software, taxesI am a software developer who will be starting college in about a month. I have written a program that allows racing organizations to run their races easier and more efficiently. I have organizations asking me when am I ready to sell it, when can we buy it, ect. The interest is there, I just need help with the next part, selling it.
Since this is a one-off product can I sell the product online in my own name with my own personal bank account? I don’t think I have the time right now to start an LLC, nor do I want to tie a business name to the product. If I understand correctly, I just need to keep good records of my expenses, which I have been doing, and that should make the Tax process easier.
An LLC is easier than you think. In my state it was just going to a website and registering. Its not a good idea to run as a individual. I know your in college, but if you get into a lawsuit, you can lose what little you do have. As far as bank accounts there is still banks that have free business accounts (with some restrictions). There is also Paypal and other payment vendors.
Definitely sell your product, but spend a few bucks and protect yourself.
Congrats on your success so far. It’s great that you’re able to get so far being as young as you are.
To answer your basic question, yes, you can sell it under your own name using your own bank account. Every person has the right to act as a sole proprietor (aka “sole trader” in some countries). The reason people form corporations, LLCs, limited partnerships, and similar liability-limited structures is to protect their personal assets in case something goes wrong. You see, we live in a very litigious culture where people sue each other for both legitimate and illegitimate reasons. Getting bogged down in legal battles and the potential for a personal bankruptcy are definitely not in your interest at this point in time.
Just to give a (hypothetical) example: Let’s say one of your customers is using your software to run their racing business. Let’s say that one day something goes wrong (maybe it’s your fault, maybe it’s not) and they lose all their data. They can try to blame you for the trouble and they can try to get you to pay them for their losses through a lawsuit. If you sold the software using a corporation or LLC, they can only go after the corporation or LLC – they can’t go after you personally. If you lose, the corporation or LLC can go bankrupt and it stops there, nothing can happen to you personally. On the other hand, if you sell your software personally and you lose the lawsuit, you may have to personally go into bankruptcy and that’s not a good place to be, especially when you’re just starting out in the world.
So even though you can sell the software yourself, it’s probably not a good idea. And while it’s possible nothing bad will happen, you can never know for sure.
The one other very important thing you need to know is software is almost always licensed, not sold. To license software means you let someone use a copy in a certain limited way. To sell software means you give them ownership. The owner of the software can do anything they want with it including selling copies or even telling you (the seller) to stop selling copies. So software needs to be licensed and that means you need a solid contract (usually called a “user agreement” or similar). You have to make them agree to the contract which makes it clear they only get to use it, can’t resell it, and can’t do many other things not in your interest.
So not only do you need to worry about liability in a lawsuit, you need to make sure you have a solid contract to which your buyers must agree.
You’ll hear a lot of people online saying forming an LLC is easy and you can just do it yourself. That’s true, just about anyone can form an LLC by filling out a form and sending money. However, unless you have a strong background in corporate law, it’s probably not a good idea. Unfortunately, there are a lot of people (and governments) making millions of dollars in fees on this stuff and they don’t care what ends up happening to you. Corporations and LLCs are great, but you must follow the correct procedures to form them and must keep following the correct procedures over time. If you don’t a judge can easily remove the liability protection you might otherwise be provided and someone will be able to go after you personally, even though you had a corporation or LLC sell the software.
So what I’m ultimately getting at is: you need a lawyer. You need the lawyer to help you pick the correct business structure for your needs, you need the lawyer to help you put together a licensing agreement, and you need the lawyer to help you know how to stay safe in our litigious world. If you want to get a head start (and probably lower your legal expenses), there are lots of great books (check out publishers like Nolo) that can give you a good foundation. You can also study other software agreements and put together a rough version of what you want. But in the end, you should have a professional make sure you have everything correct.
Ask around and see if you can’t find an attorney who will give you a break based on your age. Maybe you can even work out a deal to pay over time (especially if you have strong expectations for revenue from your software). Everyone, no matter how successful, was young once and remembers their first venture. Take advantage of the sympathy people may have and use it to get your business going. (Then one day, help out someone else in the same way.) Just keep trying, asking, and you’ll eventually find a way to make this happen. Or if you are from a financially comfortable family, just tell them to give you some money.
Just don’t try selling your software as an individual. It’s just too risky.
Best of luck!
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