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janbb's avatar

Where can I get information about setting oneself up in business as a freelance programmer?

Asked by janbb (43784 points ) December 22nd, 2009

My son is doing freelance software development now and has a few clients. He is considering incorporating himself. Does anyone have sources of information for how to do this, particularly in terms of tax ramifications? Pros and cons of various ways of setting this up? Thanks for any help.

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5 Answers

jrpowell's avatar

I had a small web-development company. We were a LLC.

I had a lawyer and and accountant set everything up. I got sued a few times and it was worth the cost. I also had to sue a few times.

dpworkin's avatar

He just needs to find out what his liability issues are. He may need liability insurance. Incorporating is easy, but may not be the best option. There are PCs and LLCs, etc. to think about.

marinelife's avatar

@johnpowell Gives a great answer here. Although he could go as a sole proprietorship, it is probably not best because of the liability issues. Here is a table which disucsses the differences in the different structures and their requirements.

CyanoticWasp's avatar

At the level of a “garage or bedroom-based” business, it hardly matters, since he has few or no assets to lose if he should be sued (for liability, especially) and lose. In that case if a judgment goes against him he can (the way we talk about fly-by-night contractors, for example) “give up the truck and start over”. Most judgments against start-ups are meaningless, because at that point he is “judgment-proof”. For that reason it may not be worth the time, trouble and cost to incorporate—just yet.

Same with taxes, I expect, at least for now.

When the business grows to a point that he depends on it for a livelihood, has much debt involved in it (or assets pledged to it)—or it becomes very successful and lucrative (and especially if he hires anyone!), then I would definitely agree with @johnpowell that it’s time to look at incorporation.

One issue for you to consider is, if he’s still living at home with you and operating out of your home, then you may need to have him incorporate just so that you are covered in case of his liabilities. And talk to your homeowners’ insurance agent in that case, too. You may need extra liability coverage—and it shouldn’t be too expensive, so don’t worry about it, but don’t neglect it, either.

janbb's avatar

@CyanoticWasp Thanks – he is not living at home now, but those are good points to think about.

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