Schedule C attached to the individual's tax return, which documents its income and expenses, calculates the profits, and tells you what other pieces of paper to copy the profit number onto to figure out how…

If you operate under a name other than your personal given name, you may need to file for a d/b/a with your state.

Re: Ask HN: What is legally required to run a small service-based web application?

#54

Post by pfedor » Wed, Feb 02, 2011, 5:08 PM UTC

patio11 wrote: post #34

bradleyland wrote: post #24

Earlier quoted context omitted.

You're 100% right from a technical standpoint, but I disagree with your opinion on the liability issues. I know it seems inconceivable when you start your business, but being sued is a possibility for just about anyone. It's entirely possible for your business to be sued because of the actions of an employee, for example. If that happens, and you're a sole proprietor, you are the one being sued. This might sound like…

So, having looked into this a few times, my personal opinion is that a quickie instafigleaf will wilt like the fig leaf it is under legal scrutiny. Regardless of whether it is a LC or not, my software business has substantially less in assets than a taco truck, and any tortious behavior it carries out is definitionally certain to have been carried out by me personally. My expectation is that a lawsuit means I get hel…

I have a stupid question: for a one-person business, how does purchasing an umbrella insurance compare with setting up an LLC? Say an LLC in California costs $800 a year. I think you can buy umbrella insurance covering you up to a few million for less than that. And it seems that it doesn't have the problem you point out...?

Re: Ask HN: What is legally required to run a small service-based web application?

#55

Post by rexreed » Wed, Feb 02, 2011, 5:13 PM UTC

arethuza wrote: post #31

bradleyland wrote: post #24

Earlier quoted context omitted.

You're 100% right from a technical standpoint, but I disagree with your opinion on the liability issues. I know it seems inconceivable when you start your business, but being sued is a possibility for just about anyone. It's entirely possible for your business to be sued because of the actions of an employee, for example. If that happens, and you're a sole proprietor, you are the one being sued. This might sound like…

Having been a co-founder of a company that was on the receiving end of IP litigation I can say that I found the whole experience incredibly stressful - I hate to think what it would have been like if it was me personally, rather than the company, being sued. Fortunately the case was completely groundless - but it still took months of time and quite a bit of money paid to lawyers to make it go away. That's the thing t…

Does anyone advise getting insurance to cover these sorts of liability? Would General or Professional Liability or even IP liability insurance cover all the legal costs? I'm thinking that in addition to corporate structure as a way of handling this unknown (but significant) risk.

Re: Ask HN: What is legally required to run a small service-based web application?

#56

Post by bradleyland » Wed, Feb 02, 2011, 5:26 PM UTC

pfedor wrote: post #54

patio11 wrote: post #34

Earlier quoted context omitted.

So, having looked into this a few times, my personal opinion is that a quickie instafigleaf will wilt like the fig leaf it is under legal scrutiny. Regardless of whether it is a LC or not, my software business has substantially less in assets than a taco truck, and any tortious behavior it carries out is definitionally certain to have been carried out by me personally. My expectation is that a lawsuit means I get hel…

I have a stupid question: for a one-person business, how does purchasing an umbrella insurance compare with setting up an LLC? Say an LLC in California costs $800 a year. I think you can buy umbrella insurance covering you up to a few million for less than that. And it seems that it doesn't have the problem you point out...?

Insurance is protection from a defined set of liabilities. A lot of people conflate umbrella insurance with "everything" insurance. It's not. Wells Fargo has a good page [1] on the topic. Insurance isn't a bad idea if you're engaged in a business with specific liabilities.

It gives you a chip to play if you are sued. You can say to the plaintiff, "I have insurance that may allow us to reach a settlement without going to trial." Then you and the plaintiff engage in a settlement negotiation that may or may not be successful. You can further strengthen your position by limiting your liability to your corporation. I can tell you from my experience that you feel much more exposed when it looks like the lawsuit is coming at your personally than you do when it is your business.

[1] - https://www.wellsfargo.com/biz/insurance/property_liability/...

Re: Ask HN: What is legally required to run a small service-based web application?

#57

Post by kbutler » Wed, Feb 02, 2011, 5:40 PM UTC

tsycho wrote: post #15

patio11 wrote: post #11

You don't need a legal structure to charge people money. Sole proprietorship is the most common form of business in the United States -- by quite a large margin. For example, BCC is structured as a sole proprietorship: when someone pays me for bingo cards, they're really paying me for bingo cards. You will probably find that no B2C customer actually cares about the structure of your business, legally. Your website de…

For a "sole proprietorship", is it necessary to register a company at all for doing what the OP asked (starting a website as a side project), or can he just do it as an individual and just pay taxes on the profits as regular income? PS> I am thinking of doing something similar to the OP, and not sure if this complicates things, I am on a H1 visa.

