Recommended Business Structure for Group of Part Time App Builders
A few friends and I have started building small apps and WordPress plugins in our spare time, and I'm wondering what would be the best business structure (LLC, S-Corp, etc) as I think it's almost time to incorporate. Here's some more info:
Most apps should earn somewhere between $5k and $100k annually. Additionally, a couple of us are building websites for local businesses. As the founder and organizer, I'm planning on (initially) being the primary shareholder. However, I'd like to set the company up so that each project that will generate recurring revenue is assigned a certain number of shares. The team that designs and builds the product then determine among themselves who gets what portion of the shares and sign an agreement. Also, I'll need to be able to pay wages for non-recurring revenue projects and for projects that have become profitable.
Assuming I stick to this plan, and we all continue to work part-time for awhile, what would be the best business structure? From what I know a LLC or S-Corp might be best, but I'm looking for other opinions.
LLC Partner Equity Part Time S Corp
1 Answer
I'm assuming you're in the US.
Why do you think you need to incorporate? What's wrong with setting up a partnership agreement for each project and be done with it?
From what you just described, incorporating will probably cause more harm then benefit. If you're concerned with liability issues, consider professional liability insurance.
Anyway, discuss this with a lawyer and a tax adviser. You don't have to incorporate, and in fact it may be easier and cheaper not to. I'm neither a lawyer nor a tax adviser, so take it with a grain of salt.
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I am in the US. If I understand correctly, you're saying it may be better to have an agreement, divide up any money that comes in based on the agreement and let everyone take care of their own taxes, social security, etc? – Jeremiah Prummer 12 years ago
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@JeremiahPrummer it will definitely be cheaper (no need to pay to the state for the incorporation, corporate taxes, llc fees, etc etc). You still file a partnership tax return, but it only describes how the income is divided, everyone then goes and deals with their own portion on their own individual taxes. If your concern is liability, then this solution is not good for you, but you need a professional advice what would be appropriate. – Littleadv 12 years ago
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Got it. Thanks for the advice, and don't worry, I'll consult a lawyer before making any firm decisions. ;) – Jeremiah Prummer 12 years ago
