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I am looking on taking my first job as a freelance developer and the project involves ecommerce. We are starting to get to the contract talks and I wanted to make sure if anything goes horrible wrong in the event of hacking or loss of money from their store being down. I am not open to be sued personal and have my personal assets at risk. If I created an LLC for my freelance work would this protect me from losing an personal assets in the case of a lawsuit?

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An LLC (subject to exceptions that authorize piercing the corporate veil, the most common of which are co-mingling personal and LLC funds without proper documentation and fraudulent transfers such as distributions of profits from the LLC to the owner while the LLC is insolvent or facing litigation) protects its owners from personal liability for obligations of the LLC in tort or in contract, in their capacity as owners of the LLC.

If the LLC is a party to a contract which the owner does not guarantee, the LLC is very good protection against personal liability for the contractual debts of the LLC (of course, the property of the LLC itself, including its intellectual property, is subject to the LLC's creditors claims).

If the LLC is sued for a tort, the protection is less perfect because in addition to suing an LLC for a tort (since the LLC is vicariously liable for anything done by its employees or agents under the doctrine of respondiat superior) anyone who personally participated in tortious activity may be sued personally, rather than as an agent of the LLC, for their own personal tortious actions.

For example, suppose that the LLC sold software that contained code that embezzled funds from the customer's bank accounts and gave the money to the Salvation Army which had no involvement whatsoever in creating the software (a Robin Hood virus). This would be tortious (probably conversion or civil theft, at a minimum), and the LLC would be liable in tort for this tortious act because it was committed by someone acting on its behalf. But, the human being who actually wrote that code while working for the LLC would also be personally liable in tort for the harm caused because they personally participated in that tort. But, if that person's manager at the LLC never knew that this was done by the employee, the manager would not have personal liability.

Of course, nothing under the sun can prevent you from being sued. Anyone with a word processor, the filing fee and a process server can sue you for anything. The substantive law can make it more or less likely that you will be found by the court to have legal liability in the end. Also, some suits can be dismissed early in the process, while in the case of other suits, even if you are in the right, it can take a long court process to prove that fact.

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  • It might be worthwhile to mention insurance
    – Dale M
    Jul 13 '17 at 22:34
  • @DaleM Insurance is indeed the first line of defense in asset protection, but isn't very useful to a software developer because there are almost always exceptions for contractual liability, many kinds of other business activities and intentional acts.
    – ohwilleke
    Jul 14 '17 at 15:56
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Generally speaking forming an LLC and doing business as the LLC protects your personal property. Assuming you follow all proper procedures to set it up and run it ethically. With regards to contracts it never hurts to have a legal expert look it over and even with starting a business talking to a lawyer practicing in the state you are incorporating in is probably not a bad idea.

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