When to form a legal entity if I'm making an app?

[treinjapan]

Hello Fastlaners!

I'm thinking about making some app games. I've started to put together some plans, and I'm contacting programmers on oDesk.

I have a question, especially for those of you that have sold apps before:
When is the right time to spend the time and money to incorporate/form an LLC/sole proprietorship? In most businesses, most people say, after you start making some money and know the business will continue. But in this case it seems like it would be a good idea to protect yourself from the very start, no?

Thank you in advance.

 

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[AndrewNC]

What are you looking to protect yourself from?

 

[treinjapan]

I don't know what the potential dangers could be, but I know in America, everyone sues everyone for anything, so it seems like a smart idea to have protection up front. I'm just wondering what others thoughts are, especially those who've been through the process before.

 

[nation]

it seems like it would be a good idea to protect yourself from the very start, no?

A SP or LLC provides little or no protection as an app developer, unless you are intentionally infringing on copyright of someone else.

like AndrewNC said:

What are you looking to protect yourself from?

This answer:

I don't know what the potential dangers could be, but I know in America, everyone sues everyone for anything

Um, a SP will not protect you from a lawsuit. An LLC will not either, but will also change the situation & could cause you to be the target, because you look a little bigger.

Really, in the USA, starting an SP is really simple. Register with your state, maybe get a domain name, and get the ID's you need from whatever agencies.

The best advice I have for you is to go look for an accountant who you like & has the heart of a teacher. Tell them you are looking for someone to show them how to make their annual taxes easy, then use them to do your annual taxes. Should be about $350 (or less) per year, and is the best insurance policy you will get against being crushed by a government agency (IRS, County, or State tax system) for doing stuff wrong.


TL;DR: do a quick SP with the advice of your accountant & get cranking - anything else would be overkill when just starting.

PS. I started my first LLC first thing ... it was a mistake.

 

[AndrewNC]

in America, everyone sues everyone for anything

Are you offering a high risk service? Legal advice, health advice, selling guns, alcohol, adult site? Stuff like this and definitely do a lot of research up front on how to protect yourself.

I think a lot of us made the mistake of starting an LLC before we even have a website up. It results in nothing but another expense that is money wasted. As said before, it will not protect you. If you are intent on this, wait until you have some sales before you do this. This way its not paid out of pocket from you before you have any success.

On a good note, if you have a lot of success, you WILL be sued. Most people won't bother unless they have something to gain from it.

 

[nzerinto]

If you are thinking about developing apps under the umbrella of a company, then you'll need it registered first, because you'll need to provide the business registration details to Apple as part of your application. Otherwise you can only register as a "solo" developer, which means all apps you submit to Apple will show as being developed by you; ie your own name.

 

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[treinjapan]

Thanks man!

Yeah, I'm wondering about that. I'm launching an app that I'm quite certain will be successful. And after that, I have 3 more ideas. Any money I make from the first one will be put towards the next 3 or 4 apps, so I can make a network of related applications. So I'm thinking I would like them all to be in the same umbrella company. But as others said, it is an expense up front.

Any other ideas/hints regarding LLC vs Corp?
2 things to think about: 1) protecting my own assets, 2) tax benefits, and 3) complexity of management (legal requirements).

Thanks!

 

[nzerinto]

Well seeing as you are in Japan, did you want to form a Japanese company?
I setup a company while I was there, from memory the different types:

Yugengaisha (Y.K) - basically "limited liability" company. I think this was the simplest to setup, especially because I think they changed the laws so your paid in capital only needed to be Â¥1, when previously it use to be Â¥1,000,000 ($10k). More info here: http://en.wikipedia.org/wiki/Yūgen_gaisha

Kabushikigaisha (K.K) - corporation. I believe you need to have at least 3 shareholders, and as the Wikipedia page mentions (http://en.wikipedia.org/wiki/Kabushiki_gaisha) use to need paid-in capital of ¥10,000,000 but has since been dropped down as well, so it's much cheaper to setup (need less paid-in capital).

