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BeanDog

Selling under own name vs. incorporation

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Realistically, what are the advantages of selling software over the internet (via download or CD mailing) through a corporation or LLC versus collecting payment directly to yourself? You can register a company without incorporating, and use that name if you wish, but you remain personally liable for any damages people bring against you. Is it reasonable to sell software on a medium scale (several thousand dollars per month) over the internet, without incorporating? I'm a lost little puppy when it comes to the business side of development, so any information or correction would be greatly appreciated. ~BenDilts( void );

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Without going into the legal advantages (which you can pick up from any Business site), there is a Marketing Advantage in that a company selling a game has a more professinal veneer than an individual selling a game. Furthermore, it provides a "Business Abstraction Layer", BAL (yeah, I made that up) by which the public never has to see what is actually going on behind the scence since it's only the company that has a public face. I use this to great effect by talking about my company as "we do this" or "we do that" without giving away that it could be one person or 100 working behind the scenes.

Incorporating (in the US) is sooooo easy, there really is no reason not to do it...too many benefits to list and no real drawbacks. :)

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There is one major drawback of incorporating (depending on the type of corporation), and that is double-taxation. This is not true for sole proprietorships, partnerships, and I believe LLC's, S-corps, and the like.

However, something that I personally would consider to be a big benefit of incorporating is that the business can be sold. What I mean is, let's say your business grows into something big, and another company becomes interested in purchasing the name and everything that comes with it (everything it created/owns). As a company, you can complete this transaction. If you are not incorporated as any type of business entity (e.g. if you are a sole proprietor or partner), you cannot sell the business. There may be ways around this from what I have studied / been taught, but this is my basic understanding of one key difference or benefit.

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As the other two replies have said, there are advantages and disadvantages of incorporating. One of the biggest advantages, IMO, is that your personal assets are protected if you are ever sued as a corporation. I don't know anything about PA incorporation laws, but they are probably very similar to the other 49 states' laws.

Even if you are only planning on selling a few thousand dollars per month I would still think that incorporation (sole proprietorship, corporation, or whichever fits your criteria) would be a good step to take.

Here are some interesting websites with some information about incorporation:

Gaebler Ventures

LegalZoom.com

  • Sole Proprietorship and Partnership don't cover you from unlimited liability. It's only with Corporation and LLC that you can have limited liability. It doesn't mean you should not examine the other forms, just that what you save in taxes with Sole Proprietorship and Partnership is now expensed in liability insurance premiums (only fools would open up their personal assets this way without some form of protection).

    More info here: http://www.sba.gov/starting_business/legal/forms.html ( clicky )

    Deciding on a business form depends on the form of the initial capital infusion and how profits are returned to the investors, if any. Corporations are usually for mature businesses, or businesses that have a large and varied pool of investors. You can get bank loans, and even VC investment through contractual loans with any form of business. It depends on what you have to offer if things go south.

    You won't impress a banker with a Corporation. On the contrary. They want to make sure they get their money back so they are looking for colaterals. This is fine if you create a manufacturing plant, but software development houses have little or no valuable colaterals. That's why small Sole Proprietorships and Partnerships software startups are more inclined to get bank loans.

    You can always convert your business to a Corporation later on, usually when you need a large cash infusion to expand. When you reach this point, you will hopefully have enough money to pay for all those lawyers, finance advisors, and tax planners to work out the gory details for you...|8-}

    My best advice is this one: have a chat with a member of your local community's Small Business Bureau (or something equivalent). Those guys are used to counselling entrepreneurs-in-the-making on various issues. If you don't know the contact info, then your local political representative would guide you to those resources. It's in their best interest for you to start a business and pay taxes, remember? Make sure you use those resources. Here are some links in Penn state to help start you up:

    http://www.research.psu.edu/sbdc/
    http://www.pasbdc.org/

    Hope this helps.

    -cb

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    Here's the thing with having a sole proprietership when you develop games: this is the type of field where you can be sued.

    There are some people that are looking for any way to "get" you. There are people that will try to blame snood for a murder.

    By creating an LLC, no one can get to your personal assets by sueing you. I do not consider this business to be safe by any means. Let's say there is some bug in your software that causes someone to lose information on his hard drive. He surely will come after you.

    There are SO many things that can go wrong when you are dealing with software. There really is no other option than to protect yourself.

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