As someone who has recently started my own software consultancy, I hear from people who are curious about getting started in business for themselves.  I thought I’d jot down my own experiences. This post is not strictly software-related, but it’s about the business of software, so I thought I’d post it here for anyone who might find it helpful.

DISCLAIMER: I am not a lawyer or an accountant. Consult one or both of the above before making business decisions.

When I was first getting started with the process I thought I’d need to do lots of reading and getting advice from others. But it turns out the process is dirt-simple and the actual paperwork takes about ten minutes. The steps are spelled out in this article, but here’s the gist:

  1. Pick a name. Make sure it’s unique, and tack “LLC” or “limited” or something along those lines on the end.
  2. Fill out a Certificate of Organization. Line out the bits that don’t apply.
  3. Fill out a Docketing Statement.
  4. Send the certificate and the docketing statement, along with a check, to the PA Dept. of State.
  5. Wait a week or two to get your approval in the mail.

All the relevant forms are linked from this article. And before you let the paper work scare you, here’s the paperwork I had to fill out, in its entirety:

You might also want to register for an EIN, but I don’t think that’s strictly necessary for a sole-proprietor LLC.

More helpful info for PA entrepreneurs can be found at PA Open for Business.

Is an LLC the right choice?

After taking care of all that I later discovered that, according to my accountant, LLCs in PA actually afford very little liability protection. And that depending on your situation, other setups, such as an S-Corp, may have tax advantages over an LLC. As a result I recently completed re-categorizing my company as an S-Corp. For anyone considering going into business for themselves, I highly recommend having a sit-down with a well-recommended accountant.

I hope someone finds this helpful!

Published by Avdi Grimm

6 Comments

  1. There are also services which, for a free of course, will make sure the correct paperwork and procedures are followed: http://www.bizfilings.com/ Might be worth it to make sure all your t's are crossed and possibly cheaper than a lawyer.

    Reply
    • There are, but I kinda think they are ripoffs.

      The way I look at it: either pay an accountant to not only file for you, but also give you advice on what kind of entity to form – or do it yourself and save money. Paying for a “kit” or “service” that will do 10 minutes worth of paperwork for you but won't actually add any value (seriously, there's not much to screw up on these forms) strikes me as an unhappy medium.

      Reply
  2. Just as a curiosity, do you know (in average, aprox etc no exact figures) would someone in the US pay of taxes for overall work (till its ready to be spent by you personally) through an LLC/Other company and compared to a regular employee, what's the difference (pays more / less tax) ?

    edit: clarity on comparing llc to personal tax

    Reply
    • I'm not sure I understand the question. Any chance you could rephrase it?

      Reply
      • Yeah, re-reading it I realize I was quite confusing. I'm sorry.

        By providing services as an LLC, would you pay more or less taxes over your income compared to being a regular employee?

        Reply
        • It depends on a lot of factors. As an LLC, in general, probably the same or more. This is compensated (hopefully) by being able to charge more to clients since there's no intermediary taking a cut.

          Legal entities other than LLC may have more flexibility tax-wise. Consult an accountant for details in a given state.

          Reply

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