Can anyone tell me how to protect myself when it comes to starting a hosting company. what are some important items i need to take into consideration.

brian

You may want to register as an LLC or Corporation to help limit your liability incase anything bad occurs.

Lubby,
Well i have already went to my town hall and filled out the paper work saying i am a company. i had to pay $30. and it lasts for 4 years. is that the same thing?

brian

Hi BLBProductions,

I would consult with an attorney because most local and state laws are different and what might be good for some, won't be for others. Incorporation is not always the answer for everyone and their are numerous other ways to protect yourself such as additional homeowners insurance or an umbrella to cover your home based business. Like my accountant told me when I asked him about incorporating...He said "Howard Hughs never incorporated"

That being said, I would still consult with your attorney and/or accountant to provide you with good solid and legal advice.

I hope this has helped!

It is definitely good advice to contact an attorney, as Ken suggests. That is the only "100%" way to get bonafide advice.

Most of the time, by incorporating as a corporation or LLC will give you a lot of personal liability protection IF you make sure to keep your corporate books in order and your banking separated between business & personal to avoid any "piercing of the corporate veil".

Some tips on protecting your business and yourself:

1. Incorporate as a Subchapter S corporation (if applicable in your state) or an Limited Liablility Company (LLC). Incorporation will give you some legal protection and assure customers that you are a serious candidate for their web hosting needs. There are many companies on the internet that offer "packages" to accomplish this task. An attorney will also be able to do this, but at a higher cost most of the time.

2. The U.S. tax system is complicated so an accurate record system is essential for tax purposes. I use Quickbooks Pro. A good C.P.A. to do your tax forms is essential so you do not get into trouble with Federal, State, and local governments. When you start making money, there are many methods of reducing your tax burden.

3. Get a checking account for your business.

4. You should apply for a credit card, either personal or business and use this card exclusively for business purposes. Many things like gas and restaurants for business purposes create some tax deductions for a business. Use the card for all business expenses that are not practical to use checks for.

5. Once the company has established itself as profitable, insure yourself with a "General Liability Policy." This covers most of your potential legal and liablity problems.

6. Find an Acceptable Use Policy on the Internet that will give you the right to remove any customers or content at any time. Put this link on your website on every page.

7. Get a credit card merchant account with a provider that has a direct gateway to MC, VISA, and AMEX. This will eliminate delays in getting your money when people pay. Multiple gateways may cause a delay in you getting your funds.

8. Verify new customers via telephone to insure that they are legitimate. You can also use credit card fraud detection servcies available on the Internet. You can accept checks, but don't believe the line "Your check is in the mail." If they don't pay turn them off until you receive thier money, otherwise you will be an involuntary free hosting company.

This is not a complete list of what you will need, but I find the above to be the most important things to consider when you start your business.


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Originally posted by BLBProductions
Lubby,
Well i have already went to my town hall and filled out the paper work saying i am a company. i had to pay $30. and it lasts for 4 years. is that the same thing?

brian

If you are in the US, this is not the same as an LLC or Inc. This is simply a DBA (Doing Business As) registration. You are still a sole proprietor, and liable personally for the actions, debts, and legal issues of your company. Technically, this is not a company, just a sole prop setup. A company, or corporation, is a separate legal entity.

If you are looking for legal protection, LLC (Limited Liability Company) is the best route for a one person operation. It's flexible and provides the legal protections of a corporation. You would register with your state to create an LLC. The local government has nothing to do with it, unless you wanted the LLC to operate under a different DBA name, in which case your county government must issue this DBA name.

Good luck.

Insurance?
Hi everyone. Does anyone have insurance (for public liability) for their host?? If you do, could you please explain what company you chose and why. Thanks!

an llc just makes you a separate legal entity from your business. People can still sue you and win if it turns out you were somehow negligent in your administration of the llc. Like if you put a server in a DC and your llc pays the bills, but you put dynomite on your cpu sink and it blows up the DC, you can assume you'll get reamed legally.

Most people aren't stupid, and if they are, they'll definitely need an attorney to sue you for anything. So, a non-stupid person or an attorney will know that there's no point in going after a business with no money or the person behind it who also has no money. Actually, the attorney won't care... he'd just not do it for a percentage, and then the guy trying to sue you couldn't afford it. Either way, if you don't have any money, chances are you're not even going to get served for anything that could POSSIBLY happen during the course of hosting.

Now, if you DO have money... well you wouldn't need to ask how to protect it since that's knowledge that comes with money, otherwise you wouldn't have kept it long enough to be worried about it.

