
Ask HN: Should each of your products register as their own business? - itsthisjustin
I&#x27;m just about to publicly launch http:&#x2F;&#x2F;paynote.io. Since this is a tool meant for small agencies and freelancers, it&#x27;s currently &quot;owned&quot; by my agency as a DBA. Knowing full well the tax headache having a bunch of EINs is, I&#x27;ve always had my products legally fall underneath my consulting agency. What is normal for a serial entrepreneur who is working on multiple &quot;startups&quot; or products?
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patio11
Define "normal." I have three LLCs (four if you count one in Japan for
purposes of being able to pay myself on payroll now that Starfighter exists);
that's probably on the high end among most of my peers. Most small software
companies have a single entity and only choose to spin out when a new product
becomes a truly independent operational unit, when it receives investment, or
(for branding purposes) if it ends up eating the business that spawned it.

Reasons to segregate:

1) The single biggest one is that it firewalls the liability of the businesses
from each other. Whether this is important or not for you depends on what the
businesses are doing: if it's Regular Internet Stuff then your E&O policy is
probably good enough in terms of risk mitigation, but if 1+ of your products
are in highly regulated spaces (hello HIPAA, finance, etc) then putting them
in their own LLC isn't a crazy solution.

2) If you're religious about doing not just the paper ownership but the
business accounts separately for each business, that makes eventually selling
or otherwise disposing of them much, much easier. Otherwise you're looking at
weeks of work and/or very fun professional services bills when you decide to
do the division later.

3) If you have co-founders or investors, or the prospect of getting co-
founders or investors, separate legal entities are going to be pretty much
required. You don't want them to accidentally get ownership of your side
projects; they don't want to own your side projects (ownership is a risk; they
know the risks they're signing up for and don't want additional sources of
uncontrolled unknown risk).

4) A minor factor, but there is non-zero social friction involved in "We've
been talking about my trading name of $FOO but remember that the
invoice/contract/etc will be from $BAR, LLC."

Reasons to not segregate:

1) It's a lot of extra work.

2) There's a running cost to keeping an LLC open, both the yearly fees and the
operational complexity of maintaining separate books, accounts at various
providers, and (if you're doing things in a complicated fashion) keeping up
appearances with regards to the LLCs being formally separate from each other.

As an ex-consultant with some accidental knowledge of the payments space: I
would be doing double-plus firewalling between any payments startup and
anything I'd lose sleep about losing, and I would be happily writing a sizable
check right about now to a lawyer rather than taking HN's advice about my
compliance obligations and potential sources of risk.

~~~
jjoe
Regarding this:

 _Most small software companies have a single entity and only choose to spin
out when a new product becomes a truly independent operational unit, when it
receives investment, or (for branding purposes) if it ends up eating the
business that spawned it._

Is there any legal ramification to "converting" product X, originally under
the umbrella of Y LLC, to its own new X LLC?

Thanks

~~~
davismwfl
This requires legal and accounting advice. I have done it twice and gotten
different advice both times because the situations were different.

IANAL or Accountant, but the basic rule I was told was that if there are
expenses or revenue in Y LLC for product X then you must take specific steps
to legally transfer it to X LLC so that both entities are protected and it is
as close to tax neutral as possible. But if you just started creating product
X and Y LLC doesn't have any booked revenue or costs associated to it then it
is totally different as there is nothing traceable between product X and Y
LLC.

So, it depends. In my case for the one where we went through the most hoops,
the new LLC "acquired" the Product from the original LLC in a tax neutral way,
but contractually (basically an asset purchase agreement). And the Agreement
stated the new LLC was taking responsibility for all liabilities past and
future in relation to the product etc. It wasn't expensive or hard to do
right, just took a little extra help.

------
mesozoic
I wouldn't worry about it until you have assets in one entity to protect by
having separate LLCs

~~~
itsthisjustin
If I'm moving towards getting funding or need to sign compliance documents for
the business, is there any downside to signing as my agency with a DBA vs a
standalone LLC?

~~~
ProblemFactory
If you are getting funding, then you will certainly need a separate LLC. The
agency will have many deals and contracts with people you have worked with,
and the investors will want these to be separate from the actual product they
are funding.

But it might be wise to wait until the funding is almost-confirmed before
starting with this. The investors may also have specific requirements on where
and how the LLC is registered, and you may need to do it over again if you do
something else right now.