* Your city-of-residence probably requires you to file (and pay annually) for a business license, even if you are doing a purely online business.

* If you accept payments in any name besides your own (e.g., a website name), and you don't have an LLC/corporation/partnership, you probably need to apply (and pay) for a DBA (no, not that kind of DBA - a "Doing Business As"). Accepting payments in a name other than your own without this could result in prosecution for fraud.

In my personal IANAL opinion, the LLC (Limited Liability Company) is the best "side projects for profit" option. Relatively simple and inexpensive formation (order of $100 w/o lawyer), limited liability (how limited? courts will tell), no "double taxation" from a corporate structure.

But do your own research beyond asking on forums.

kb

Re: Ask HN: What is legally required to run a small service-based web application?

#58

Post by infoaddicted » Wed, Feb 02, 2011, 7:48 PM UTC

euroclydon wrote: post #42

mgkimsal wrote: post #27

Where abouts in NC are you? I'm in Raleigh, and would be happy to meet up and show you some of how I'm setup. I charge yearly subscriptions for digital content, as well as one-off sales. I use both GC and PP for checking out - no sense in limiting yourself too much, imo. I have sales from around the world, and GC and PP have covered the overwhelming majority of those sales. EDIT: Ahh... you're in Durham. I've got to…

Hey, I live in Durham and I'm incorporated as an S-Corp, which can have some advantages (just don't let tptacek hear you talking about them). I'm friends with your boss at TransLoc too. It would be nice to meet up sometime and talk shop. joshua.pearce at that google mail service.

I ran two S-Corps for web hosting/design over a 12yr period (in MO and DE), mostly a one man operation with occasional outsourcing. I had the opinions of a couple of accountants and a lawyer and a short class from the local community college sponsored by the SBA before I got things rolling. Their are tax advantages, and you retain a bit of the "corporate veil", but I was fortunate enough never to get sued. Get good advice first.

Re: Ask HN: What is legally required to run a small service-based web application?

#59

Post by sunchild » Wed, Feb 02, 2011, 11:54 PM UTC

dave1619 wrote: post #45

sunchild wrote: post #36

Earlier quoted context omitted.

IAAL. If you do the self-service route for terms of service, make sure you do your homework. If you do a search/replace on someone else's terms (even those offered under CC or other permissive licenses), make sure you at least run some Google searches on the rationale behind each clause of the terms. There is a HUGE amount of common ground from one site's terms to another's, but you can still get badly burned if you…

I'm looking for that service. What are your qualifications and how can I contact you?

http://www.linkedin.com/in/solirvine

sol at yusonirvine.com

Re: Ask HN: What is legally required to run a small service-based web application?

#60

Post by joeag » Thu, Feb 03, 2011, 4:47 AM UTC

patio11 wrote: post #34

bradleyland wrote: post #24

Earlier quoted context omitted.

You're 100% right from a technical standpoint, but I disagree with your opinion on the liability issues. I know it seems inconceivable when you start your business, but being sued is a possibility for just about anyone. It's entirely possible for your business to be sued because of the actions of an employee, for example. If that happens, and you're a sole proprietor, you are the one being sued. This might sound like…

So, having looked into this a few times, my personal opinion is that a quickie instafigleaf will wilt like the fig leaf it is under legal scrutiny. Regardless of whether it is a LC or not, my software business has substantially less in assets than a taco truck, and any tortious behavior it carries out is definitionally certain to have been carried out by me personally. My expectation is that a lawsuit means I get hel…

You are correct. A legal entity of any type is not going to protect anyone given the typical underfunded HN startup profile.

The great thing about technology/web based businesses is that they don't take much capital to start.

Unfortunately probably the single most important factor in determining whether a legal entity will be respected when it comes to liability is whether the entity has sufficient assets given the character and nature of the business.

So, for a business that is started with say $100K and maintains some assets thereafter, pretty straightforward that shareholders, limited partners, members, etc. will not be personally liable. However, if it starts with $1 and you keep a few hundred to a few thousand in cash or other assets in the business, it's not going to shield you personally. (Of course, you also need to respect all the other formalities, accounting, regular meetings, authorizations to act, etc.)

Probably the best thing about using some type of legal entity is (as you mentioned) is that it makes it easier and provides more clarity to "who owns what" when there is more than one person involved in the company.