That is a great idea! I started down this path last year for several reasons. Primarily, I am seeking financial freedom. My goal is to sail the Pacific Ocean. While a remote job may allow some freedom to live where you want, it may not allow the independence needed for sailing full time. I would also have to worry about a time difference and what not. Really, it would be a lot of hassle and it would degrade the sailing experience. So, what better way than a passive income through selling apps? 

A software company has many avenues for generating revenue, which in general can be categorized into 2 groups. The first group is Business to Business deals. These can be highly lucrative but require connections and dedicated salesmanship to pull through. The other group is selling to general consumers. Each individual purchase may be less, but it is easier to advertise, make those connections. 

To be honest, many people have had similar thought processes to me. I have read many books and articles about starting your first business. While helpful with the business side, I have found them lacking in the logistics side. And that is for good reason. Starting any company is a legal process of creating a new entity. This is an entity that can pay taxes and carry liability. Teaching people these laws and regulations can carry liability with it to. So, what I state here in this article is only my personal experiences. I am not a lawyer; I am a business owner and software engineer. If you are starting an organization, you MUST do your research! The regulations vary wildly from state to state here in the US, and they are constantly being updated. If you start an organization, you carry all responsibility to know the relevant laws and regulation. 

First, you’ll need an LLC

So, I decided to start a Limited Liability Company (LLC). But why? In general, there are 3 kinds of for-profit organizations: Sole Proprietorships, Corporations, and LLCs. Sole Proprietorships are for single person businesses that do not want the hassle of paperwork that a larger business requires. However, in many cases, there is no distinction between you and your business, so no separation of liability. So, if you are sued or go bankrupt, your personal assets can be at risk. Corporations separate liability from their owners completely, but they are expensive and complicated to set up. Many states require corporations to have bylaws and other paperwork just to exist. Also, corporations must pay federal and state taxes. An LLC becomes this perfect medium of limiting liability to the owners, while also providing the room to scale like a corporation. Also, the US federal government considers many LLCs to be a passthrough organization for the purposes of taxation. So, the LLC does not pay any taxes, instead income is passed through to the owners and the owners are taxed instead. Many states also make the paperwork for forming an LLC very simple. 

I also had additional considerations that led to forming an LLC, namely I wanted my brother, Stuart, to be a part of the business. An LLC would make it easy for us to share in the profits of creating our software. But now I also want to make this even more difficult. Stuart and I both want to live as digital nomads, exploring the world. 

The first requirement for forming an LLC is having a physical address with staff that are available during normal business hours. You may register your LLC in any state you wish if you want to take advantage of certain tax benefits. You also need to register as a Foreign LLC in every state where you carry out operations. Failure to register a foreign LLC can carry hefty fines. For many new business owners, it is best to register the LLC in the state which you reside. 

Stuart and I happen to maintain our legal residence in Florida, so that is where we have registered our LLC. But what about that address with available staff? The staff which in Florida are referred to as the registered agent, can also be hired as a service. Hiring a registered agent also comes with other benefits, namely privacy. In the state of Florida, all businesses have the addresses for the owners and their agents publicly listed. Spammers of course see this as a free and easy list of targets and will barrage your mailbox with their marketing. Some registered agents will even filter the spam out for you. 

So, who do you hire as your agent? There are many options from nationwide companies to local agents, even some law offices will act as an agent. Whatever you choose, be careful of fine print. Many registered agents will offer their service for “free” for the first year. But renewal costs can be more than $200 per year after that. And that is not including the addons they offer or may be required for their service. 

We chose to go with a local company in Florida that had cheaper renewal rates and offered good services called Sunshine Corporate Filings. You can find them at: www.floridaregisteredagent.com. While they are not the cheapest, we have found them to be quick, reliable and their services have been easy to use. 

Now that the LLC is created, we are in business! Right?

You also need an Operating Agreement

The Operating Agreement was probably the easiest step for this new business. The operating agreement is in effect the rules of how the organization can be run. In general, they include how members will contribute to the LLC and how profits are shared. For single member businesses this is not always a requirement, but some banks may require it. In the State of Florida, when no Operating Agreement is present, State law is used instead. I am paraphrasing the actual law quite a bit, but in essence, there is always something governing how the LLC can operate. 

That was simple, are we done now?

Then, you’ll need an EIN

The IRS loves that you created a new legal entity and want this new entity to pay taxes too. They want to encourage you to pay your taxes, so they have created a super easy web portal to obtain your Employer Identification Number. Sole Proprietorships often can use their Social Security Number instead to identify their business for tax purposes. However, if you are an LLC or want employees you need a special identifier. 

There are many services that will offer to do it for you, for a small sum of course.  But you do not necessarily need those services, the IRS web application is free and not hard. You just need to be careful and read all the directions. 

Simply go to this website and follow the directions: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

And do not forget to download the confirmation letter at the end! Once you complete the application, your data will not be saved nor will your confirmation letter. 

So, we have taken care of the state and federal paperwork, are we done now?

And then, you’ll need a bank account

A Limited Liability Company may limit liability to its members so long as the assets of the members and the LLC are kept separate. So, you need to open a business bank account! This step can vary from easy, to very difficult depending on where you go. There are minimum opening balances, dividends, transaction limits, and so much more to consider. Stuart and I were fortunate to be able to open a business account with our credit union. Their process was very easy. If you are not eligible for a good credit union or cannot find a bank you like, consider hiring an accountant to help with the process. It can be complicated and lengthy. No two banks or credit unions will do it the same either. 

Now that we are registered with state and federal government, we have a place to put our money, now we can get to operating this business. No?

And you will need a DUNS Number

For publishing mobile application software, there are 2 big stores, Apple App Store and Google Play Store. Both will ask for something known as a DUNS number, which involves listing your business in a third-party directory. DUNS numbers are maintained by Dun & Bradstreet. Application is simple, provide names of members, telephone number and email, and proof of organization. Your EIN confirmation letter and Certificate of Status from the state. DUNS numbers are free but can take up to 30 business days to process. If you want it done faster, you can pay $229 and have it done in 8 business days.  

And now you can open your Developer Accounts

Yay! Now we can open the developer accounts with Apple and Google. Simply follow the directions for each. Apple has a $99 annual fee and Google Play Store has a one-time fee of $25. Provide all your documentation and done! Which is what I wanted to say before I found out that Apple only recognizes a few types of companies in the DUNS system. At which point I had to go through 3 or 4 layers of support to find out our LLC which was labeled as a Limited Liability Company with Dun & Bradstreet, was not recognized in Apple systems. So, after digging through Apple and Dun & Bradstreet support pages I figured out we needed to be labeled as a Limited Liability Corporation in the DUNS directory. 

Now we are in business!

Regardless of how you go through the process, expect to need to talk to a real human throughout the process. It took Stuart and I about a month to get through all the paperwork. It is not easy, and I would not recommend it for everyone. 

But now we are in business! Knotlog Software LLC is live and published its first app 2 months ago. You can find our business here: www.knotlogsoftware.com.

Now that we can sell our apps, we are done, right? Just have to learn how to do accounting, the annual report, and federal taxes.