I am trying to find out if it is true or not. He said that if the company I am reselling goes down (bankrupt, etc) then my assets will be seized as well to cover that company's debt. Is that true?? :eek: :angry:

I think it is only true for unlimited company.
However, resellers are mostly unlimited company.

you are not a partner!!!

you are only a customer and then reselling what you already bought!

Originally posted by jfebus
you are not a partner!!!

you are only a customer and then reselling what you already bought!

Get a different lawyer.

Er, I mean, get a second opinion. Somehow, that sounds very not true.

I think your lawyer is an old economy type of guy and doesn't understand what webhosting reselling is.

That sounds like a misunderstanding or an oversimplification of what could be a complicated situation. It's possible that if your provider were to suddenly disappear and you were unable to service your customers, some of them would sue you and you could conceivably lose. Be sure you protect yourself from that as much as possible by limiting your responsibility in your TOS. Of course, that doesn't mean you wouldn't get sued anyway.

But it's not the case that if your provider goes bankrupt, their creditors -- those that have no relationship with you -- would have any recourse against you.

Well i know some web host companies in Australia, Well the BIG BIG ones backed by big big bucks, that if you sign up as a reseller ( As i did around 3 years ago) You have to read there terms and conditions very very well!

They even send you a legal form you have to sign, and alot of the information inthe form gave me the impression of this! That when reselling for the company and signing this form (of course) you got into a legal partnership with PeakH**r etc etc.

I got the feeling if you were technicaly a legal partner that they could try take some of your business assets away from you, due to australian tradiotion i think the ones that started the company leave a day they shut down with huge pay packs - Pay outs and leave the company stranded to the dept collectiors! The next day they have started another operation next door!

Just be careful when putting your name on anything and everything! If your not sure consult your lawyer...

Reselling is totaly diffrent for most companies now. its more like a customer agreement contract rather than a legal binding partnership!

Kind regards to all,

You all have helped ease my mind about that, now the only thing worries me is getting sued. hehe :rolleyes:

Anyone have a suggestion of where I can get TOS's written for this type of business (reselling) perfeferably online or a place that has a How-To instructions on writting one. Thanks again :)

TD

Welcome to the forum, TopDog21 :)

First of all, you are leaps and bounds ahead of many resellers in that at least you consulted a lawyer and are aware of the potential liability.

I would look at everyone's TOS to get ideas for your own.

One of the important paragraphs to include would be to unilaterally limit each party's liablilty to a specific amount. I would suggest that you use the amount of three month's hosting service. That way, if you do get sued, most likely a judge would limit the amount of damages to this amount. The trick to this is that it needs to be the same amount for each party and you need to have an attorney review the wording to make sure that it jives with your local laws.

If you really want to protect your personal assets, you should consider starting a Limited Liability Company (LLC). This is probably the best you can do in terms of protecting your personal assets while enjoying the tax advantages of a regular partnership. Another idea is simply to incorporate your business. Although the corporation does not have as much asset protection advantages as the LLC, it certainly is better than going naked.

If you are in the US, I would suggest that Nevada has probably the best overall fee stucture, as they do not have any state income tax. There are many companies that will form Nevada coporations and LLC's for you (just checkout Google).


Best of luck,


Keith

Originally posted by 4solutions
Another idea is simply to incorporate your business. Although the corporation does not have as much asset protection advantages as the LLC, it certainly is better than going naked.I would disagree with that last sentence. In the US, the LLC construct has been developed specificially to give the same protections afforded corporations, but with a simpler structure and less formality. If you've found that not to be true in a particular state, I'd appreciate a specific reference to differences in the state's Corporation Code or wherever in the state's codes or judicial rulings a lesser level protection or liability limitation might be shown to exist for corporations.

Because I want to learn. And because I'd be surprised that there's a place where the largest companies -- which are almost always corporations -- would allow such a thing to happen!

I also disagree, I guess, with the spirit of the first quoted sentence. Incorporation would in almost every case be more complicated than would the formation of an LLC, so it's not really accurate to say "simply to incorporate" in comparison.

Having said all of that, I'd agree with your basic point: formation of a separate entity would be a good idea for anyone worried about potential business-related liability.

Originally posted by JayC
I would disagree with that last sentence. In the US, the LLC construct has been developed specificially to give the same protections afforded corporations, but with a simpler structure and less formality.

Hi JayC :)

Okay, I did not go into detail because most people do not care to hear about such legal trivia. Basically what I was speaking of was the LLC's ability to invoke the concept of the "charging order" which is a well defined legal precedent that originated and was passed through from limited partnerships.

