To follow up on the advice to incorporate as a C-corp, I did some research on my own. My opinion is that this advice is probably bad in general, and definitely bad for us. My recommendation is to run The Usual Error as a partnership, at least for now.

We don’t need the liability protection of an LLC or corporation, for two reasons. One, we’re already married and hence liable for each other’s debts anyway. (There are loopholes here, but I’m not interested in exploiting them.) Two, the liability protection of LLCs doesn’t count for actions performed directly by their owners. Since we’re not currently planning on having any employees other than myself and Kyeli, that adds up to zero liability protection anyway.

After that, the main distinguishing factors are taxation, overhead, and fees.

• A sole proprietorship or partnership is taxed like you’re self-employed. You pay the self-employment tax, but it adds up to the same tax you’d pay if you were a business and your own employee. An LLP doesn’t add anything that would be useful to us.
• An LLC doesn’t affect taxation, since it’s pass-through. In fact, it it would be slightly disadvantageous wrt taxation because of the Texas franchise tax.
• An S-corp is taxed differently, and you get to avoid paying the SE tax, but the advantages only kick in after the business is making enough profits to pay its owner/employees a “reasonable salary” and then some.^[1] This might be good for us in the future, but would just be unnecessary overhead for now.
• A C-corp… well, a C-corp just sucks. If you’re really clever, you might be able to figure out some way to use C-corp tax law to your advantage, but good luck making it be worth the double taxation.

Hence, a partnership looks like the way to go for us. Another advantage of this is that we avoid participating in a corporation which is accorded legal personhood, which is a law we find troublesome and very problematic.

Here are the sources I found useful in my research:

• http://www.themoneyalert.com/Corp-Entity-Table.html
• http://www.companiesinc.com/llc/texas.asp
• http://www.simplesubjects.com/tax/businesses/llcs-corpc-corp.html
• http://jumpup.intuit.com/step/business_structure/whyhow
• http://www.mynewcompany.com/entity.htm
• http://en.wikipedia.org/wiki/Doing_business_as
• http://en.wikipedia.org/wiki/Sole_proprietorship
• http://en.wikipedia.org/wiki/Partnership_taxation_%28USA%29
• http://en.wikipedia.org/wiki/Self-employment_tax#Self-employment_law_in_the_United_States
• http://www.simplesubjects.com/tax/self-employment-tax-explained.html
• http://www.window.state.tx.us/taxinfo/franchise/rates.html

Disclaimer: This is just my understanding after doing two hours of internet research (and some past dabbling in accounting), so please, by no means take it as tax or legal advice. (:

I met a woman named Valerie Wynn at a party last night, and we were
talking about business. (She’s started and sold 3 businesses in
the past dozen years, and is now on her 4th.) I asked her what advice
she would give to a new business owner, and she said:

1. Set reasonable goals
2. Pay yourself first
3. Incorporate as a C-Corp

As for #1, we plan to set unreasonable goals, so that’s out. But
if she means achievable goals, then that’s cool.

As for #2, I read about that in Rich Dad Poor Dad. I think
it’s a very important concept. Most people pay themselves last.
They have bills and expenses and discretionary income, and whatever’s
left over goes to them. If you’re a small business owner, especially
a hobby-turned-business owner, often your business is funded by
whatever’s left over after every other piece of the pie has been
sliced out. This is insane. If your business is really
important to you, pay yourself first. Set aside the amount of money
you need for your business, and only then pay the things that are
lower priority.

As for #3, I haven’t had a chance to research all the options yet,
but we’ll be setting up The Usual Error as an official business soon,
so I’ll post about it again once I’ve done my homework. (: [link]

Recently, Kyeli was upset because her installation of AVG told her that she had to upgrade to a pay version or else she wouldn’t be allowed to use her free version anymore. She was angry, and felt like she had been betrayed by AVG. It turned out to be a false alarm, but some of the hurt feelings persisted.

The same thing would have happened even if AVG had had a disclaimer on their site for years, saying “We are giving this away for free, but as of July 2008 we will begin charging.” Enough users wouldn’t read it, wouldn’t know about it, or would forget about it, that their feelings would still be hurt.

Kind of like the Zero/One/Infinity rule, there’s a big difference between free and non-free. People are far more likely to be upset by a change from free to pay than by a price increase. This is something we’re currently talking about a lot for The Usual Error. We want to give a lot of the material away for free via lots of media, and we also want to make The Usual Error be our career. And so we may end up charging some nominal amount for certain products or services that we might have otherwise given away for free, just to avoid the AVG Effect.