Ask HN: Starting a one-man app business. LLC?

https://news.ycombinator.com/item?id=5830034

by archagon • 13 years ago

6 8 13 years ago

news.ycombinator.com

I'm going to be working on a few apps, and I'd like to make sure I have all my bases covered from the business side. Due to the onslaught of patent trolls recently, it seems like an LLC would be a good idea. However:

1. Some people say that LLCs provide minimal to no protection for single-person businesses. Is this true?

2. I'm in California, and there's a hefty $800 tax on LLCs. However, it's likely I won't be doing most of my development in California, as I'm also going to be travelling for the next year (or longer). There won't be an office or any other employees — it'll just be me and my laptop. Can I create my LLC in a state with lower taxes? Will the fact that I'm a legal resident of California complicate matters? In particular, I'm worried about d_r's comment from a couple of years ago: "One caveat for those conducting business from California is that you have to pay the CA $800 franchise tax even if you incorporate in another state." (https://news.ycombinator.com/item?id=2399803)

3. Is it a good idea to create an LLC for each of my apps, or is one more than enough?

4. If I form an LLC, should I create a separate bank account for the business, or is it enough to just do careful bookkeeping on my personal accounts?

5. How risky is it to forego the LLC and just be a sole proprietor?

Any advice (or pointers to reading material) would be much appreciated. Thank you!

Codhisattva• 13 years ago

Lawyer time. And accountant time. Check out NOLO Press for some of the best readable information (aka books) on starting a business in California.

lifeguard• 13 years ago

5. How risky is it to forego the LLC and just be a sole proprietor?

Do you have people who depend on you? Do you own a house, car, or other nice things? If so then incorporate. If not, wait until you are making money then do it.

One plus of CA is you don't have to pay quarterly taxes the first year.

Use accounting software: http://gnucash.org/

staunch• 13 years ago

Not a lawyer or accountant. Not an expert. This is not legal advice. Real lawyers won't (can't) give specific advice on a public forum.

+++++++++++++ THIS IS NOT LEGAL ADVICE +++++++++++++

1. If you treat the business like a real business it should offer you personal liability protection. Treat the business as if you had other stockholders besides yourself. Do not treat it like your personal thing. Do not mingle its assets/finances/IP with yours.

2. If you operate the business from California you have to pay the California franchise tax. If you use any California addresses while registering the LLC or for your bank you probably qualify. Doesn't usually pay to play games with taxes. They should have a discounted fee for tiny companies...$800 is annoying.

3. One is probably enough. If you were doing something especially risky (e.g. taking on a big contract for another company) it could potentially be a good idea to have a separate LLC for that.

4. Absolutely maintain an entirely separate account for the business. Get this account at a bank different than your personal one, just to keep it that much more separate. They're cheap/free.

5. It's not that risky, if you're not doing anything risky. But they provide liability protection and some legitimacy. Keep in mind that nothing protects you against criminal liability. Crimes like fraud or tax evasion are just as illegal with or without a company to hide behind.

If $800 isn't too big deal to you, then I'd say there's no question you should create an LLC. But if it's a lot, and you're not doing anything crazy, you can probably afford to wait until $800 is a no brainer.

Filing an LLC in CA is a trivial one page form[1] and $70. Do it yourself. Search[2] to see if your name is available (choose something that isn't too similar to an existing name).

+++++++++++++ THIS IS NOT LEGAL ADVICE +++++++++++++

1. http://www.sos.ca.gov/business/llc/forms/llc-1.pdf

2. http://kepler.sos.ca.gov/

smartician• 13 years ago

I've been looking into this, and at least in California the benefit of incorporation are quite limited compared to its cost. See http://en.wikipedia.org/wiki/Piercing_the_corporate_veil

Patent trolls are also a concern to me, especially since I do have some personal assets I'd like to protect. Maybe getting some type of insurance might be a good idea?

damoncali• 13 years ago

Get yourself a lawyer. A good one can do this for surprisingly little money - a few hundred bucks.

Using separate entities can make sense under certain circumstances, but keep in mind that every one of them has its own paperwork, its own fees, and its own tax return. If $800 is a lot of money, I doubt very much that you want to do this. You can always split it up later.

Also, you will not be able to avoid taxes by incorporating in another state. California is going to be a pain in the ass. Just the way it is. If you don't like that, move to Texas, or better yet, Wyoming.

One thing to consider: if you have an LLC with one member (owner), you can have the IRS treat it as a "disregarded entity" which saves you a some work on tax day. You basically fold the business taxes into your personal taxes and file one return. You still must keep everything (bank accounts, etc) separate for the business - keep the books on the business just like normal. But for taxes, it's all the same and it makes life a little easier. Unfortunately, I don't think the states care, so you still have to deal with them.

As for risk, that depends entirely on what you are doing. If you are selling gunpowder, it's a little different than peddling fart jokes. Nobody can answer that for you.

tptacek• 13 years ago

Not a lawyer, but have some experience.

1. No, that is not true.

2. No idea.

3. No, one LLC is enough; if you ever need to create multiple companies, you'll know why you're doing it.

4. Use a separate business account; insulate your finances from the business.

5. Shorthand: In both a sole proprietorship and an LLC, you can lose your house if sued for negligence. But in an sole proprietorship, you can also lose your house if you're sued for failing to fulfill a contract. Moreover, my freelancing and consulting friends who have tried to operate as sole proprietorships have regularly reported to me that their clients refuse to deal business- to- business with them, but instead demand arrangements where they deduct taxes; not being incorporated can also cost you deals, or make it trickier to get insurance.

You should incorporate.

rush-tea• 13 years ago

NOTE: I am not a lawyer. This is not a legal advise.

I am also in the same situation as yours as I am working on a peer to peer marketplace.

I am afraid of the lawsuit and liability. I think for starter, you can do DBA first, then if your business makes money (meaning it gets traction) and as soon as you get $800 revenue to pay tax, then you can go LLC to protect yourself. Why spend $800 on overhead (tax) if you don't know if your apps are going to make you money?

I think this is what I am going to do (unless there is a big liability on DBA)

Can anyone recommend good insurance for business that I can start looking at?

Thanks.

dynabros• 13 years ago

1. False

2. My understanding of the law is if you have no employees in the state and no office, you're location-less. I believe you can incorporate anywhere you want. You dont even need a physical address in the state, use a registered agent.

4. Get a separate bank account. All you need is articles of incorporation and a tax ID.

5. IMHO any time you're taking money, protect your ASSets and incorporate.

FYI - Don't hire a lawyer to incorporate for you. Download the files and mail them yourself. Its sooo easy, takes 5 minutes.

Ask HN: Starting a one-man app business. LLC?

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