Read Intro article

So the first thing you are probably wondering if you are creating an app is “can I just publish it or do I need to create some sort of business to sell the app”.  This is a pretty loaded question and until I started to do research I didn’t even know what the right questions were to ask.  The extremely simple answer (and please read on) is no you don’t need to file or create a business to publish an app.  But if you don’t you could be taking a lot of risk.

To quote robmiracle from the Corona SDK Community Forums he said “It’s about how much legal protection do you think you need. If you do not do an LLC and someone sues you, your personal assets, like your house and car are up for grabs. An LLC, they can only take the assets of the LLC.  Making a medical advice app? [Create an] LLC without a second thought.” (Corona SDK Community Forums – Do you need to start an LLC to develop and sell apps?)

Alpha Consumer on US News: Money said “There’s also a whole other category of people who should consider forming an LLC, Duggan says, and that is anyone who engages in entrepreneurial activities online, from selling e-books on Amazon to handmade scarves through a personal website. Anything can happen with knitted goods… In every circumstance, there’s a lawsuit that exists. If you’re creating something that has value, with value comes the risk that somebody might attack, he says, and an LLC can provide some level of protection, especially over personal assets.” (US News – Money – Do You Need to Form an LLC?)

So in the end it is about how much risk you are willing to take vs. the cost of creating an LLC.  It can be a difficult decision in some cases when you are not sure if you will make any money but can you afford not to create one?

This article jumped right into talking about an LLC, but what is an LLC?  Are there other types of business/entities that I could create instead?

There are many types of business or entities out there.  Here are a few of the most common for small businesses and startups (that I could find).

  • LLC: “Think of the LLC as a merger of the partnership and the corporation, except it has the best of both worlds — all the good qualities of each and none of the bad. It offers full limited-liability protection to all the owners (like the corporation), yet has a pass-through tax status (like the partnership). In addition, the LLC has a second layer of liability protection that shields the business from any personal lawsuits that may befall you. And it doesn’t stop there! The list of benefits goes on and on.” (Dummies – What Is a Limited Liability Company (LLC)?)
  • C-corp: “C corporation refers to any corporation that, under United States federal income tax law, is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies (and many smaller companies) are treated as C corporations for U.S. federal income tax purposes.” (Wikipedia – C corporation)
  • S-corp: “An S corporation, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code.  In general, S corporations do not pay any federal income taxes. Instead, the corporation’s income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.” (Wikipedia – S corporation)
  • Sole Proprietorship: “A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s” (Wikipedia – Sole proprietorship)
  • Partnership: A partnership is pretty similar to a sole proprietorship except there are multiple parties involved.  Check out this IRS site to learn more (IRS – Partnerships).

So after doing this research, I found that the first 3 (LLC, C-corp, and S-corp) are the most common for startups and other small businesses.  There are a lot of details to understand about all of them and again I recommend talking to a legal professional before deciding what to do.  But here is an extremely summed up version of an LLC vs. S-corp vs. C-corp.

Essentially the differences between an LLC and C-corp/S-corp is that the LLC requires less paperwork and record keeping, more flexibility to share profits, similar protection over your personal assets, and less taxes to be paid out.  Overall, it seems from multiple sites I read most recommend the LLC for small businesses and startups.  But please read these links to understand better what the differences are.

After reading these articles, you may come to the same conclusion that I did and decide that you should create an LLC.  If that is the case, then the next step you need to do is form your LLC.  I am not going to go over all the details of this process.  I really liked NOLO’s 50 state guide to forming an LLC (see below).  Keep in mind that each state has different rules and different fees you need to pay.  For example, in Texas you need to pay a $300 filing fee, and then you need to pay yearly fees based off of how much you make.

Other Helpful Links

Books

 

 Main Article | Next Question