

Ask HN: How concerned should I be about liability when launching a site or spp? - mrbird

As I understand it, when you operate a business or service as an individual (i.e., not a corporation), you're personally liable for whatever might happen.<p>What's the practical application for this when it comes to launching a site or an app?  How concerned should you be?  Is it ok to soft-launch, see how it goes, and only form an LLC (or equivalent) if/when you establish some growth?<p>Or should you incorporate from day one?<p>The kind of liability I'm most worried about is any damages (e.g. lawsuits) that might result from misuse of the service, such as spammy behavior, phishing, or the like.<p>Does anyone have advice or relevant experience you'd like to share?  Has anyone gotten bitten unexpectedly by a liability?  Am I exaggerating the likelihood or severity of the threat?
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patio11
Nothing in life is risk-free, but B2C Internet companies are close. You don't
let liability risk stop you from cooking for guests or playing sports, both of
which kill people.

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bugsy
It depends on what your app is. If it's some helpful consumer app that doesn't
regulate airplane traffic, doesn't secretly install spyware, doesn't
accidentally erase the hard drive when the wrong data is entered, your chance
of trouble with customers is low in practice. And nonexistent if you are
operating in a different country than your customers.

Your greatest risk is that of being sued by a competitor over patents because
he would rather do that than create a better product.

Incorporating won't help if you are the developer, you are still liable for
errors in your own work. Lawsuits against big companies don't usually name
individual developers only because they don't have the deep pockets, and
because they agreed to testify against their employer confessing their errors
in return for being dropped from the lawsuit.

If you do want coverage, your option is to get E&O (errors and omissions)
insurance which covers liability up to a limit you pay for, and only covers
you during the time you pay for it. So if your program is out in the wild and
you are out of business and 10 years from now it causes data loss and you
didn't maintain those premiums, you could still be tracked down and sued. Not
very likely but remotely possible. The theoretical answer is to continue
paying for E&O forever, or license software only for specific time periods so
you can safely shut down operations if needed.

Again, the chance of being sued is low. If you have insurance, they cover the
cost of defending you in a lawsuit and also make you a less desirable target
because it means there are insurance company lawyers defending against the
claims, so chance of success in a lawsuit is smaller and can only be obtained
at greater cost.

Most likely threat to you is really competitors coming after you with bogus
patent claims, which can easily bankrupt you to fight against. Best way to
avoid that is operate your business from a location that is difficult to bring
legal actions in.

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CatalystFactory
@mrbird

This is very case dependent on what your site or app does.

Should it stop you from building it? Probably not.

If you don't incorporate or incorporate improperly, you'll likely be
personally liable.

There are tax and legal consequences for launching without incorporating. You
can always form later - but what is "ok" is again case dependent.

It would make sense to run your concerns by a lawyer or a community like HN,
but to help we'd need to know more.

(Disclaimer: None of the above is legal advice or forms an attorney client
relationship. The statements above are only for informational purposes and
should be used at your own risk.)

@Staunch

It could be expensive either way, but being properly incorporated potentially
will protect you from personal liability.

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staunch
Whether you're operating as a corporation or not it will still be very
expensive to defend yourself.

If you're doing anything especially risky (torrent site) then setup a company
on day one. Otherwise just put a good ToS on the site and don't worry about
it. IANAL.

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all
You can incorporate later, but the decisions you make as a sole proprietor or
sole trader can come back to haunt you even after incorporation. Your
liability after incorporating will depend on the nature of the app and the way
you bring it into your corporation. If damage results from a problem that a
lawyer can demonstrate pre-existed and should have reasonably been taken care
of before incorporation, you will be in his cross-hairs.

The extent of your liability will depend on where you live (the UK is harsher
on developer responsibilities, IMO). IANAL, but I have worked as both sole
trader and company director. Incorporation is dirt cheap compared to the cost
of liability.

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sgman
> Is it ok to soft-launch, see how it goes, and only form an LLC (or
> equivalent) if/when you establish some growth?

Yes.

