Should I start my software development company as an LLC or Corporation (in CA)?
January 29, 2010 8:10 PM   Subscribe

Should I start my software development company as an LLC or Corporation (in CA)?

While the only developer at the moment is me, I have a marketing plan that should allow for a pretty quick growth rate. Assuming that the company grows as is hoped, I will need to hire in-house developers, support staff, etc. So I need to structure the business well from the start to minimize problems down on the road. That said, there are many considerations here.

Here's a summary some extra information that should help guide the answer-ers:

Short-term

- I have very little money now, some of which I need to reserve for lawyer fees associated with the marketing.

- I will be the only employee during the first few months, but about a month into product launch I intend to start hiring. The business structure should be flexible enough to hire.

- The marketing is structured so that there should be some pretty heavy income right away. The tax structure should be such that I'm not getting taxed as a sole proprietor (per my hiring plan above).

Long-term

- I don't intend to take the company public; the company should stay in private hands, namely mine.

- I would like to be able to use a good deal of profit from this company to fund other projects. The business structure should be flexible enough to allow for this.


I know that's a lot of information right there. I've tried looking up various elements elsewhere, but this is a pretty unique laundry list, so I was hoping that I could get some feedback from other, more knowledgeable individuals.

Disclaimer: And yes, I know that you cannot provide true legal or tax advice here. I understand that all legal or tax advice given here is for purely informational purposes only. I will consult an attorney and tax adviser for true assistance, and will not hold you liable for any information given here.
posted by JoshSmith to Work & Money (6 answers total) 2 users marked this as a favorite
 
I like the LLC. It's maximum flexibility (you don't have to have a board of directors, etc.), but you can get taxed as a corporation. There's zero problem with an LLC hiring employees.
posted by Netzapper at 8:40 PM on January 29, 2010


Form an LLC unless you're planning to take venture capital or something. If a situation arises later that requires a different corporate stucture, you can always reorganize the company, it's not too hard.
posted by signalnine at 8:43 PM on January 29, 2010


This lawyer is confused. What marketing requires legal billings? Please elaborate.
posted by Ironmouth at 11:24 PM on January 29, 2010 [1 favorite]


Talk to a lawyer, etc., but as the owner of an LLC, I don't see any potential problems with it.

Fees and procedures for starting the LLC are surprisingly simple. My accountants (rather than a lawyer) filed everything for me, but if I were to do it again I would do it myself. Obviously this may vary by state.

I also do work for a 100+ LLC, so there's certainly no problem growing.
posted by odinsdream at 5:11 AM on January 30, 2010


The LLC has the added advantage that future maintenance of the entity can be much simpler than with a corporation, which requires adhering to certain formalities in order to keep your limited liability (shareholder/director meeting minutes, more expensive annual fees (typically), etc.). You also have greater flexibility regarding taxation in the future, should you decide that partnership pass-through taxation is more appropriate than corporate taxation.

Private equity groups very often use an organizational structure composed of many many tiers of LLCs to finance and manage their joint ventures, so an LLC can definitely be appropriate for funding other projects.

One additional concern is that if you anticipate being bought out later on, it tends to be much simpler to merge/reorganize/etc., as a corporation rather than an LLC or partnership entity.
posted by frolic at 6:45 AM on January 30, 2010


Since it seems like the question's been effectively answered, a quick aside: It's possible that you have the next best thing since Trader Joe's, and your software's going to explode. It's also possible that you're overly optimistic about what the market response is going to be to your product. You might think about checking out some blogs focused on lean startups ... Eric Ries, Steve Blank, Hiten Shah, and Sean Ellis all have great content. In general, they would all advise you to not do any marketing, whatsoever, until you've achieved "product/market fit."

I'll stop here, since you've maybe already done all that, and you're ready to go. But if those names aren't familiar to you, you would do well to read up on what they've got to say.
posted by Alt F4 at 10:35 AM on January 30, 2010 [2 favorites]


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