Let’s talk about the least fun part of building a product business: the legal and administrative setup. I know you’d rather be writing code. I would too. But ignoring the legal side of your business is like deploying to production without error handling — it works until it doesn’t, and when it fails, it fails spectacularly.
The good news is that for a solo developer or small team building a WordPress plugin or SaaS product, the legal requirements aren’t overwhelming. You don’t need a law firm on retainer. You need a basic understanding of what matters, what doesn’t, and where to invest your limited time and money.
This guide covers the essential legal and business setup for indie developers. I’m not a lawyer, and this isn’t legal advice — but it’s a practical starting point based on what hundreds of plugin developers have done before you.
Business Structure: Sole Proprietor vs. LLC
The first decision is how to structure your business. The two most common options for indie developers are sole proprietorship and LLC (or the equivalent in your country).
Sole proprietorship is the simplest and cheapest. You report your plugin income on your personal tax return. No separate filing, no annual fees. The downside is unlimited personal liability — if someone sues your business, they can go after your personal assets.
LLC (Limited Liability Company) creates a legal separation between you and your business. If someone sues the LLC, your personal assets are generally protected. It costs more to set up and maintain — expect $100-$500 to form and $50-$800/year in ongoing costs depending on your state.
For most plugin businesses, an LLC is worth the cost once you’re generating more than a few thousand dollars in revenue. The liability protection is real, and it also makes you look more professional to customers and partners.
Terms of Service and Privacy Policy
These two documents are non-negotiable for any product business. Your Terms of Service set the rules for using your product — what customers can and can’t do, your liability limits, your refund policy. Your Privacy Policy explains what data you collect and how you handle it.
You don’t need to write these from scratch. Use a template from a reputable source and customize it for your product. Services like Shopify’s Terms of Service generator, iubenda, or Termly are good starting points. The key is to be honest about what you do — don’t copy a template that claims you don’t collect data if your plugin actually sends analytics to your server.
If you collect any personal data from users in the EU, you need to comply with GDPR. If you have users in California, you need to comply with CCPA. Most plugin businesses collect at least an email address, so these regulations likely apply to you. A good privacy policy template will cover both.
Taxes: The Part Nobody Talks About
Taxes for digital product businesses can be surprisingly complex, especially when you sell to customers in different countries.
Income tax: You pay income tax in the country where you’re resident. If you’re in the US, you pay federal and state income tax on your plugin profits. Keep good records of your revenue and expenses — hosting costs, software subscriptions, contractor payments, and home office expenses can all be deductible.
Sales tax / VAT: This is where it gets tricky. In the US, you may need to collect sales tax in states where you have economic nexus (a certain amount of sales). In the EU, you need to collect VAT on sales to EU consumers under the One-Stop Shop (OSS) scheme. Digital products are generally subject to VAT at the customer’s country rate.
The easiest way to handle this is to use a payment processor or platform that handles tax collection automatically. Gumroad, Lemon Squeezy, Paddle, and Freemius all handle sales tax and VAT for digital products. They charge a premium for this, but it’s worth it compared to the headache of filing VAT returns in 27 EU countries.
Intellectual Property: Protecting Your Code
Your plugin’s code is your intellectual property. Here’s what you need to know about protecting it:
- Copyright applies automatically when you write code. You don’t need to register it, but registration gives you additional legal protections if you need to sue for infringement.
- Licensing is how you grant others permission to use your code. Most WordPress plugins use GPL for the free version and a commercial license for the premium version.
- Trade secrets — if your plugin has proprietary algorithms or business logic, keep them out of the open-source version.
- Trademarks — register your product name and logo as a trademark once you have revenue. It’s cheap and prevents others from using your brand.
Contracts: What You Need in Writing
As a solo founder, you’ll work with contractors, collaborators, and partners. Get everything in writing.
- Independent contractor agreement — If you hire a developer, designer, or writer, use a contract that clearly states they’re an independent contractor, not an employee, and that they assign all IP rights to you.
- Non-disclosure agreement (NDA) — Useful when discussing your product with potential partners, but don’t overuse it. Most reputable collaborators won’t sign one for initial conversations.
- Partner agreement — If you’re building with a co-founder, get a written agreement about equity, roles, and what happens if someone leaves. This is the most important contract you’ll ever sign, and the most commonly ignored.
Common Legal Mistakes Indie Developers Make
- No terms of service or privacy policy. You need both before you launch. They protect you and your customers.
- Ignoring VAT. If you sell to EU customers without collecting VAT, you’re technically breaking the law. Use a platform that handles it.
- No IP assignment from contractors. If you pay a freelancer to write code for your plugin, the code belongs to them unless you have a written agreement assigning it to you.
- Mixing personal and business finances. Even as a sole proprietor, have a separate bank account for your business. It makes tax time much easier.
- Not registering trademarks. If someone else trademarks your product name, you’ll have to rebrand everything. Trademark early.
The Bottom Line
The legal side of your plugin business isn’t glamorous, but it’s essential. You don’t need to become a legal expert. You need to get the basics right: proper business structure, clear terms of service, tax compliance, and IP protection for your code.
Invest a few hundred dollars in a consultation with a business attorney who understands digital products. It will save you thousands in mistakes and give you peace of mind to focus on what you do best: building great software.