What the "charging order" precedent says is that even though a limited partnership (or LLC in this case) may lose a case and have a judgement filed against it, it is up to the general partners (or managing partners in the case of an LLC) to decide whether to distribute any distributions of income.

Therefore, in a nutshell, if you won a judgement against our LLC, you might be entitled to any income that we might have. On the other hand, we, the members of the LLC, are going to vote to retain all distributions for the purposes of "reinvestment." Therefore, you as the judgement holder would be in the uncomfortable position of having to pay the income taxes on our income without receiving any actual money from us.

Believe me, a few years of this and any creditor is willing to settle!

All I was saying is that the LLC has this legal precedent, but a simple corporation does not.

Look, I'm not a lawyer and I don't play one on TV ;)

I was just a IRS Tax Examiner for many years and then in private practice as a tax accountant for 15 years. I can tell you fom personal experience that this works.

A corporation, if carefully maintained, can be an excellent legal shield and tax savings vehicle.

But, overall, if you have more than two people involved in a venture, I recommend an LLC.


Regards,


Keith


P.S. - What is your specific take on the matter. You challenged me and I responded. Are you an attorney? An accountant? Someone who has been sued and has been tested like me?

<Edited for spelling --- my Mother told me to stay awake in that class ;) >

I guess I did not address your other question, if I understand it, as to why most larger companies are not LLC's. This is because it would be almost impossible to make every investor a "partner" per say. The corporate form of business allows stock certificates to be freely traded on stock exchanges which is why, I would imagine, most large companies do business as corporations.

Might want to check and see if the ink is dry on his diploma...:D

Originally posted by 4solutions
Look, I'm not a lawyer and I don't play one on TV ;) I like to point out, though, that I did play one in the school play. :)
P.S. - What is your specific take on the matter. You challenged me and I responded. Are you an attorney? An accountant? Someone who has been sued and has been tested like me?Just a guy with a bunch of years in b-school and even more managing and owning businesses of various sizes and structures. And with still a lot to learn.

Thanks for the explanation. I usually try to start such posts as my last one with a qualifier like "it's my understanding..." because I don't really consider myself to be an expert, but as I didn't do so that time I suppose it did come across as a challenge. So, less adversarily... Isn't it the case [g] that a charging order can only be issued against a partnership or, as you point out, an LLC? That is, it'd never even apply to a corporation. And isn't a charging order likely to stem out of a judgement against one of the partners, as opposed to one against the LLC itself?

A corporation, in a similar circumstance, might worry that a creditor might take possession of stock, and should it become a major shareholder it could force a liquidation of the corporation. But in a closely held small corporation, that eventuality could be ruled out through transfer restrictions in the corporate by-laws or buy/sell agreements between the original shareholders, couldn't it? So, is there really an advantage comparing the two on that point?

One point I've often tried to make to people is included in your statement: "A corporation, if carefully maintained, can be an excellent legal shield and tax savings vehicle." Point being, it's an excellent vehicle, but a complex one: it requires more maintenance than the others.

A related point, just as a clarification for me: an LLC can make an election upon formation to have any characterization available under the tax code. So, is it true that the charging order protection as you've explained is only beneficial to an LLC that has elected to be treated as a partnership?

Originally posted by ccreighton
Might want to check and see if the ink is dry on his diploma...:D

Hi Chris...

If you're referring to me, I have a Masters Degree in Taxation from the University of Texas at Austin conferred in 1988...

What are your credentials???


Keith

Originally posted by 4solutions
If you're referring to me, I have a Masters Degree in Taxation from the University of Texas at Austin conferred in 1988...
I suspect he's referring to TopDog21's lawyer. But people should learn to use that "quote" button!

JayC...

The only point that I'm making is that if you're a one man business, then the prudent course of action is to incorporate.

If you have partners (i.e.-real humans or other legal entities) then choose the LLC form of business.

I disagree that one is easier to maintain than the other as far as paperwork is concerned.

Again, anyone interested should consult with their attorney as I am NOT an attorney

Best of luck to all,


Keith

So Incorporating is best for

1) One Owner

and LLC is for

1) 2 or more partners own a percent of the company?

Originally posted by 4solutions


Hi Chris...

If you're referring to me, I have a Masters Degree in Taxation from the University of Texas at Austin conferred in 1988...

What are your credentials???


Keith

4solutions,

Don't get in a twist. The thread began... "What my lawyer said about reselling" so my jest is not intended for you. NO offense intended. ... count to three take a slow deep breath... now exhale...

