
Ask HN: Minimum legal setup to do software consulting - buzzdenver
I am about to write code remotely for a couple of companies, and wondering what the simplest way to incorporate is. It would be a one-person thing, so no partners or investors.  The only reason for incorporation is to expense buying hardware, but tell me if there are other perks. So LLC or SCorp or CCorp (I am in Colorado) ? I&#x27;m also unclear on the financial side. Do I set up a new bank account ? Can I use my personal credit cards to pay for company expenses ?<p>I appreciate any advice!
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brudgers
I've been a sole proprietor in architecture/design for over twenty years. [1]

1\. Have separate savings and checking accounts for the business and run all
the money through them. It is typically easier to set these up as a sole
proprietor because the personal liability works in your favor with regard to
the bank.

2\. Use separate credit cards for purchases, but to a first approximation
don't purchase anything for which you cannot invoice a client...i.e. you don't
need a new Macbook Pro and you definitely don't need to spend time pretending
that shopping for one is work.

3\. Generally, if you "incorporate" an LLC is the way to go because you don't
necessarily have to pay yourself a salary (check with an accountant) and can
just disperse money to yourself much like with a sole proprietorship.

4\. Also check worker's compensation laws in regard to sole-proprietorships,
LLC's, and S-corps. This is a place where I've seen people run into trouble.

5\. General advice, contracts matter, but client relations matter more. You
probably don't want to lawyer up to enforce some term of your contract. You're
better off stopping work when you don't get paid quickly and that means having
prompt payment terms in your contracts. It's even better to require a retainer
payable against final invoice.

Good luck.

[1]: Architects have personal liability for errors and omissions in projects
under their seal _and_ because that is the vast majority of my liability _and_
because an LLC/S-corp only protects against contractual liability and that is
rarely an issue due to common clauses in industry standard contracts, I've
never bothered with a corporate entity. YMMV.

~~~
japhyr
> 4\. Also check worker's compensation laws in regard to sole-proprietorships,
> LLC's, and S-corps. This is a place where I've seen people run into trouble.

Can you say a little more about this? What issues would someone acting as an
independent consultant have with worker compensation laws?

~~~
brudgers
Laws vary from state to state. Some clients require proof of compliance as a
normal part of their process for letting contracts. Not all.

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IpV8
Minimum legal setup? Don't even do an LLC, just bill send them invoices, and
file your quarterly taxes properly. You can just deduct your expenses from
your yearly taxes in April. You should keep receipts and a journal of these
expenses in case you get audited.

~~~
nroach
And if you get sued all your personal assets are on the hook for the business
debt. If you die, your entire estate is on the hook for any business issues
not fully resolved before you passing.

If you are young and don't have dependents or an asset base these may not be
big issues. If you have a family and possessions or savings, not having a
formal business structure can be devastating if things don't go according to
plan.

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PaulHoule
The "minimum" is that you have a (i) name, (ii) dba filing in that name, and
(iii) a bank account in that name.

If you are a sole proprietor you can write off business expenses, so that is
not a reason to form a corporation.

Software liability is a funny thing and if deliberate wrongdoing or negligence
can be proven and they know your address the corporate veil won't stop them
from making your life hell.

You probably will need some corporate structure once you get around the size
where you are hiring managers.

There is no substitute to talking to a lawyer about this, because it is a
broad topic with a lot of details. You don't need to incorporate in Colorado,
however, "jurisdictions of convenience" in places like Delaware and Nevada are
more expensive.

As for S vs C that is a matter how you file your taxes, not how you register
your company (Delaware doesn't know if you are an S or C and doesn't care.)

~~~
Spoom
Just a reminder that as a sole proprietor, there is no corporate veil. Your
are 100% personally liable for anything you do in business. This is one of the
real reasons that businesses incorporate, and possibly the most important one.
Incorporation will otherwise provide _more_ headaches, not less.

FWIW I did business as a sole proprietor for years. That said, it was always
just me, and I was pretty careful. My line for incorporation would probably be
when I needed to start hiring.

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mapster
Consider basic business insurance. I don't have an LLC (sole proprietor), but
keep professional business insurance ($27/mo) through major insurance firm. I
pay quarterly taxes - so easy.

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GoldenMonkey
Here in Colorado.

My lawyer recommended a Colorado S-Corporation. The filing fee isn't that
much.. $50 to start, $10/yr yearly. The LLC is typically used for a
partnership, but allows you to choose between c-corp and s-corp taxation. Find
a cpa or lawyer for sure to setup.

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patio11
You can expense things for tax purposes regardless of whether you incorporate
or not, if they are legitimate business expenses. It goes on your Schedule C
either way.

You can be a sole proprietorship instantly on saying "I'm a sole
proprietorship." The first form you'd file would be Schedule C the following
year. Colorado or your municipality may require a business license and/or a
DBA ("doing business as") filing. My business was just myself DBA my trading
names for ~6 years, until I started to get clients with employees who had
titles like Senior Counsel for Vendor Contracts or Compliance Officer. At that
point, having the 2 LLCs just made it much easier for them to do business with
me.

You can get your LLC in Colorado if you find that to be convenient. Nevada is
also quite popular -- they issue them readily online, maintenance is a breeze,
they have no state income tax (you'll pay Colorado's either way but there is
zero risk Nevada will attempt to get frisky with you, which is a risk with
extraterratorial registrations), and their fees are fairly low. ($325 per year
or so IIRC.)

The reason to segregate bank accounts is twofold:

a) (The big one) Having separate accounts makes it much, much easier to retain
accurate records on income and expenses, so you pay only the taxes you
legitimately owe rather than donating extra money to the USFG because e.g. you
forgot a few hundred bucks of SaaS subscriptions on your personal AMEX.

b) (Far smaller) Keeping things firewalled between your personal finances and
the business makes it harder to pierce the corporate veil if your LLC ever
gets into legal trouble.

You should _certainly_ open a new credit card and use it, and only it, for any
business expense. It does not have to be a "business" credit card or issued in
the name of your company. You're going to just take the statements from that
and hand them to your bookkeeper, saving you hours of pain come tax time.

 _tell me if there are other perks._

There exists a spectrum of aggressiveness in the small business community on
how much they take advantage of this, but: what you think as a natural human
is clearly a business expense, what the IRS will invariably sustain as a
business expense, and the maximum you could possibly claim as a business
expense all have _huge swathes_ in between them.

This is probably only worth a few hundred bucks a year for you, but, for
example, your WSJ subscription will invariably be held by the IRS to be a
legitimate business expense, on the behalf of any business whatsoever. This
essentially means you get to buy it with pre-tax dollars, which is an
effective X0% discount.

There are things that are a bit more aggressive. Ask your accountant where the
line is. (After you have $10k in revenue, find an accountant.) This is what
they're for.

~~~
percept
Reminder:

[https://www.irs.gov/Businesses/Small-Businesses-&-Self-
Emplo...](https://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Estimated-Taxes)

[http://www.nolo.com/legal-encyclopedia/sole-proprietors-
how-...](http://www.nolo.com/legal-encyclopedia/sole-proprietors-how-pay-
estimated-taxes.html)

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MalcolmDiggs
In most locales you are by-default a Sole Proprietor already. As long as those
companies are paying you as a 1099 (and not a W2) then you should be able to
write off most of the expenses.

That being said, I'd recommend you head to your local Barnes and Noble and
grab one of the Nolo books on incorporating a company, they are fantastic
resources.

