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macrophyllum · Mar 3, 2003, 11:50 AM

I am thinking of starting my own company for the software that I sell. I have a few books that I have been reading, but I haven't figured out which is the best option. It seems that they all have their pluses and minuses.

Doing an L.L.C you limit your liability, but it costs more and there is more paperwork.

Sole proprietary is cheaper and easier, but your personal assets will not be protected in any lawsuit.

What do you own/have/or work for?

Timo · Mar 3, 2003, 11:54 AM

PLLC.

type_r503 · Mar 3, 2003, 01:17 PM

I think it is around $600 to set up a corporation in CA. You should know that simply establishing a corp and such will not fully protect you. There is always a way to get your money, gotta love lawyers.

type R

tikki · Mar 3, 2003, 07:06 PM

What about liability for Joe Shareware Developer?

I am almost complete with my first project, and I am trying to decide whether to sell it or go freeware. I am worried mostly about liability (i am paranoid) and whether Uncle Sam is going to want some of my $$$ that I hopefully would make.

Anyone have experience they want to share?

lfrog2 · Mar 5, 2003, 12:28 PM

I am set up as an S-Corp. This confers the protection of a C-Corp (what we normally think of as a corportation) but allows net income to fall to your personal income tax directly (no dividends). The selection between the two generally revolves around the net income and your marginal tax bracket. I believe all C-Corp income is taxed at the 35% level, so most individuals benefit from the S-Corp structure since their marginal tax bracket is below the 35% level. Also, the case law is well established on S-Corps and "piercing the corporate veil" while possible, is still difficult.

On LLCs, you will need to check the laws of the state that you create your LLCs in. LLCs are still a relatively new legal entity in the United States (vs in the UK) and are governed by State Law. The result is that although LLCs share simalarities between states, their are also differences in requirements and in structure (ie. what protection they afford). The case law on LLCs is not as well established as that for S-Corps. LLCs are generally a good vehicle for Real Estate investments.

I would check with a Lawyer. Some lawyers do not charge for the initial consultation, only of the filing of the papers. I am in Texas where filing is inexpensive and the corporate governance laws are favorable to the corporation. Other states have less favorable governance laws, besides having corporate income taxes.:-)

With either LLC or S-Corp, you will still get to file some fun forms with the IRS.

The above assumes that you are in the United States.

smeger · Mar 5, 2003, 04:49 PM

Can anyone describe the approximate expenditure in money and time necessary to set up either an LLC or an S-Corp?

Does one provide an income tax benefit over the other?

I'm having a tough time deciding which to form (good timing on posting this thread, macrophyllum).

And while we're on the subject, I'd be interested in hearing about how people legally protect their software. Do you trademark, tradeword, sevice-mark, file with the Library of Congress, send yourself a registered letter, what?

lfrog2 · Mar 5, 2003, 05:32 PM

Originally posted by smeger:
Can anyone describe the approximate expenditure in money and time necessary to set up either an LLC or an S-Corp?

Does one provide an income tax benefit over the other?

Note I am not a lawyer!

Expenditures depend on the filing fee and how much you do yourself. In Texas it is approximately $250 filing fee for either LLC or an S-Corp. To do an S-Corp you incorporate and send (mail or fax) the IRS an SS-4 form requesting S-Corp status. A lawyer doing all the work costs $600-$1000. This also includes a comprehensive trademark search. The trademark search will include DBAs and Case Law. The lawyer will also make sure you fill out the appropriate forms, do your required minutes, write up you bylaws, etc.

As far as income taxes go, I do not know of any difference between the two, but there may be in the Federal Tax Code. I was advised to go LLC for a software and professional services business. Once again, a lawyer or CPA will be able to give you details. It seems that for the most part, there is little difference. In both situations the net income falls through to the personal income tax of the owners. A LLC is owned by members and a S-Corp is owned by shareholders. The S-Corp is run by officers, the LLC is run by managers. In both situation, probably you.

It may seem like a hard decision since they are so similar. This would be done if your company was very successful and your personal income rose to much. Of course there are large companies that are also LLCs.

Google turns up many good hits. Here is one with an easy chart: http://www.internetlegal.com/comparisoncht.htm

macrophyllum · Mar 5, 2003, 05:41 PM

I bought a book on the subject and it strongly encouraged people to incorporate in Deleware because they have many corporate friendly laws (e.g. you can change your own bilaws fairly easily).

I just started an LLC in Deleware. I did it online www.llc.com for about $350.

I chose an LLC because it seemd like a *little* less paperwork and I don't want to have stock.

lfrog2 · Mar 6, 2003, 11:04 AM

Originally posted by macrophyllum:
I bought a book on the subject and it strongly encouraged people to incorporate in Deleware because they have many corporate friendly laws (e.g. you can change your own bilaws fairly easily).

I just started an LLC in Deleware. I did it online www.llc.com for about $350.

I chose an LLC because it seemd like a *little* less paperwork and I don't want to have stock.

If your in Texas, do not bother with the additional cost of incorporating in Deleware. Texas laws are just as friendly. I also hear Nevada has "friendly" laws.

CheesePuff · Mar 6, 2003, 07:20 PM

Actually, a lot of people who choose to incorportate their business do so in Delaware because of the price and as said above, friendliness of laws.

lfrog2 · Mar 10, 2003, 08:37 AM

Originally posted by CheesePuff:
Actually, a lot of people who choose to incorportate their business do so in Delaware because of the price and as said above, friendliness of laws.

I agree for some Deleware is a good choice. My first business was incorporated in Deleware. We are in the process of moving the incorporation for that business to Texas since dealing with the incorporation in Delaware was a pain, for us, and we got tired of paying the registered agent fee. Their tax is not bad as long as you are small. For us, overall the ease of doing the little bit of tax filing (small in both states) and the locality made Texas a better choice for us. I would always suggest someone spend $100 to talk to a lawyer in the field. Some lawyers don't even charge for the consultation.