Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 0 down vote favorite

My original idea was to create a company that built software to sell. This is what I have been doing so far and it has been working well.

However, I have an opportunity to sell some pre-packaged software that I did not write to make an additional revenue stream.

Also, (to make things more complicated) I think I could get some client/freelance work on the side to make money and build my reputation as a developer.

There are 3 different business models here that I need to account for.

I was thinking about taking my current company/name and using that for the explicit purpose of selling software (whether I build it or not). Then, create a new company/name to handle all of the client/freelance work.

The additional benefit of the second company would allow me to do other fun things like open source contributions etc... without necessarily coupling it to my main company. By doing this I could pick a more trendy/freelance name/look/feel and reach a different audience.

The goal here is to be able to accept checks/payments through both company names and (preferably) have them go into the same bank account. Although, I can get another account if necessary.

Is this a simple DBA filing? Do I have to explicitly state that the second company is a division of the first?

I don't want to create a whole new company if I don't have to.

I will be the sole founder of both companies and will freelance out work when necessary.

share|improve this question

4 Answers

up vote 1 down vote accepted

Sounds like your primary goal is to brand yourself. You can break up the legal entities, banking and accounting to handle the tax and liability as needed.

If you ultimately want to have a software company with other employees, you should keep that part separate and work on developing the software & company brand. The othe stuff is some way to get experience and cash flow in the mean time.

share|improve this answer
That's kind of the goal. My freelance stuff is just a way to build my professional portfolio and make money on the side. I don't think I'd ever hire employees for that. On the other hand, I may need to hire people for the software company to handle support/development etc... Would a simple DBA suffice here, or do I need to actually create another company all together? – Robert Sep 3 '10 at 17:10
Check with an accountant who specializes in small businesses. You may be able to start the software as a DBA while you're going solo, but if you start hiring employees or especially having partners, you'll need to see what is the best structure. – JeffO Sep 5 '10 at 14:32
up vote 1 down vote

Not an accountant nor a lawyer so seek appropriate advice prior to making a decision. My answer is for entertainment purposes only.

I would suggest that creating seperate companies is really in line with seperating out accounting and legal attributes and risks that don't belong together. For example a bank has to be a seperate entity because of the laws that incorporate what that type of entity can do.

Attributes to consider for creating seperate entities:

  • Special bennefits for one group of people that would just add costs and are unnessary for another (warehouse worker, software developers). (Many bennefits are required to be equally offered within a firm and so by seperarting out two companies allows you to work in both areas.)
  • Accounting issues like revenue recognition needs to be different in the different business lines.
  • Taxation issues like sales tax for all of your business because of physical location of sales.
  • Legal risks like higher chances to be sued because of practices in the industry (health care or finanical software)

    The branding issue is what it sounds like your talking about and I don't see why you couldn't have more then one brand under one company (call it a division). At the surface I don't see what real advantage you would get from seperating it into different entities. You can have multiple bank accounts for a single company so no issue there and you can work with different names just say blah blah a division of newCo.

    • share|improve this answer
    up vote 1 down vote

    I could see a lot of possible tax advantages to operating 2 entities. There are a lot of factors to weigh when selecting the type of entity for taxation and asset protection purposes.

    share|improve this answer
    up vote 1 down vote

    From your description, I don't really see a need for separate companies. Maybe it makes sense to have separate web sites for the different endeavors but even that might be an overkill. You see plenty of companies that have several different products and provide consulting services. Still, if you want to have some separation, just create different web sites, maybe like 37signals does, and keep the accounting, administration and bookkeeping overhead low.

    share|improve this answer

    Your Answer

     
    discard

    By posting your answer, you agree to the privacy policy and terms of service.

    Not the answer you're looking for? Browse other questions tagged or ask your own question.