Your so right, Chris... :D

I sometimes get toooo tense about things.

Sorry for the misunderstanding... no hard feelings I hope.


To Synergy...

Yes, that is my very, very, very humble opinion.

But I am being cautioned big time by my life partner to shut up and again implore you all to seek the advice of local counsel.



That is:

- Professional stunt people - Don't try this at home.

- Your results may vary.

- Do not attempt - Professional drivers on closed course.

-Objects may be more complicated than they appear.


You get the idea....


Keith

Guess What I found :)

www.mycounsel.com

:D

Originally posted by Synergy
www.mycounsel.comThere are lots of lawyers. Those are some of them.

Seems like a lot has come out from this post which is good, seeing the amount of people out there that have no knowledge of satisfying legal requirements within their own state and country. There are a few established hosts that post on this board which do not even have a business registration, or actuall use fictitious registrations, so not being protected legally isnt an uncommon thing in this online market.

Keith is correct in what he has said, although there is also a trend now for the use of "Piercing the corporate veil" legislation to examine actions by those within a business entity, therefore exposing the liability protection if it is found that improper activities were apparent, in relation to a business.

Synergy, in most states one person can start a company whether an LLC or Corporation, with the LLC being a passthrough entity meaning you are taxed like you would be in a partnership. There is an option to apply for an S class which means you are being taxed like a Corporation, but are an LLC. LLC is usually better for smaller businesses, whether one or two people involved, due to the protections over a partnership or sole trader.

Originally posted by 4solutions
Welcome to the forum, TopDog21 :)


Thanks :)

Well in this business venture I would be the sole propreitor (excuse mis-spelling). I intend to expand further if all goes well, so I (in my opinion) will just file for a cert. of assumed name, then in 6 to 8 months file for a LLC or INC. I am not sure which, but either way, I do not intend on having 'partners'. And the only reason I would be filing for LLC or INC would be to give myself more protection.

Only thing worries me now is charge backs, but thats a whole different story :rolleyes:

Thanks to all who responded.

Originally posted by 4solutions

I would suggest that you use the amount of three month's hosting service. That way, if you do get sued, most likely a judge would limit the amount of damages to this amount.



When you say limiting to three months service. Why would a reseller be responsible for months unless they were pre-paid?

Originally posted by TopDog21
When you say limiting to three months service. Why would a reseller be responsible for months unless they were pre-paid? The point, as 4solutions said in the section of his post right before what you quoted, is to state a maximum amount of monetary damages for which you can be held liable in the event of your being found negligent, and to have your client agree to it by accepting your terms. "Three months" isn't really significant of anything; you could say "$100" or something instead. But it makes sense to link the amount of damages to the value of the hosting account in question.

If you are sued and end up in court, it's possible that a judge will award more than the limit you've stated anyway. But it's likely that if it seems that you've taken a reasonable approach to specifying the limit (that is, if you said a limit of one dollar it's not likely a judge would find it reasonable) it would hold up.

I agree, simply put it in your terms of service that you cannot be held liable for more than X amount of money due to the parent company's failure to provide the service. Heck, couldn't you even put a clause in there stating you are not held liable for downtimes caused by the parent company? I mean some bungy-jumping companies make you sign a waiver saying that if their equipment fails they are not responsible!

And, no I am not a lawyer either, just running off common sense, something most lawyers should try to do as well, though I think few do (hehe, that should get a few flames!):stickout

If the objective is to truly limit the responsibility and liability issue then it must start at the beginning. This means examining all your operations and advertising which is known as an offer.

Use of 99.5% uptime guarantees are potentially asking for trouble since its implying to the customer that you guarantee that your services offered will therefore be guaranteed and any subsequent clauses in terms and conditions could be nullified due to the non-explicit reference to the terms and conditions.

Within the terms and conditions itself, use of a properly written out contract has more weight than setting out monetary amounts that could work actually against your business, opposed to providing assurances to liability. If the idea is to limit liability, then the use of a lawyer to verify the legal standing of a terms and conditions utilised would have more benefit.

This contract would imply responsibilities of your business including provision of services, etc, and those of the customer such as backups, security issues like passwords not being given out, and proper use of the service.

If you felt it neccesary to look after the customer's interests, then implementation of a SLA would then provide a monetary figure just as companies give like worldcom to it's customers, for connectivity issues.

Contract laws also in the end have the final say in these matters with differend remedies being used when a breach of contract has been committed by one of the parties. What you put in a contract is one thing, but it goes as far as to what you say is liability overall for your business, and not to what the absolute liability may be under the laws of your state or country.