If you live in the US, your best defense is not to have any money. I've been sued for getting run over. I swear it's 'cause the car I was getting out of was a BMW (not mine) and I had decent pants on. The dude had no chance of winning, but he wanted to scare me into paying him something without the court order. Small claims suits are incredibly cheap, so idiots will come after you for a few hundred here and there 'cause it takes like 15 bucks to file. The best defense against them is to not do business with anyone within 5 hours' car trip from your county court. (us) 'cause most peoples' willingness to sue falls off quickly when actual labor on their part is required to even file.

Also make them sign your contract and mail it to you. It's not necessarily any better if you ARE taken to court, but people tend to get less stupid when you have something that has their name written in ink on it. Sometimes it even works if you SAY you have it and when when they might have signed it was so long ago they can't remember that they never even DID sign it.

Also don't do business with people who right off the bat start causing problems. No customer's 5/month is worth the headache involved in a possible suit and/or just the weekly dealing with some idiot who always thinks everything's everyone else's fault and that the world (via the justice system) owes him something.

This thread brought back all these memories of dealing with idiots...

Originally posted by telnettro
an llc just makes you a separate legal entity from your business. People can still sue you and win if it turns out you were somehow negligent in your administration of the llc. Like if you put a server in a DC and your llc pays the bills, but you put dynomite on your cpu sink and it blows up the DC, you can assume you'll get reamed legally.

I assumed that the statement you are making here was obvious. Also, there's a bit more to an LLC than that. Yes, if a judge finds that you and your company are not truly separate (i.e. - you mix funds - yours and the LLC's - in the same bank account, etc.), he or she can "pierce the corporate veil" and allow you to be sued instead of your company.

if you don't have any money, chances are you're not even going to get served for anything that could POSSIBLY happen during the course of hosting.

Also, telling someone to not have any money is hardly helpful here, since this person would be starting a business to eventually make money. At that point, he would want to create some legal entity as a liability protection, and to provide a level of professionalism that a sole proprietorship cannot give him. He should have done this in the beginning, so that things were easier in the long run. In addition, "having money" does not mean having $1 million in the bank. It means owning your own house, your own car, or having several thousand dollars saved in the bank for your kids' college tuition.

Also make them sign your contract and mail it to you.

This is a little unrealistic in this business. Making a customer sign a contract for hosting is not the norm, and he would certainly lose customers. You mention "$5/month" in your post as well. If he is catering to that level of clientele, he would not be getting them to sign contracts. Now, if he were dealing with businesses that were paying hundreds per month, yes, a signed contract would be the right route to go.

Sometimes it even works if you SAY you have it and when when they might have signed it was so long ago they can't remember that they never even DID sign it.

This would be lying, plain and simple. One could argue that it's just "not right" to lie to a customer. One could better argue that if a customer's intent is to sue you, this lie will not work. The fact is, the first thing I would do if I were a customer and you said this to me is ask you to please fax a copy of what I signed to my attorney. At that point, your lie falls apart and makes you look weaker than I may have thought you were in the first place.

In addtion, this is hardly a real answer to his question. He's looking for real liability protection. This gives him a bluff, at best. I'm not sure he wants to go around bluffing his customers or potential legal adversaries. Having actual legal liability protection is what he is (and should be) looking for in the first place.

No, an LLC will not completely protect you from everything. Neither will a corporation or partnership. It will, however, give you the legal protections of a corporation, without the tax requirements, and many other requirements, that a corporation brings with it. It's typically easier to form than a corporation, and, in most states, does not require income tax to ever be paid at the state level. Federally, there is no income tax on the LLC. The income from the LLC simply passes through to its members (owners) and they pay taxes on it as their own income.

I think you are steering him away from creating any liability protection at all, and that's not a smart idea. Regardless of your own legal issues in the past, creating an LLC (or Corporation, or parternership) is simply good practice and will shield him in many, if not most, if not all, cases from personal liability.

the point was that protecting yourself/company and your/its assets goes way beyond setting up an llc. The rest of the point was don't waste money and time protecting something you don't have (yet).

Originally posted by telnettro
the point was that protecting yourself/company and your/its assets goes way beyond setting up an llc. The rest of the point was don't waste money and time protecting something you don't have (yet).

