IT companies are in a landscape that is seeing challenging times. Consumers and investors are demanding more sustainable tech, innovation has become a double-edged sword in terms of scalability, security threats continue to surge, and a Gartner survey reveals that IT executives have been facing a huge talent shortage.
As if those problems weren’t enough to contend with, there are also various legal issues that continue to plague IT. On top of the general compliance and regulation problems that also face other industries, IT is suffering from IP, data, and licensing concerns that complicate business.
With many hurdles seemingly stacked against the IT industry, one of the main methods of protecting your business is by forming an LLC. The process is quite simple, even with slight variations in filing depending on your state. Even established sole proprietorships can easily switch to getting recognized as LLCs. This business structure has many benefits, with a few key factors that make it valuable to IT companies.
1. Asset protection is essential with a rising profitability gap
Even though the general consensus is that startups can chart profitability paths for the year, this is sadly not the reality for tech. Although tech-led innovations are leading the charge and capturing a large market, this does not necessarily translate to huge profitability. Deliverables compared to resources still require a lot of cost-cutting. This predicament has hit platforms like Bilibili, which performs strongly in shares and garners over 171 million monthly active users in China. Throughout the globe, different tech companies still see profit margins lag compared to their growth.
As the profitability gap hits large companies and inevitably trickles down to smaller companies, it comes down to asset protection in the face of economic turmoil. An LLC naturally protects LLC members or owners from having to face any legal and financial obligations with their personal assets. Under this structure, any liabilities or debts incurred under the IT company will only be held to the business entity itself. Owners also get to steer clear of double taxation.
2. IP theft and competition are still major issues
Intellectual property is a serious matter in any field, but it’s especially precarious for IT companies that are in a very competitive field. As everyone tries to outdo each other with their own propriety software or patents, getting the rights to certain IP becomes both a race and a potential battle. IT companies today are having to fight “patent trolling” from larger companies.
Such an event has been seen in the problem of Apple versus VirnetX Holding Corp. over secure communications patents that were infringed on. It’s one of the biggest legal issues that IT companies need to pay attention to as software pirating and counterfeiting are on the rise. Although structuring your business as an LLC will not automatically protect you from IP theft, this business structure is much easier to link to trademark protection when registering. It also protects the owners in the event of an infringement lawsuit, as plaintiffs cannot go after the owner’s personal assets.
3. Tech companies are in dire need of privacy and security
Privacy and security are constant risk factors for IT companies. This rings particularly true for the sensitive data that is usually handled throughout these firms. Edge Computing architecture has been the name of the game for improving security and privacy for networks and data, but infrastructure alone is not the only area where this concern applies.
LLCs as a business structure add layers of privacy and security that are very promising for the industry. For starters, LLCs can operate under a fictitious name in certain states. This type of structure also allows business owners to have liability protections and privacy from prying eyes in terms of their personal addresses. Every LLC is legally required to have a registered agent, who is then responsible for service of process and receipt of communications from legal or government bodies.
Managed IT companies can also leverage their time and resources for business growth better if there is no need to worry about privacy and security. With this, the main priorities can be customer support, lead nurturing, and data analytics.
Earl Berg is a seasoned technology writer at Digital Overload, bringing over 10 years of experience in the tech industry to his role. Earl’s passion for technology and his knack for translating complex tech concepts into understandable language make his articles a favorite among readers. His coverage spans a wide range of tech topics, from gadget reviews and software updates to innovative breakthroughs in the tech industry. Earl is dedicated to providing his readers with honest, unique, and insightful content, always with an objective and open-minded approach. When he’s not immersed in the tech world, Earl enjoys hiking and photography.
