You have finally decided to form that company you have always dreamed of. Everyone you talk to says you should form an S corporation (or S corp). But when you go to your Department of State’s website, you don’t see S corps listed anywhere. Are they not available in your state, perhaps? That is unlikely.
S corps are very confusing. They are confusing because an S corp is not a business entity. You don’t “form” an S corp. An S corp is an election you make with the IRS that governs the way your business, typically an LLC or a corporation, is taxed. Unfortunately, many resources refer to S corps as if they are separate business entities on par with LLCs and corporations and that adds to the confusion.
So, you’ve decided to take the plunge and follow your dreams of being an entrepreneur. It is such an exciting time! When you made your decision, however, you probably didn’t realize how overwhelming it can be just to get started. If you’re like most people, you’re ready to jump in there and start producing and selling your great product or service. But, not so fast, you need to handle some mundane preventive legal tasks first.
One of the first things you have to do is to form your business entity. There are many choices but, in most cases, you have probably narrowed it down to either an LLC (a limited liability company) or a corporation. The one you should choose depends on the goals you have for your company. This blog post discusses issues where one may be favorable over the other.
If you live in Florida, you already know it is a great place to live because of our beautiful natural resources, world-class attractions, and thriving tech community. What you may not know is that it is also a good place to form your software company.
It has become commonplace in the technology entrepreneurial community to classify most, if not all, workers as independent contractors. Many people think that if the arrangement is agreeable to both the business and the worker the classification is valid. However, whether a worker is an independent contractor is based on law—you cannot change that by an agreement in a contract. This post explains the factors that are used to determine whether a worker can be classified as an independent contract, how a misclassification can come to light, and what happens to your business if it is discovered your workers are misclassified as independent contractors.
Whether you are an independent contractor or a software development company, you should have a software development agreement with any customer for whom you are developing custom software. There are specific don’ts you should include to make sure your IP is protected and your liability is limited.
If you are forming an LLC with your bestie—and you want your bestie to stay your bestie—you need an operating agreement. People tend to think of legal agreements as an indication that they don’t trust their business partners. That really isn’t the point of an operating agreement. You probably think you’re on the same page. How do you know for sure? An operating agreement. How are you going to handle differences in opinion later on? You create strategies to break ties…in your operating agreement. How do you protect yourself from default LLC provisions that run counter to the way you want your business to operate? Again, an operating agreement.
Throughout law school, I heard my classmates say they chose to become attorneys because they don’t like (or aren’t good at) math or science. I find that interesting because writing a contract (at least, a good one) requires the same thought processes, analysis, and structure as writing software code.
One of the fundamental principles of software design is abstraction. As much as possible, a good developer tries to find commonly used code and abstract it out to prevent repetition. In turn, this abstraction leads to software with fewer errors that is also much easier to maintain. Good attorneys also use this abstraction principle to create robust contracts.
I like clients who are smart. I like clients who have done their homework. Sometimes, however, a client can know just enough about the law to be dangerous. The language of law is complicated. Bylaws are very different from an operating agreement. Independent contractors are very different from employees. You understand your business model but, until you communicate it to your attorney, she doesn’t. Leading her down the wrong path can cost you a lot of grief, time, and money.
One of the most frequent questions I get asked is how a client can protect the ideas in the new mobile app she is creating. The three most common ways of protecting IP are patents, copyrights, and trademarks. Unfortunately, none of these are effective in protecting a developer’s idea. A patent protects an idea but it is highly unlikely that the idea underlying a mobile app—no matter how clever—rises to the level of novelty required for patent protection. So, what about copyrights? Well, a copyright only protects the expression of the idea—not the idea itself. That means a copyright can protect your source code and maybe even the look and feel of your app but not the concept of the app itself. Finally, there are trademarks. Trademarks, however, only protect your brand—not your idea. Is there anything you can do? Kind of. You can protect your ideas before the mobile app is launched using the oft forgotten concept of trade secrets.
When I talk to business owners who are reluctant to store their customer information in the cloud, they most often tell me that they do not want to use the cloud because of the duty they owe to their customers to protect that data. Many of us are control freaks and we think that if we physically keep the files on our own laptops, on our own flash-drives, or on our own servers, we can better protect this data. This stands to reason because who will take more care with our customers’ data than we ourselves? This seems reasonable…until a tornado or a hurricane or a flood comes along.
The Tech Law Firm, PLLC
Catalyst location (mailing address)
One South Orange Ave., Suite 502
Orlando, FL 32801
407-392-0323 ext. 101
101 South Garland Ave., Suite 108
Orlando, FL 32801
407-392-0323 ext. 102