If I have multiple types of programs should they each be in different companies


2

If I do get the ownership of the two applications, one for safety engineers and one for dental clinics, these are vastly different applications. Then I am working on my google applications, which are also very different, as well as other larger enterprise applications.

Should each major application area be a separate company?

My thought is that if they are then if someone offered to buy, for example, the dental software, then it would be easier to sell that group of software, as it is related to each other.

If one company had several different focuses (foci?) then it would be a simpler structure but management would be harder, so different hierarchy would be necessary, to keep things separate, but, I only pay one cost for one business, and taxes/regulations, would be easier.

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asked Jan 16 '10 at 16:59
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James Black
2,642 points

7 Answers


3

The tradeoff is between multiplying your overhead (taxes, bookkeeping, etc.) for being slightly easier to fund. Not a good tradeoff. If one of your projects turns out to be an Angel/VC candidate (potential valuation of > $20 mill in 3-5 yrs) you can bet your last dollar one condition of the deal will be you kill all the other projects.

Wouldn't you demand the same?

answered Jan 17 '10 at 04:24
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Bob Walsh
2,620 points

2

Don't waste too much precious brain cycles on that matter: it is very likely that (at least) one of your applications won't even make it financially (or that one of them will be so much more successful that it won't make sense to keep on developing the second).

I don't mean to discourage you and I genuinely hope both of them succeed. What I really mean is that you shouldn't worry too much about those artificial problems at this point. Wait and see which of your applications gets the more traction and put your energy on it. Only then can you decide if it is worth to get a separate legal entity for that product.

Many people will disagree with my advice (especially lawyers), but from my personal experience, those kind of legal details can hold you back from taking action. I would always waste precious time on trying to figure things out too much upfront like company structure or company name instead of getting my hands dirty, build a prototype and get customer feedback.

answered Jan 16 '10 at 18:56
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Olivier Lalonde
2,753 points

2

This is mostly a business, rather than legal, decision - one that many companies have to deal with. You have identified many of the trade-offs, but I would like to add a couple more considerations.

First, there may be a tax benefit to a single-company structure if, for example, the investment (net loss) to start product #2 offsets net earnings from mature product #1. This is something to discuss with your tax advisor.

Second, having different products in different companies (assuming that there are no "alter ego" problems - see Beware Your Alter Ego ) can establish a legal firewall between products. So, for example, if all of the products are in one company. and you suffer a huge legal liability with respect to one product, that liability could kill the entire company and, thus, all of the other products. With separate products in separate companies, that potential problem is removed. This is something to discuss with your lawyer.

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

answered Jan 17 '10 at 11:46
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Dana Shultz
6,015 points
  • Your first and second seem to contradict. The first point seems to suggest that it may be better to have a single company, but your second point seems to state that separate companies will protect each other from legal liabilities. Is my reading correct? – James Black 9 years ago
  • James, for your purposes as a single shareholder I suspect point 1 makes no difference at all. As for point 2 it seems to be the only valid reason to have different companies. And it is a very compelling one, but it is something that you can probably deal with later on after you actually have customers and assets to protect. (withint he company) – Tim J 9 years ago
  • I would characterize the two points as countervailing rather than contradictory. As in many other decision-making situations, there are significant factors that suggest moving in one direction, and significant factors that suggest moving in the other direction. You need to decide, on balance, which factors are most important and then act accordingly. – Dana Shultz 9 years ago

1

Your question is a common problem companies have when they build a platform technology or group of technologies that span vertical markets. In your case, it all depends on how you want to be perceived in the marketplace and the advantages that separate companies give you.

There are plenty of companies that create divisions for different product lines. Those divisions tend to act as separate companies but are owned by one legal entity. Holding companies work in a similar way except the divisions are separate legal companies that are wholly owned by the parent company.

If you are thinking you might want to sell off one of your software products, you can still do that without having to form a separate company. This happens all the time via a sales contract or joint development agreement or IP sales agreement.

It might be easier to form a separate company for selling but the amount of overhead to maintain that structure just does not seem worth it. You can always form a company if you get a promising deal and sell the assets into it. That is a common way to separate out the IP before you do the deal.

In your case, I would probably wait until you got a solid deal before forming a separate company. The overhead for a small company is just not worth it.

answered Jan 17 '10 at 00:40
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Jarie Bolander
11,421 points

0

You should still be one company and have one website for your company with a domain name for your company. That's much easier legally, financially and every which way.

In addition, make up a website for each of your products with individual domain names for the products.

Then link all of them to each other.

One company can easily sell one of its products to another company. It happens all the time.

Your goal is to become like Microsoft or IBM and become one super huge company with a zillion products. The only mistake they make is having all their products on their company website - a logistic nightmare.

answered Jan 16 '10 at 17:20
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Lkessler
1,471 points

0

I agree with lkessler's answer. To answer from a different perspective:

IF it is highly likely that you will

  • sell one of the business areas OR
  • get outside investment (venture capital fx) into of the business areas

in the near future, THEN I think you should put that business area into its own company.

My reasoning is that the company will serve as a legal 'container' for all intellectual property rights, employment contracts, office leases, et cetera. This makes the legal transaction associated with capital expansion or company sale easier, and you want all the help you can get in that situation.

In all other cases, I would say keep everything as products within one legal entity (i.e. company). You can always separate a business area out into a new company later. It's a bit more work to do it later on, but if you don't need separate companies right now, then it's just additional administrative overhead to have them.

On a side note, if you're ever thinking about VC money, then I don't think they'll look kindly on the fact that your attention is spread out over more than one activity.

answered Jan 16 '10 at 18:08
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Jesper Mortensen
15,292 points

0

Selling IP is as easy (or easier) than selling a company. I don;t think it is worth the effort to try to compartmentalize the different products, or "Area" as you call it.

answered Jan 17 '10 at 03:38
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Tim J
8,346 points

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