The boring essentials: company, terms, taxes

None of this is exciting, and all of it is easier to get right at the start than to fix later. Treat it as a checklist of questions to answer, not a list of answers.

1. Your business structure

When you start selling, you’re already some kind of business. The U.S. Small Business Administration says you’re automatically a sole proprietorship if you do business activities but don’t register as anything else, and that a sole proprietorship doesn’t create a separate business entity: “your business assets and liabilities are not separate from your personal assets and liabilities.” Structures such as an LLC or a corporation separate them, at the cost of more paperwork and fees.

The UK’s equivalent guidance, Set up a business on GOV.UK, notes that most businesses register as a sole trader or a limited company, and compares the legal risk, registration and taxes of each. In India, company registration is handled by the Ministry of Corporate Affairs.

Questions to answer: Does my structure protect my personal assets if something goes wrong? What do I have to file each year? When would I need to change structure?

2. Terms and privacy

Terms of service set out what you provide, what customers may do, how they pay, how they cancel, and what you’re not responsible for. A privacy policy says what personal data you collect, why, who you share it with, and how people can ask for it to be deleted.

Privacy law can apply even to a tiny site in another country. Article 3 of the EU’s General Data Protection Regulation covers businesses “not established in the Union” when they process the personal data of people in the EU in connection with offering them goods or services, whether or not they pay, or when they monitor people’s behaviour. An email address on a sign-up form is personal data.

Questions to answer: What personal data do I actually need? Where is it stored? Which laws apply to the people I sell to?

3. Getting paid, and keeping records

Send proper invoices, keep every receipt, and keep records of income and expenses from the first sale. It makes tax returns possible and disputes winnable. Keep business money separate from personal money: with a sole proprietorship the law doesn’t separate them, so your bookkeeping has to.

1. 1A customer pays. Usually through a card processor, which keeps a fee.
2. 2The money lands in an account that is only for the business, so records stay clean.
3. 3Some of it was never yours: sales tax collected for the government, and tax owed on profit. Set it aside as it arrives.
4. 4What remains after expenses and tax is what the business can actually pay you.

4. Sales tax and VAT

Selling to consumers often means collecting tax on the sale and paying it on.

• US: the SBA’s Pay taxes guide says a business has federal, state and local tax obligations, and that tax laws vary by location and business structure. Check your state’s rules on sales tax for what you sell.
• UK: GOV.UK says you must register for VAT if your taxable turnover for the last 12 months goes over £90,000, or you expect it to go over £90,000 in the next 30 days. That threshold is for UK-based businesses: a business based outside the UK that sells to UK customers must register regardless of turnover.
• India: Goods and Services Tax is administered through the GST portal.
• EU: selling to consumers in EU countries can mean owing VAT in those countries. The EU’s One Stop Shop schemes let a business declare and pay that VAT through one portal, and the European Commission says they’re open to businesses established outside the EU as well as inside it.

Questions to answer: Where are my customers? Which taxes apply to selling to them? Is there a threshold for me, or do I have to register from the first sale?

5. The licences of the code you ship

Your product is built on other people’s code, and every open-source dependency comes with a licence. Most permissive licences ask only that you keep their notices. Some copyleft licences place conditions on how you distribute software built with them, and one (the AGPL) applies those conditions even when people only use your software over a network, as with a hosted app. Choose an open source license explains the common licences in plain terms. Know what you depend on before a customer, investor or buyer asks.