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I'm a software developer with a little bit of experience. I'm starting a project, and hope to bring it to market someday. There's a lot of work before getting to that point, and I'm not positive I'd finish.

I do need to spend money on dev (AWS bills, etc.) and can fund that for now. But I am not interested in hiring soon.

Should I create a formal entity to own the intellectual property and keep a record of expenses at this stage? I'm concerned about unknown risks of taking that big a step, but also concerned about legal issues if I don't have ownership and expenses officially tracked.

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The main advantage of an LLC is that it (as the name implies) limit's your liability. It's useful if you are signing any type of contracts or documents (such as NDAs, statement of works, general contractor agreements, etc.).

Book keeping and IP protection you can do without an LLC, but if you are signing things, an LLC is useful to have.

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  • It's also useful when you're getting close to releasing your product. This will provide some protection from potential lawsuits like copyright or patent infringement lawsuits.
    – zmike
    Commented Feb 12, 2022 at 20:09
  • Is it important these assets are owned by the entity through the life of the project, or would it be sufficient to transfer them before release?
    – timafield
    Commented Feb 13, 2022 at 19:35
  • @timafield Don't know. Best bet would be a consultation with a lawyer.
    – zmike
    Commented Feb 15, 2022 at 20:20
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    While everyone says that the liability is limited, in practice, many time banks and other places will insist on the owner signing loan and lease agreements personally. The corporate liability protection gets punctured often. In many cases, it takes significant assets and ability to pay for lawyers to really have the limited liability that is promised by having a corporation.
    – David R
    Commented Feb 15, 2022 at 21:13
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    @DavidR What's the relevance of time banks here?
    – gidds
    Commented Feb 16, 2022 at 11:25
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In the US, one benefit from having a corporation own the expenses is that those "business losses" can be carried forward to cover income in future years. Having a corporation own the product can be of benefit when attempting to sell it.

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Should I create a formal entity to own the intellectual property and keep a record of expenses at this stage? I'm concerned about unknown risks of taking that big a step, but also concerned about legal issues if I don't have ownership and expenses officially tracked.

Assuming you're in the USA, an LLC is very easy to create. I created one a couple years ago and paid a fee each year to keep it current. You'll need to reach out to a tax person but I don't think you need to report anything so long as you dont have any revenue.

The main purpose of an LLC is more for protection than running a business. At least in the USA. Should you declare bankruptcy or someone sues you they can't touch assets outside of what the LLC owns and control. Also you can give a percentage to someone else and declare yourself as president.

I do recommend that you create your LLC. Back in college, I had a friend who did the same. He ran his own pc repair business but he barely made any money from it but at least he had it up.

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  • +1 for tax incentives and business tax number. Buying wholesale and not paying taxes with certain vendors has its advantages and can make slim margins ok/good. But if you’re not buying/selling goods or even have revenue, there’s not too much of a point this early. Commented Feb 16, 2022 at 1:46
  • Also, depending on state you need to file business earning documents. In Illinois, it’s a hassle even when your freelance LLC doesn’t have business anymore. Commented Feb 16, 2022 at 1:48
  • "they can't touch assets outside of what the LLC owns and control" this statement is not 100% correct. There are circumstances where personal assets can be touched even if you have an LLC. See LLCs and Limited Liability Protection
    – Peter M
    Commented Feb 17, 2022 at 16:10

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