Now is the opportune time to enter the app industry. In the Apple App Store, users download about 800 apps per second, or over two billion per month. Google Play boasts even more — over three billion app downloads per month. To tech-savvy entrepreneurs, a market like that is irresistible.
But making it in the app business takes much more than great ideas. Fantastic ideas are only a fraction of the process; the rest depends on proper execution… and good fortune. The road from app conception to fruition is fraught with challenges. Indeed, according to recent Gartner research, just 0.01 percent of app creators will consider their apps a financial success at 2018’s end.
The good news is that, with the right knowledge and professionals, you can surmount the business, legal, and financial hurdles that stand between your idea and a blockbuster app.
Choosing the Right Business Entity
Liability and tax considerations will determine the right entity for you. With liability, the entity you select will determine whether you can be held personally responsible for the business’ obligations. With taxation, your business structure will also determine how your profits are taxed. Some entities offer pass-through taxation, which allows owners to declare all business profits and losses on their individual income tax returns. The profits of corporations, on the other hand, may be taxed twice — once at the corporate level and again at the individual level.
Here is a summary of the various business forms to consider:
- Sole proprietorship – one person doing business as owner
- Pros: No formalities or fees to form, exclusive ownership, pass-through taxation
- Cons: Unlimited personal liability, limited capital-raising ability, finite duration
- General partnership – two or more people carrying on as co-owners of a business for profit
- Pros: No formalities or fees to form, pass-through taxation
- Cons: Unlimited personal liability, finite duration, limited capital-raising ability
- Limited liability company (LLC) – a hybrid between a corporation and a partnership
- Pros: Limited liability for owners (“members”), option of pass-through or corporate taxation, potentially perpetual duration
- Cons: Must submit formation paperwork to state and pay annual LLC fee
- Corporation –legal entity separate from its owners
- Pros: Significant capital-raising ability, limited personal liability, transferable ownership
- Cons: Double taxation with C corporations, extensive formalities required in forming and running
Drafting a Business Agreement
The next critical step is drafting an operating agreement. An operating agreement governs the internal affairs of your app company. Although not legally required in most states, it’s prudent to have an agreement in place before doing business. Absent such an agreement, courts will apply the default rules, which may not be in your best interests. This document is known as a partnership agreement in partnerships. LLCs have two governing documents: the articles of organization and the operating agreement. Corporations also have two such documents: the articles of incorporation and the bylaws.
Business agreements typically contain the:
- Name of business and names of partners, owners, members
- Profit/loss allocation
- Contributions to business entity
- Meeting and voting rules
- Voting powers of partners, members, etc.
- Rights and duties of partners, managers, owners, etc.
- Dissolution, buyout, and sellout rules (e.g., what happens when a partner withdraws)
Drafting a Business Agreement
to “mark” a set point-in-time. If someone ever tries to dispute the timing of idea development, this documentation may be important in establishing dates.
Turn Your Idea Into a Reality
Copyright protection is only offered once the app is built. As stated before, copyright laws only pertain to the concrete expression of ideas, not the ideas themselves. So, in reality, the easiest and safest way to protect your app idea is to turn it into a working app. Once the app is developed—and copyrights are released by third parties—your app’s code and design are protected. No one can reverse engineer or outright steal your code.
Knock-offs may be a problem, especially if your app is good. Although your app is now developed, published, and available to the public, you can still protect certain ideas pertaining to your app. Intentionally leave some functionality out of the first version and rollout new features regularly. Remember, in competition, protecting ideas is an ongoing practice.
There is no clear-cut legal process to protect ideas. However, prudent business practices and smart decision-making provide excellent protection from would-be idea thieves. Also, the best way to protect an idea is to make it a successful one, as infringement protection is typically reserved for the successful. Every million-dollar product begins with a nickel-worth of thoughts, so never underestimate the value of a good idea.
Note: Contact Furzy for effective app and website marketing assistance.