Ask HN: Software Company Ltd vs. Product Ltd

3 points by rob001 4 years ago | 3 comments

Scenario A:

Software Company Ltd

- Product A

- Product B

Vs.

Scenario B:

Product A Ltd

Product B Ltd

Scenario A Advantages:

- simpler accounting and reduced costs: only needing to pay for services like Bank Accounts and Liability Insurance once.

- can easily create new products and sell them without having to register another company and buying all the required services again.

Scenario B Advantages:

- less Risk from liability, i.e. if someone sues and brings down Product A Ltd, Product B Ltd can continue to run unaffected, whereas in Scenario A both product businesses would be liquidated.

- if deciding to sell off or close down one product, I could benefit from entreprenurial relief when winding down that business, making it much more tax efficient.

I'm a soloprenuer hoping to startup my first SAAS product soon, and I was originally leaning towards Scenario A. However after some thought, I think because my first product is going to take up so much of my time over the next year or two, it's unlikely i'll launch any other products, and the product im building holds some personal data so I think i'd want to reduce the future liability risk.

Any thoughts from anyone on these two approaches to building software businesses? Anything i've overlooked?

France_is_bacon 4 years ago |

Depends on the actual specific scenario.

Is product A or B an actual liability? Like, is Product A a nuclear energy generation plant built next to a fault line, and Product B is a toothpicks made of dynamite, then perhaps two different companies is good.

but if Product A is a fluffy pillow and Product B is a fluffy cloth toy, then I think one company is the way to go.

Or if you have a lot of expensive shit to produce things, then you don't divide up by products but by category. So, for example, if you own a construction company with a lot of expensive stuff, then you start up Company A for all equipment (trucks, backhoes, etc), Company B for the building that you purchase to work out of, Company C is for all the expensive tools, Company D is for the actual construction company. Company D does NOT own any of what is in A,B, and C, but leases from them. Therefore if the construction company gets sued for construction stuff that goes wrong, Company D is really only has the personnel and that is all. Because the construction is the risky part of it. All the rest of the money from Company D gets funneled into renting stuff from the other companies, so you take money out of the high-risk Company D and put money in the low risk companies, so if the construction company gets sued, there's no money or assets in Company D - or very few of them. Of course, extremely important to do it "for real" otherwise the state can pierce the corporate veil, and it is all an exercise in futility. And that is the very first thing that any lawyer will try to do when suing you, the very first thing, is to try to pierce that veil so that they can get at the money, honey. So very important to keep corporate minutes, have annual meetings, lease agreements, separate bank accouts, etc, for each company and not to slack on that. Otherwise, what's the point?

I sublease my office from a company and they have hundreds of locations around the world - executive suites like WeWork (but not them). Every single location is a separate corporation, I know that. In case something happens at one, it is a completely separate corporation.

I think the real important thing above and beyond all, is to get ONE corporation going, because a corporation separates YOUR assets from the business, and that is most important. Because if you have a sole proprietorship, your home, car, bank accounts, etc are fair game.

detaro 4 years ago |

Don't know the answers, but another angle to investigate: in B, does it make sense to have a holding company that just owns the two actual companies? Seen that a few times, but I think mostly to make shared ownership easier. Might also help if you ever want to have employees that work on both sides?

zuzun 4 years ago |

Keep it as simple as possible, you can always complicate things later.