Should we form an LLC for app income or is there another option?

September 30, 2016 12:32 PM

Hey all, A friend and I are launching an app soon. It's based on an established property and we expect to make at least a small amount of money, maybe ~10k, but who knows. In order to sort out the financial end of this, my original plan was just to form an LLC to establish the partnership and receive income from ads & purchases. Is this our best option?

YANA Lawyer or an Accountant, but my questions is: Is it worth it? Alternately, is there some kind of middleman, reception agent that could take in the income and distribute it? Or if we're anticipating making at least the cost of the filing fees, does this become a moot point?

I'm basically trying to get a survey of our options. There's an additional concern about the filing time for the LLC being a hold up/ bottle neck on our release date.

Thanks!

posted by GilloD to Work & Money (7 answers total)

The cost of an LLC are not limited to formation costs -- there is a minimum tax in many states. In California, the minimum annual tax on revenues of $250,000 or less, including loss (negative revenue) is $800. 8 percent of revenues, assuming your projection of $10,000 is accurate, is not nothing.

Are you looking for a way to limit liability and have pass-through tax treatment? Or do you have other or additional goals?
posted by janey47 at 1:15 PM on September 30, 2016

Being an LLC had nothing to do necessarily with banking and how you take in money. Do some research into the kind of company organizations there are out there. Check in with your state about filing fees. You can have a third party fill out your forms (nolo.com is one) or you can do them yourselves. I think you should use your money, though, to confer with an accountant and establish a relationship with them. Look into local SBA group for info about starting a company in your city. Talk to your own bank about setting up a separate account with two owners.
posted by amanda at 1:18 PM on September 30, 2016 [2 favorites]

The important thing about an LLC or S-Corp is that it shields you and your personal property from lawsuits. If there's effectively no risk that you'll be sued because of the app, you can consider just setting up a partnership.
posted by Candleman at 1:36 PM on September 30, 2016 [1 favorite]

Partnership taxation is not simple; taxation of e-commerce receipts is not simple. You need to meet with an accountant and a lawyer in your jurisdiction. An LLC might be right for your business; it might make sense to have the LLC taxed as a C or S corporation (affirmative elections you would have to make within a certain amount of time after forming the entity); it might make sense to stay as a de facto partnership; it might make sense to form an LP or GP. Where are you selling your products into? Are you required to register for and collect sales tax in those states on your products? Are you required to pay income tax in those states? If you form an entity, will the entity need to be registered to do business in those states? Are you planning on having any non-US customers, and if so, how does that impact the choice of entity? Are there local/municipality laws that make a difference? Will you have any employees? Do you anticipate taking on investors and/or selling the company in the future? What were the initial investments by you and your partner, is either of you contributing "sweat equity"; did either of you contribute existing IP and, if so, how did you value it?

You need legal advice before going any further. You should also hire an accountant. If they don't ask you questions like these, find a different one.
posted by melissasaurus at 3:08 PM on September 30, 2016 [1 favorite]

I've been through the whole thing of registering a California LLC to be an app developer.

Filing out the forms to register isn't that hard. Just look online.

Once registered you have to get an EIN for the company from the IRS.
You can also open a bank account at this stage, showing the bank the LLC registration.

Then you have to register with Dun & Bradstreet and get a D-U-N-S number.

Once you have that you can create a business app developer account with Apple.
It won't work right away though. There is a lag of a week or two between the D-U-N-S number being issued and it being acceptable to Apple. It's like they import a new batch every couple of weeks or something.

The $800 annual fee in CA is a pain in the ass. You have to pay it too: even if you earn nothing, or they will come after you. The CA Franchise Tax Board is a truly horrendous bureaucracy to have to straighten things out with, like they'll send you ambiguous demand letters because you forgot to file something but it's almost impossible to get them on the phone to ask them what they mean (multi hour hold times and the line drops before you get through).
Also you have to pay via their website which is an appallingly annoying one to register on and use, likw it involves filling out obscure stuff and then waiting for them to mail you (by actual mail) a "password" for your own account.


Basically it is a LOT less work to just use a personal developer account, and saves you $800+ a year.
posted by w0mbat at 8:27 PM on September 30, 2016 [3 favorites]

I have an LLC with a partner in CA and I would not go through the trouble of setting this up for only $10k in revenue. Not worth the tax complications and all the paperwork, much less the fees. Just come up with an agreement and distribute the money yourselves.
posted by bradbane at 12:52 PM on October 1, 2016 [1 favorite]

One modification to my post above: I hear that Apple's developer site now has a feature where you can apply for a DUNS number through Apple, which speeds up the process for that bit.
posted by w0mbat at 10:04 AM on October 6, 2016