I'm not a lawyer so I'd recommend seeing one who could set everything up for you. One of the biggest benefits for me setting up a company was that then I could use the company to sponsor my visas. I presume you don't have the same problem, being married to a Japanese lady (spouse visa), but for security sake it might be nice to know you've got the company as "backup".

If you do want to setup a Japanese company, there is a book floating around that discusses everything in detail, in English, right down to understanding the taxes etc. I think it's published by the same company that publishes the free Metropolis magazine (not sure if it makes it all the way up to Sapporo, but their website is http://metropolis.co.jp/) so that might be a good place to start looking. Unfortunately I can't remember what it's called, but it seems to appear frequently on Terrie's Take, a weekly newsletter by the guy who started Metropolis (http://www.terrie.com/) so subscribing to that could be a good idea as well - his insights are pretty interesting.

Anyway, food for thought!

 

[treinjapan]

nzerito,

Thanks for the thorough response!
I don't think I'll be setting up in Japan, as everything is just so much more straightforward if I just do it in a language I understand 😀 Though I will be starting a company or 2 in Japan this coming year as part of my Fastlane plan 😀

Going back to your post before this last one, do you know how hard it is to change the application once it's been submitted? Like if I submit one under my own name, then later start a company, will Apple allow me to put that app under my company's name? Is it an easy process?

 

[nzerinto]

hard it is to change the application once it's been submitted? Like if I submit one under my own name, then later start a company, will Apple allow me to put that app under my company's name? Is it an easy process?

It's pretty easy - I spoke to Apple about this before, because I was in the same predicament. Apparently you can switch from being a "personal" developer to "company" developer pretty simply - you just have to chat to their developer support people, and they'll update the profile for you (after you submit the application etc)

 

[treinjapan]

NZerito,

Thanks again for the replies. You're being very helpful! Speed+ 😀

You got me thinking with your post a little while back....perhaps I should just start the LLC in Japan once I end up doing this. Since I live here and plan to be here a while, it would make sense to make income in yen instead of dollars. Can you guys think of any other downsides to launching my apps through the Japan apple store?

Another benefit may be less competition in Japan, so it might be easier to get on to the "What's New" page, therefore increasing my chances of getting a "name" if you know what I mean.

 

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[nzerinto]

The only major "downside" I can see would be the language barrier, but technically that's a plus as well, because it forces you to have to learn the language (which hopefully you see as a bonus!). The most helpful thing I had when I was there was the "Remembering the Kanji" book by James Heisig, as well as using a SRS system like "Anki", or the best one is in the forums here - Reviewing the Kanji. Using those two methods combined I learned 500 kanji in 2 weeks (I had a lot of spare time on the trains traveling to teach English!), and remembered all of them. Had I been a little more disciplined with myself I probably would've learned all Joyo kanji (all 2000+) and by now would've been fluent/native level, but typically I got distracted and started working on my company instead....lol.

I do agree that you would likely have the benefit of less competition. The only problem is that you'll likely have less resources to market the apps as well. While the English language has plenty of review sites and sites you can approach to promote the app, I think there would be fewer in Japan.

 

[treinjapan]

Thanks man!
Yes, I'm studying Japanese every week, but nothing as aggressive as you did, haha.

Do you know any of the specifics of how taxes and write-offs differ between Japanese companies and American companies?

 

[nzerinto]

Do you know any of the specifics of how taxes and write-offs differ between Japanese companies and American companies?

Sorry, can't help you with that, I have absolutely no experience with American taxation etc. not that I have much experience with Japanese either.
Check out the book I semi referred to in one if my posts above (Terrie mentions it a lot in his newsletter....sorry, can't think of the name of the book right now), because apparently its pretty detailed when it comes to breaking down Japanese business law/accounting/taxes etc.