Incorporation
Once I decided to become an independent software developer, I began to investigate how to form a company. My primary motivation for was to reduce personal liability and, therefore, protect my family. Hopefully, there will also be some tax advantages. There were a number of questions to answer.
Where?
I had to decide in which state to incorporate. There are some benefits to incorporating in Delaware or Nevada, which is why so many companies are incorporated in those states. However, as an independent software developer, many of these benefits aren’t applicable to my situation. I finally decided to incorporate in Illinois because I already had a lawyer who I trusted and could do all the paperwork.
What?
I considered two types of incorporation: a Limited Liability Corporation (LLC) and an S Corporation (S-Corp). There are advantages and disadvantages to each. An S-Corp requires more administrative overhead: officers, stock, minutes, etc. In addition, the share holders of an S-Corp have to be actual people in the U.S. (e.g., not a trust). On the other hand, in Illinois, the annual fees for an S-Corp is significantly less ($75) than for an LLC ($250). Furthermore, not that it should matter, there is more case law concerning S Corporations than LLCs. After weighing these options, I decided Sugar Maple Software would be an S-Corp.
How?
I could have completed all of the paperwork myself. Alternatively, there are numerous on-line companies that will handle your incorporation. Since I didn’t want to spend the time to figure out the details on my own and since I had a number of questions and wanted someone both qualified and that I trusted to answer them, I decided to use a local attorney. This was definitely worthwhile since I just had to read the documents and sign them and he took care of everything else. Furthermore, when it’s time to pay the annual fee to the state, he’ll complete the paperwork and send it to me for my review, signature, and a check. Perhaps I’m old fashioned, but I’m taking this new company seriously and I’m comforted by the ability to sit down across the table from the person handling the legal aspects of my company.
Who?
You have to have a unique name for your company. Deciding on the name of the company was actually the hardest part of this process. There are a ton of software companies in existence. A ton. I was amazed at how many companies already existed that had a name that I considered. Eventually, I decided to name the company after a tree. I like trees. Furthermore, there is a lot of potential for extended analogies when your software company is named after a tree. I like extended analogies. After some brainstorming and research I was left with two trees for which there weren’t already software companies: Hemlock and Sugar Maple. I decided not to name my new company after the plant that was used to kill Socrates. So, my company was named for Acer saccharum. Just recently, Daniel Jalkut wrote about the “adjective-noun” formula used by many software companies. He even has a tool to generate names. I wish this was available when I needed it! On a more serious note, Guy Kawasaki has some tips on naming companies.
Now that the company is incorporated I can focus on the business of writing software. That is, until tax time….
September 18th, 2006 at 7:37 pm
My company is an s-corp as well, I think you made a good choice
However, I’d recommend that next year you file your own papers and such. But get find a good small business accountant to help with your taxes. They are worth their weight in gold. The paperwork is a piece of cake, and in MO you could do it online (same with WA).