Friday, November 19, 2010

Sailing the LLCs

In response to my post on Visible Hand's incorporation, Reader Daniel writes:

What is this LLC, can you pleas inform us non US people of the two options and how they differ. We have a simular system in Sweden but we have 5 diferent types of companies we can chouse from depending on several difrent factors. So it would be nice to get an insight in how youre system works as well.
OK, big disclaimer - I'm not a lawyer, and I'm mostly feeling my way through this.  So, I'm going to explain my reasoning, but it should not (NOT) be used as any kind of legal or business advice.  I'm probably wrong about big chunks of this. Get your own legal advice.

An LLC is a "Limited Liability Company," which is a common U.S. entity available in nearly all states.  It's a little bit of a legal construction - the idea is that it's an easy way to form a company without a lot of hassle.

The two main advantages for what I'm doing are:

  • Limited liability -  If someone decided to sue my company for some reason, they could sue me through the LLC, but if they won, they couldn't claim my personal assets (house, savings, etc.) in damages.  Suppose there were a horrible case - I publish a game, a child chokes on one of the pieces, or the manufacturer I use uses lead-based paints without telling me or something.  If I get sued, and there's an award of millions of dollars in damages, then the most I can lose is the company and its assets - not my personal belongings, unless I personally misrepresented the company or committed fraud or something like that.  It's my impression that people in Sweden aren't as litigious as Americans, but it's a real concern here.
  • Pass-through taxation - If I actually make money at this, then it's relatively simple with an LLC to pass the income through the company to me without having to pay corporate income taxes.  In other types of corporations, it would be possible that income the company made would be subject to corporate tax, and then the money that was left would be subject to my personal income tax, so it would be double-taxed.

In North Carolina, where I live, the LLC was easy to set up - it was a one-page form and it cost me $125.  There's another annual fee to keep the company operating - $200 per year.  So, pretty big money for a hobby, but small money for an actual company, and the liability protection was worth it for me.


  1. Small nitpick: the company is Visible Hand Games, not Invisible Hand Games.


  2. Hehe yes in Sweden we do not sue every thing that moves. =) But we apreciate that you do iver there, it is a lot of free entertainment for us over here. =)

    But it is hard to know what is stories and what is facts. This becaus some stories are prity hard to fantom. Take the one where the old lady decides to dry her cat in the microwave oven. I have no ide if it is tru or not, but it is funny non the less.

    Do you think you can give me the rundown on the stock option, the one Visible hand games used.

    Best regards

  3. I think he formed a regular corporation, with shares of ownership controlled by stock. Each share represents a portion of ownership of the company; often they are sold to investors to raise money to get the company started up, but in their case it may just be a way to set up the company, and the founder owns all of the stock.

    It's my understanding (could be wrong) that having a corporation gives some of the same benefits as the LLC I formed in terms of liability protection and recognition by the state, but not the same ones, and it varies a lot from state to state in the US here. For example, in New York, where Visible Hand is, I think you have to issue public notice of forming an LLC, and that's expensive, so the corporation might be a better solution.