As a sole proprietor, there is absolutely no benefit to incorporation (or running as an LLC). It is pointless overhead. There is no tax advantage (at least not for modest levels of income) and there is no liability advantage. This stems from the fact that you can always be held personally liable for anything you do whether acting as yourself or as the officer of a company. As the company's only officer, you can be held personally liable for anything your company does. The corporate veil is easily pierced in a one person business.

There may be some value of running as an LLC or corporation rather than as a partnership as this protects you personally from the stupidity of your partner. Perhaps, I am over-cautious, however, as I would never even consider going into business with someone where I thought there was any chance of him screwing me over intentionally or by accident.

Finally, if you start having employees, incorporating might be worthwhile to protect you from the stupid actions of your employees.

While it's true that an LLC or other corporate entity CAN protect you from personal liability, it's only a starting point. To insure that the entity is respected (meaning it's assets alone are solely liable for satisfying any judgment) it's important to do at least the following (not an exclusive list): 1. when you form the company, have a decent amount of capital in the company's bank account (yes a separate account in the company's name); 2. make sure you follow all corporate formalities, including: (a) regular meetings with minutes (b) updated books and records containing minutes, authorizations/resolutions for company officers to act on behalf of the company, etc. 3. Try to have more than just yourself as an officer (have more than one officer); 4. Keep separate accounts and don't commingle personal and corporate money; 5. Purchase a reasonable amount of liability insurance; 6. Make all required federal and state filings (including employment development department, etc.)

I always get the feeling that lots of startup entrepreneurs get the impression that just setting up a corporation through an online provider is the end of the process, in reality it's just the beginning. If you don't follow through you might as well save your money and just operate as a sole proprietorship.

Thank you, that's a very detailed list of things to remember and take care of. I've heard of 'piercing the corporate veil' in cases of gross negligence on behalf of the business, so nothing protects a person fully, but it sounds like there are definitely more harmless ways it can happen, too.

Spending an hour or two with your accountant is cheaper than getting raked by banks or tax authorities.

Is there a book out there that describes how to run a limited liability company in various jurisdictions, effectively "open sourcing" the company process for small players? Even better if it's coupled with code that guides you though the process.

I'm pretty sure there are 50 such books, one per state. OK, maybe not 50, because I'm not sure every state defines an LLC structure. But certainly you can find shelves full of books on "How to incorporate and run a NC LLC" or "How to start an LLC in California" etc. They explain all the paperwork necessary to file your LLC, talk about the reporting requirements, etc., and explain the stuff about required meetings, minutes, etc. Basically, all the nit picky bureaucratic details of keeping the State happy about your LLC. There are separate books on dealing with the tax side of things, so you'll find titles like "LLC Taxation for Small Businesses" etc. Can't remember if those are usually state specific or not.

Of course, if you choose to incorporate your own LLC (or C-corp or S-corp or whatever) there's always risk in that vs. hiring a professional to do it for you. I'm not really suggesting one approach or the other, but FWIW, I chose to incorporate our NC LLC myself by using one of those books and the stuff from the appropriate NC gov website.

But, also FWIW, if/when the day comes that we start trying to raise outside money or doing any complicated deals involving ownership/equity, we'll reincorporate as a Delaware C-corp, and I expect to hire a seasoned lawyer who specializes in that kind of thing, to take care of that.

Lawyers and accountants just aren't that expensive. Really. For the common case ("I just want to set up a company") you could be in and out in an hour and face only a moderate premium over the underlying fees.

I mean I don't try to do my own dentistry. And like others on HN I make fun of people who think they can program after doing a mail merge.

So why would I try to do my own legal and accounting stuff? Given the potential downsides, that's just crazy.

Why? Curiosity.

The chances are that once I knew more about it, I'd think it's crazy too, especially for the general case. I'm curious whether it is possible to reduce the difficulty of operating as a single person limited liability company to the same level of difficulty as operating as a sole-trader.

I'm Australian, I own a Pty Ltd.

The limit of my complexity is occasionally emailing my accountant to ask whether to book things against me or the company.

The people I work for require me to be incorporated, so that pretty much settles that.

As for curiousity: again, I just ask the professionals. They are likely to give me a correct answer.

I do sometimes look things up myself, but there's always the nagging doubt that I've mistaken a technical term for its common meaning, or that I lack some key conceptual framework or whathaveyou.

One relatively cheap way to learn about how to observe corporate formalities is to google "legal MCLE" in your state of incorporation/residence/doing business and look for a one hour MCLE course that covers the subject. It will be cheap ($20 or less) and you will have no problem understanding the content. It may also come with checklists and a presentation. I just finished my legal MCLE requirements for California and there are tons of valuable information for entrepreneurs on these types of basic subjects that you can access much more cheaply than using a lawyer.

I've never looked, I don't know. It's an interesting thought though. Googling 'california llc' gives me the impression that there are plenty of commercial providers who will fill the forms for you. I doubt there's an open source version of these webapps.