Starting a Business. Tips for Registering a Company?

Anyone have any experience in registering a company? From what I've researched, an LLC looks like it will meet my needs.

The next question seems to be in which state do I register? As background, this be starting as a one-man game/app development company and will be entirely internet-based. I think that opens up my options for registering in a different state. My home state (PA) appears to charge high registration and recurring annual fees.

The primary reason for my starting the company is to avoid personal liability, despite the fact that the odds of running into that situation should be very low. Better safe than sorry!

I'd like to avoid engaging a lawyer to answer these kinds of questions for me; hopefully that's possible.

I'm not a lawyer and this isn't legal advice, but I started an LLC earlier this year myself for one-man game development, so I can share my experiences.  The following is based on what I've done and what I've read online when I was doing my research.

As you found out, LLCs are probably the best option most of the time for this sort of thing.  I thought about forming an S Corp for a while, but LLCs usually have lower taxes (because of pass-through taxing) and fewer formal requirements.

Note that a single-member LLC is going to be viewed differently in some ways versus an LLC with several owners.  One article I read went so far as to suggest giving a small percentage of your company (maybe 4% or 5%) to someone else you trust-- maybe a relative, but not someone as close as your spouse.  The author's reasoning was that courts would be more likely to uphold your company's status that way if you ever had liabilities to fight, rather than risking having them throw that out and just view your company as a sole proprietorship.

Delaware is the state everyone cites as being the best option if you're going to register out-of-state.  The fees are low, and the requirements are lower.  I don't think they even require you to file an annual report.  The downside of registering out-of-state is that I think (not positive) that you need to have a mailing address in that state.  I know there are some companies that will set you up with a mailing address in that state for that purpose for a fee, though.  Seemed somewhat pricy when I checked, maybe $100-200/year?

As for the registering process, it's really easy to do online, at least in my state.  I thought about using an online service that registers for you for a fee, since it sounded safer, but the opinions I read online suggested that it was actually not safer than doing it yourself anyway.  In any case, the process was easy and the questions were simple.

After registering, you'll want to get an Employee Identification Number (EIN) from the IRS.  This involves just filling out a ten-minute online form.  Even if you don't plan on hiring anyone other than yourself, you'll still want to get an EIN.  You'll need the EIN when you do business with some companies, and you'll need it when you open your business checking account.

When you're ready to open your checking account, call the bank or credit union ahead of time to ask what their requirements are.  You might want to do that way ahead of time so that you can get the ball rolling faster.  They'll probably require your EIN, proof of the company's organization, and maybe some other paperwork like an operating agreement.  They may also require that you have a personal checking account with them yourself.  Some places require large minimum balances as well, but there are some credit unions that don't have any minimum balance requirements at all, so just check around.

Once you have your checking account, I've read that it's very important to keep your personal finances and business finances strictly separate.  One article stands out in my mind, where the author said "treating your business like your personal piggy bank is the worst thing you can do", since it challenges your business's legitimacy and thus could put a hole in your liability protection.  This might be obvious, but it's just something to always keep in mind.

The CAG community never disappoints. Thanks for all the info, Josh. I've continued to research since I posted this and came upon some of the same information you mentioned, so what you're saying makes sense.

Did you go through with the 4-5% sharing concept?

Don't want to get too far off topic, but how are you finding your gamedev experience so far? I took a quick peek at your website; congrats on publishing your game! Side note: there's another thread going in the PC forum about CAG developers if you're interested.

Things are going well so far, though it's still pretty early here.  I work full-time and have a family as well, so things are going more slowly than I'd like, but things are progressing.  I'm mostly aiming at console development right now (licensed with Sony and Nintendo so far), which is exciting after years of doing only PC/web/mobile projects.

I didn't go with the 4-5% concept yet, but I'm always keeping it in the back of my mind.  Once my games start to sell a few copies, my plan is to ask a lawyer and follow his/her advice with that.

Thanks for the heads-up about the other thread.  I'd never seen it before, but I'll definitely participate in the future.

Congrats on starting up a company!!

Just a few additional tips regarding LLC's....you may know this already.

LLC's are formed by state statute, not by federal....meaning while your state tax return, you can designate your business as an LLC.  When filing your federal tax return, the Fed doesn't recognize LLC's.

You most likely would need to file a schedule C, unless you have a partner, then it would be classed as a partnership.  There is a way to have your LLC be treated as a Corp by the Fed, but is it generally not recommended.

Regarding registering out of state, to piggyback off of Josh1billion, you would need a mailing address in the state you wish to register.  Finding a registered agent would be your best bet and typical choice, but generally with an annual cost of around $100-$200.  Weigh the differences, it may be cheaper to get a registered agent and register out of state.

Generally speaking - When sales start up and you are shipping into other states, be wary of nexus.  Having nexus in a state or even a county within the state, may led to having to register your business with the state in order to collect and remit sales tax.  Initially, sales outside PA, you don't have to charge sales tax. Your customer must self-assess use tax (if they are the end-user). 

This is a touchy subject and a bit gray as the States want the tax revenue generated by online sales, but it's kinda like the Wild West as the laws haven't caught up with internet sales completely yet. 

Just keep in the back of your mind.

Definitely keep your business and personal separate....Beware of claiming office space in your home...it is never business use 100% of the time...same goes for vehicles, cell phones....items you could claim as business expense.

This is not legal advice, just from someone who does tax returns for individuals and small businesses and does accounting work for large company with many locations in the U.S.

Good Luck!!!