|Snoring Cat LLC's logo.|
tl;dr: Here's what went into the formation of my single-member LLC, Snoring Cat, in Washington State.
Update (2021/02/18): I added a bit more tax info
tl;dr: So I don't lose everything if I get sued!
Since I'm starting to put more and more things out into the world, and trying to get more and more eyes on them, it's becoming more and more likely that someone will have something to complain about. If I publish under my own name, I can be sued personally. If I publish under a "Limited Liability Company," then I should be personally protected if my company is sued (assuming I operate my company the right way).
I guess the three main issues I'm worried about are: copyright, analytics, and monetization.
There are a lot of folks out there that make money off of suing other people who might possibly be doing something that's somewhat similar to some pre-existing intellectual property. I'm going to try not to copy anyone else's game, but you can never know for sure that your great idea hasn't already been done before.
I'm recording some (very basic) analytics. Now-a-days, there is more and more legal scrutiny on what data apps record, who they record it from, and how it's captured, stored, and reported to the user. I'm only tracking some very basic analytics data on how folks use my apps, and I'm pretty sure I'm doing things "anonymously" (except, maybe not according to GDPR's weird definitions...), but even if I'm not, I should be following all the major rules. But I think it's better to play it safe.
I think I want to try monetizing a game at some point this year, mostly to get a sense for how that works. And as soon as I start taking people's money, it's more likely that they'll find things to complain about.
Also, if I do make any money at any point, then there are some important tax benefits that I can get by operating through an LLC.
What goes into forming an LLC?
It depends on the LLC!
I am operating what is called a "single-member" "member-managed" LLC (non S-corp). Additionally, I am working from my home, and I am in Seattle, WA.
There's a lot of good information online on how to form an LLC. I found this TRUiC article particularly helpful and informative.
Ultimately, I was able to get everything set up for my LLC within a week, and I was able to do everything without leaving the house!
The main steps: Register with the SoS and DoR
The main part of forming any LLC is registering with your state. In Washington, this is very easy to do online with the Secretary of State's office (SoS). And I received confirmation within two days! This step established various important organizational and contact information for my company and made my company's name official.
I then had to register separately with the Washington State Department of Revenue (DoR), so that I can pay taxes. This was also easy to do online, and I also received confirmation for this within two days.
The biggest decision: Choosing a name!
Naming things is so hard!
- A good name should be easy to remember and easy to spell.
- A good name shouldn't be too long.
- As a video game company, I want my name to evoke happy thoughts.
- And then, once you've finally decided on a name, you have to check whether anyone else is using it, and whether the corresponding web domain name is available.
- But at least the name doesn't need to be descriptive.
I eventually settled on "Snoring Cat", and I'm really happy with it! I think the snoring cat that I share my office with also approves.
"Doing Business As"
Legally, I have to include "LLC", "L.L.C.", or "Limited Liability Company" at the end of my company's official name.
But I want to be able to sometimes refer to my business as "Snoring Cat" instead of as "Snoring Cat LLC". In order to do so, I registered that as a separate "Doing Business As" (DBA) name.
So many addresses...
When you're a company, you are required to publicly list the physical location that you work from. This is a little sad when you're a single-member LLC working from home, and you don't want to post your home address for the world to see.
Additionally, you have to define the address of your "Registered Agent". A registered agent is an important legal entity. They are where various official legal documents for your company are sent. Also, they are legally required to be available at their address on all workdays during normal business hours. If you're a single-member LLC, you can list yourself as your registered agent, but apparently that's a bad idea. So I'm paying a registered agent service to accept these correspondences on my behalf.
Also, I've registered with a virtual mailbox service, so that I can at least use that instead of my home address in some places.
So many accounts...
- Checking account
- Credit card account
- Virtual mailbox account
- Registered Agent service account
- Play Store account
- App Store account
- Google account
- Voice (need a phone number!)
- Facebook page
"Piercing the corporate veil"
It's important to set up your LLC so that there is a clear distinction between company business and personal business. Otherwise, you lose the benefits of "limited liability", and you can be held personally responsible for company lawsuits. That's called "piercing the corporate veil".
To maintain the corporate veil, there are a lot of little guidelines to follow. But here are some of the important bullet points:
- Keep your money separate: Have a separate company bank account.
- Sign correctly: Make it clear when you're corresponding as your business or as yourself.
- Document company business: Keep good notes; Record company goals, decisions, and priorities. Create an "Operating Agreement".
- Keep your business active with the state, by renewing it annually.
I went with Chase, since I already have an account with them, and they're supposedly one of the better banks for small businesses.
I was able to easily create a new checking account and credit card account online, and their turn-around time was a matter of hours.
An operating agreement is supposed to formally establish things like who owns your company, who is a member of your company, and what your company does with its money. It's supposed to be an internal-only document that no one outside the company needs to see. Which means that it doesn't really seem all that useful for a single-member LLC... But supposedly it's an important part of maintaining the corporate veil, even for a single-member LLC.
I used a free trial account with eforms.com to create a standard operating agreement.
You're apparently supposed to get an operating agreement notarized. Fortunately, I had just discovered the existence of online notary services (which I had used to sign USPS form 1583, which was required for my virtual mailbox service to accept mail on my behalf)! So this was easy to notarize with onlinenotary.net.
I have a ton of experience buying web domains, setting up web hosting, and creating websites, so this bit was easy for me.
Also, a truly terrible thing that you should never do when making a website, is to auto-play background audio. So..... I'm a little ashamed, but mostly just excited, to say that you can hear my cat snoring very softly in the background when you visit snoringcat.games.
I then needed an awesome logo! So I immortalized my cat Maya in pixel art.
Forming an LLC involves a lot of little costs that add up! Here's an approximate break-down of what I'm paying:
- $200: Registering my business with the Washington State Secretary of State
- $100: Registering my business with the Washington State Department of Revenue (and register two DBAs)
- $40: Notarize USPS form 1583 and the Snoring Cat LLC Operating Agreement.
- $60/year: Annual report for the SoS
- $100/year: Registered Agent service
- $180/year: Virtual mailbox service
- $300/year: Paying an accountant to handle my taxes
- $85/year: Web host
- $32/year: Domain name registrar
Tax reporting schedule
Now that I have everything setup, here is all the recurring paperwork that I'll need to do going forward.
- WA DoR: Report and pay excise tax (the combination of sales tax, use tax, and business income tax).
- IRS: Pay estimated income taxes (since no one's withholding income tax for me).
- WA SoS: Annual Report (just confirm my current business info, and pay them another $60).
- County Assessor: Personal Property Tax Listing Form (apparently I have to pay taxes on the equipment I use at home as part of my business).
- IRS: File my normal personal tax return, but include schedule C to describe my business income.