Note: If you’re looking to form a company, please consult a lawyer! Each person’s case is unique and this post is only detailing ours. If you’re completely stuck, you can shoot us an email and we can try to connect you with our legal friends.
We were so happy the day we became Chin and Cheeks LLC – it marked the official beginning of our journey. Forming our company was actually pretty simple, but the rough part was figuring out where to begin and navigating through all of the available options. We decided to jot down our process in hopes of helping others feel less lost.
What kind of company did we set up and why?
First, a quick summary of Chin and Cheeks LLC:
- We make mobile games (iOS only for now)
- Based in Los Angeles, CA
- 0 employees (2 founders)
- Home office, sometimes working at coffee shops
- $0 income
- Reason for forming a company? To protect our personal assets while doing business
After considering all of our options, we ended up forming a Limited Liability Company (LLC), with Alice and me as the members (another word for owners). Unlike a general partnership, an LLC protects its owners’ personal assets from liability for business debts against the company (in other words, if your company owes creditors money, those creditors cannot target your personal assets to pay off the company’s debts). In addition to the increased financial protection, an LLC also seemed like a simple structure that suited our needs. You can read more about the benefits of forming an LLC here.
We know almost nothing about business law - where do we start?
We started off by doing some research on our options, and we were quickly lost in the world of law. Luckily for us, I met some friendly lawyers from a startup incubator I was a part of last summer and decided to contact one of them (Shannon). Shannon (and James, another lawyer) walked us through the process of forming a company and helped lay out our options. After a few conversations, we had our next decision to make – in which state do we form our company?
How did we decide where to form the company? Delaware, Nevada, or California?
In the small business world, you often hear people suggesting to form your company in Delaware, Nevada, or Wyoming. In Delaware, you can form your LLC in minutes with very low filing fees. There are limited reporting and disclosure requirements and it seems to be more business-friendly than a lot of other states. In Nevada, there are no corporate income, personal income, or franchise taxes and it’s another state that is viewed as business-friendly. You can read more about the benefits here.
So why did we choose to form in California? To be honest, we didn’t want to make things more complicated by registering our company in a state that we had no affiliations with. We’re based in California, and to register elsewhere would require us to register as a foreign LLC (meaning we conduct business in a state other than where it was formed) and we’d have to pay the required fees and taxes in California on top of the fees and taxes owed to our chosen state of registration. By filing in California, we might be missing out on some of the aforementioned benefits for other states, but it ultimately gives us less things to worry about in the long run.
Now that we decided what the structure of our company was (LLC) and where we were going to register (California), we were ready to form our company.
What service did we use to prepare the paperwork for our company?
Since our needs were very basic, we decided to use the services over at legalzoom (vs. doing it ourselves or hiring a lawyer) to form our company. We had no idea what quality of service to expect from them but they were extremely friendly and helpful and we’d recommend their services. We recommend checking it out if you’re in the same boat and are looking for basic legal services.
The process was straightforward - you answer a bunch of questions regarding your new company and it takes about 15-30 minutes. In the end, they helped us with the following:
- Verified that our business name, Chin and Cheeks LLC, was available
- Prepared and filed our Articles of Organization with the state of California
- Obtained our company’s Employer Identification Number (EIN) from the IRS
- Prepared an Operating Agreement for Alice and me
- Prepared Membership Certificates (to confirm the company members’ ownership)
- Filed the Statement of Information to the California Secretary of State
(Link to legalzoom’s LLC glossary of terms)
The best part of the service was when they called me letting me know that we’d save $800 (the annual California LLC tax) if they paused our application for one week (we filed on December 14). Apparently the only way to avoid paying the $800 tax for the current calendar year is to wait until after December 17 to form your LLC and hold off doing business until January 1 (more info here).
After about a two weeks, we received all the documents stating that we were now a real company. But that’s not the end of it…
How did we separate and protect our personal and business assets?
As mentioned earlier, an LLC offers the advantage of shielding your personal assets from your business debts. However, in order to take advantage of this protection, it’s important to separate your personal and business expenditures for the most part (there are some allowable overlapping expenditures such as laptops, iPads, and travel, but we’ll cover those in a future post). Therefore, to maintain the liability protection of our LLC, we opened up a business bank account (more info here).
What licenses and/or permits did we have to obtain for our company? What about a DBA?
Note: This part differs for each state and each city so check the requirements with your local government! (Go here to find helpful resources)
Since we’re based in California, we checked our permit requirements via the CalGold website. For our business type, we chose ‘Computer Programming Services’.
In the list of permits, the only one that was applicable to our business was a city business license (Business Tax Certificate) that is required for anyone doing business in the city of Los Angeles. We obtained our Business Tax Certificate by driving to the Office of Finance nearby and filling out the application there. There is no fee, but you have to pay an annual city tax ($0 if your gross income is <$100k) but we’ll go in-depth on taxes in a future post.
These are some of the permits we were unsure about but eventually discovered we didn’t need:
- Seller’s Permit: Since we were selling apps and not tangible goods, we did not need to obtain one
- DBA (Doing Business As): Since we were selling apps under 'Chin and Cheeks LLC’ and not a fictitious name, we did not need one
We’re finally finished and we can now focus on our games!
So after a few days of focusing on the legal side of our company, we were ready to go. We recently released our first commercial game (Team Smartypants) and will be announcing more projects in the future. If you’d like to follow our progress, follow us at @ChinAndCheeks.
Huge thanks to our friends who helped out along the way: