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Hi all,

 

I am in the process of starting a company to produce web apps and apps for Android.  I have some financial assets and a wife to support.  Thus, I'm doing some research in the legal risks of going into the software business.

 

I've read up on sole proprietorships and single owner LLC's.  From a tax stand point, they are pretty much the same, at least at the federal level.  Are there any differences at the state level?

 

As for legal risks, has anyone heard of a software developer being sued?  I'm also interested in contract work.  Does this increase my legal risks?

 

Thanks all for any pointers...

 

--jc

 

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Hi Jimen - I'm not an attorney, so my response should not be construed as legal advice. Its worth paying for an hour of an attorney's time to get advice on such matters.

The being said, here are a few tips to help you protect your personal assets:

  • LLCs and corporations provide a degree of personal liability protection (i.e. protect you from personal liability to third parties) providing you follow the rules of corporate governance. On the accounting side, LLCs and Subchapter S corporations are pass through entities meaning earnings and losses pass through to your personal tax returns (i.e. taxes are simple and you aren't taxed twice.) These days such entities are fast, easy and inexpensive to establish.
  • Consider buying general liability and E&O (errors and omissions) insurance. If you are working on small local projects a small amount of general liability is probably adequate. If you are working on larger system critical projects (e.g. hospital or bank projects) you will want a one or two million worth of coverage which will cost you $1 to $1.5K per year. An insurance broker can help you come up with the right plan. We use Noguchi and Associates and are very happy with their service.
  • Execute development agreements for all your work (i.e. have your clients sign development agreements.) The protections that can be provided by such agreements are constrained by federal and state law, but a good development agreement can provide you with significant protection. There are a dozen tech savvy attorneys on TechHui who can help you select and customize a standard agreement.
  • Follow the best practices of your trade - test driven development, code reviews, open communication lines with your customers, etc.
Nevada is also trying to become a favourable incorporation state due to their pretty solid history of keeping the corporate veil intact. I believe the veil has only been pierced twice in the last 30 years in Nevada and in those two cases fairly outright fraud was involved.

Jimen,

 

Thank you for starting this discussion. I'm in the same boat as you(though not with phone apps).   Just lastnight I attended a lecture on IP (http://www.techhui.com/events/protecting-trade-secrets-company-info...) and will be attending http://www.techhui.com/events/entrepreneurship-small-business-clinic .  Both of these I found by through TechHui.

 

The first one is a series of lectures and has a cost.  The second is free.  If you would like to know the scheduled lectures for the first one let me know and I'll send them to you.

 

The lecture last night was very helpful(they also covered copyright).

For my project the current obstacle is finding other people to build a team.  The people I'm looking for are no necessarily tech people but business people.  If you(or anyone) know where I could meet people or find people who have a start up mentality could you let me know where to find them.

 

I hope your company is successful!  Maybe we could help each other in starting our companies.

 

 

 

 

Hi Jimen,

Its nice to see a familiar face.  If you are interested, there are still openings for the Nov. 8 small business clinic that Steven referred to.  It is a free service and a chance to get some legal questions answered.  .Im at HTDC now, 

 

Len Higashi

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