Good grief. I am SO sorry to hear about that. What a nightmare!! Sounds like you have your own variety of GBs to deal with. Wow.

Isn’t there a reality show about people breaking the law via interwebs?

I have an attorney here in Denver that has an excellent reputation. I keep meaning to meet with him. I wonder how long I will delude myself into believing I can float by? Really need to meet with him. Need him to go over my contracts, especially. I’m glad you mentioned Terms of Use. I had some anonymous person ask if they could use content from my blog – and then disappeared when I tried to contact them. That scared me a tiny bit. I display my work on my blog (because I’m excited about it and I tend to tell the world when I’m excited), but it’s for SALE elsewhere, or licensed for exclusive use elsewhere, or I just want it all to myself, thanks. Need to use the ToU for certain.

Here’s my horror story. My computer was hacked and everything in it stolen, compromised and destroyed by hackers. They were paid to stalk me and illegally invade my computer. They have been identified by law enforcement and are under criminal investigation. They were offered immunity if they would confirm the suspect ringleader and testify against him. Instead, these MOFO’s have retaliated with threats and claim they will SUE me for upsetting them. Did you ever? I know they are being coached by the person who hired them. But, I was advised to take preventative measures. I posted a Terms of Use on my blogs. Anyone who accesses my blogs and violates my terms of use agrees to indemnify me for any loss they incur as a result of any civil and criminal action (win or lose) I pursue against them as a result of their breach of my terms of use. In otherwards. You hack–You pay the price. California law has its own protection and differs from Oregon or Colorado. I am a legal assistant with years of experience. But, I always advise people to pay for a consult with business atty for the best advice and protection.

The liability issue is a big one for me, too. I don’t have clients meeting me in my studio (I’m fairly remote), so I don’t have to worry about someone tripping over my rug.

What did concern me is the idea that someone could sue me for some aspect of work I had done. This came up recently as I was accepting a contract for a TV animation. My client wanted to be protected against being sued in case I stole somebody else’s work for the piece. Makes sense, but since the liability now fell on me, I then had to protect myself and my family’s personal assets.

Even if the person suing me was wrong and lost, I could still end up paying for lawyers. And, if I lost (even if I didn’t steal anything), I could lose my personal assets (not that they amount to much, but future wages could be garnished).

So the S-Corp offers some protection there (not complete).

Which brings me back to what you said in the beginning of your comment:

Can’t we just click on pretty colors?

When I started freelancing, I just started freelancing. Sat my butt down and started clicking on pretty colors. That’s what I want to do, that’s all I want to do, why make it complicated?

Then I got married. And I met a girl named Becky who was a freelancer. And she was married. And an LLC. Why does that matter? Because Becky informed me that while I’m happy working in my chair, if someone sues me (for whatever reason) all my new husband’s assets are up for grabs, not just mine. This includes his 401k, savings account, all that jazz, even though he has no connection to my work (except an opinion here and there). Why would they sue me? Dunno. There are other types of “creativity” out there. But I worked in law long enough to know that a.) there are greedy bastards out there and b.) those GBs usually have “creative” lawyers that know more than I do about how to protect/get money.

You’d think I’d thought of this before. Nope. Thank you, Becky!

By establishing myself as an LLC, I separated LU Graphics from the Unwin household. I set up a completely separate checking/savings/credit account and Matt is nowhere on any of it. I have to very carefully keep everything – EVERYTHING – separate. If I buy a pack of gum along with a ream of paper, I can’t put it all down as an expense, just the paper. If I want to treat myself to a massage for working long hours, it comes from our personal account, and is transferred from the business account. It’s complicated, but totally necessary.

Then we moved to Colorado. Oy vey. New laws, new rules, no Santa-Barbara-esque little kit. And new ways of calculating depreciation. And new estimated taxes. I already screwed that one up. I transferred the LLC to CO, like a good little LLC-owning monkey and thought I was done. Except… As an LLC in Oregon, my SSN was the same thing as my LLC’s tax ID, and I, the human, was a disregarded entity (I think). I paid my estimated taxes for Q1 in CO and then got a bill for my estimated taxes for Q1. Huh? The check and papers I sent in with was never aligned with my business because the account number was different. Funny thing: when I transferred the LLC to CO, I never received an account number, and was never told I would need one. So that was tricky/annoying. It’s all cleared up now.

Here’s my new startling info:

The other day, I talked to [someone] who is an LLC. Construction business, with contracted workers. He was sued by a client for something stupid (to the tune of nearly half a million). Now he’s in bankruptcy, and his house, his personal assets, and his wife’s assets are up for grabs. I said, oh good grief, I thought that was the very thing being LLC-ified protected you from. He said, not if the other guy has a good lawyer and you don’t. They’ve been battling this for over a year now, and are so far into the process with their crappy lawyer, they can’t afford to hire another, better attorney to get up to speed.

Great. So I have no idea where to put that.

DISCLAIMER: I’m not convinced I’m doing everything right. I’ve done a lot of research, my husband does a lot of research (and my taxes – W00T!), but there’s always this lingering feeling that some Ward Cleaver-looking gentleman is going to knock on my door, briefcase in hand, and tell me I’ve got it all wrong and have to give Colorado all my money and my new Wacom tablet.

If I have to start listing coffee as an asset, shoot me.

@jaydub Yeah, those start-up kits are awesome. Somehow I just got started without one and wound up in the middle of the process. I recommend making it as simple as possible. I’m slightly insane.

I definitely want to hear from Libby, too. Libby?

@Sarah I know. What the hell is an official asset, exactly? I kind of need coffee to get started in the morning, so technically that bag of beans is an asset… right?

It’s people like us that drive government officials and lawyers (er, Vogons) crazy. Salut!

When I was about to set up a business as a sole proprietor in Santa Barbara, I discovered that the city had a nicely packaged business start-up kit for $45. I probably could have ferreted out all the necessary forms and stuff for cheaper, but it was worth every penny. I would urge would-be business owners to see if there’s something like that where they are.

I decided to remain a sole proprietor, as most of my clients were in other cities or overseas, so nobody was going to sue me for falling down my stairs. (Still, I needed $1M of liability insurance, and the HazMat folks made me keep a bag of kitty litter handy for potential darkroom chemical emergencies…) My thinking was that if I incorporated, I’d need to hire a bookkeeper. Then I would have to take on more work to pay for the bookkeeper, so I would have to hire someone to help me, and it looked like a fast road toward becoming what I didn’t want to become.

Paying quarterlies wasn’t all that hard, especially after a few quarters went by and I found the rhythm. A good CPA is worth every penny, and helps you learn what you can declare or not. I was designing t-shirt graphics, so even a trip to Great America was a business deduction – it’s like ground zero for t-shirt ideas.

Sounds like you made a good decision, that will serve you well as you expand SF toward global domination. I’d like to hear Libby’s experiences as an LLC.

If you ever need a bag man to launder cash in the Caymans, call me.