Understood, however, I disagree that setting up an LLC, from the beginning, considering the small amount of money it will cost to do so, is a waste of money. It will be more expensive to do so later, when you factor in the time it will take to switch bank accounts, merchant accounts (what will happen to the old merchant account, especially if you have a three year contract with a cancellation penalty), etc. Switching things from one company to another (and it would be a new company) is time-consuming. It can also be costly. And regarding protecting things that you don't already have...you may already have a house, or a car that you own. You don't have to have a successful business to own property that someone else can take away from you in a personal lawsuit. Many people have something to lose from day one when they start a business.

I agree, however, that an LLC is not the answer to all problems or questions about liability protection. Creating a company is not the only answer, but it is the logical start, in my opinion.

In the end, talk to an attorney, because I am not one.

I'm going to be writting up a TOS that they have to agree with before they buy the package.

The one thing that im sure to include will be that i will give a one month notice that if for some reason i stopped hosting. So they could find a new host.

That a good idea?

Originally posted by pieszbob1
I'm going to be writting up a TOS that they have to agree with before they buy the package.

The one thing that im sure to include will be that i will give a one month notice that if for some reason i stopped hosting. So they could find a new host.

That a good idea?

This would be nice for your customers, but keep something in mind. If you word it improperly, you could void any part of the TOS that states you can cancel a client's account at any time for any reason. The issue with this will come when you have a client who is abusing your service. He or she could, if they were so inclined, sue you based on the fact that you told them you'd give them a month's notice. Also, what happens if you go out of business for medical reasons, or something unexpected? You could have multiple clients suing you at that point. You have to weigh the good against the bad. Will this provision in the contract bring in customers? What is your liability with this provision in the contract? Which is worth more to you, the customers it brings in, or the limited liability you gain by not including it?

Originally posted by BLBProductions
Can anyone tell me how to protect myself when it comes to starting a hosting company.

Don't stack the servers too high, they can fall over on you! Buy a gun if you keep lots of cash on hand.

(wow, my first post!)

If you decide to make a company, here's what you remember:

Limited Liability - this comes in the form of anything other than a standard sole proprietership or partnership. Limited Liability Company, Limited Liability Partnership, or Corporation, have such. Keep your accounts seperated completely, with no personal charges of any kind being made with a company account, and vise versa. This will keep you mostly protected from anyone attempting to pierce the corporate veil (suing you and accessing your own personal funds for damages, etc). Sole proprieterships and partnerships do not protect you in any way from damages or liability.

Taxes - Partnerships, LLP's, LLC's and Corporations that *elect to be S Corporations* are taxed as *partnerships* (considered to be "tax conduits" by the IRS). They are not taxed on profits and file a different tax form, and the income after expenses goes straight to the owners, who report that income on their own returns. C Corporations are taxed as an individual however, so the companies profits are taxed before going to the owner. I highly recommend an llc or llp or S Corp for tax purposes (though odd as this sounds, the IRS says "if you act like a C Corp, we'll tax you like one, no matter who you are" :rolleyes: ).

Business Write-offs - you can write off a large degree of expenses off, so keep all your reciepts and charges duly noted and recorded. Immaculate books are a must to get every cent conserved that you can. However, not everything gets fully written off - meals, driving, gas, etc can have restrictions on the degree you can write off. I suggest consulting a CPA to make sure of what can be written off and how.

Costs of incorporating or getting a DBA - these vary from state to state and even county/municipality. I myself set up a holding company LLC that owns all assets and infrastructure, and then another LLC that is the actual service provider. The service provider leases the equipment from the holding company. This is more expensive in California however, but I also have several other companies, thus the reason for a holding company.

This is what I can remember off the top of my head, so I may have missed something there. Hope this answers some of your questions. :)

Very nicely put. My advice to anyone looking to start their own company is to give great consideration at forming a Limited Liability Company. Very flexible, and as previously stated, not taxed at the corporate level.

However, there is always an exception. While the IRS does not tax an LLC at the corp level, SOME states do. There are a few that will tax the company as a separate entity, so check your state laws. I believe that PA does, while NJ does not, so it varies. Do your research, talk to a lawyer.

Originally posted by dmetzcher
Very nicely put. My advice to anyone looking to start their own company is to give great consideration at forming a Limited Liability Company. Very flexible, and as previously stated, not taxed at the corporate level.

However, there is always an exception. While the IRS does not tax an LLC at the corp level, SOME states do. There are a few that will tax the company as a separate entity, so check your state laws. I believe that PA does, while NJ does not, so it varies. Do your research, talk to a lawyer.

Good point, I'd neglected to note that in there.

Buy business insurance. Whatever business entity you create, you can't afford not to get business insurance. They are not that expensive.