When I began creating projects, I figured I would someday turn them into a business and since I would likely be charging people, it would have been kind of weird to receive a charge from my own personal name, so I decided to choose a company name. I incorporated about 2 years before I released my first pay-to-use project. In my opinion: other than accepting donations, you should incorporate with at least an LLC to protect yourself and have a more professional appearance as well.
Ask HN: At what point did you incorporate for your startup or side project?
41–50 of 57 posts
Re: Ask HN: At what point did you incorporate for your startup or side project?
#42One more reason to incorporate as soon as possible is to ensure/improve the sellability of your startup/project. If everything (from saas accounts like analytics, emailing over monitoring to source code comments) is tangled with your name/main business it is much harder to sell a project.
Re: Ask HN: At what point did you incorporate for your startup or side project?
#43I did so for previous ventures. For my current consulting business I'm a sole proprietor.
I'd advise against incorporating early. Especially with product-based startups there's this temptation to "do it properly right from the start" and plan ahead for when you need to do things like raising venture capital.
This is the business version of premature optimisation. In all likelihood you aren't going to need it and you most certainly don't need it when you're starting out.
In general, I'd say that incorporating only makes sense if either
- The risk becomes too high for you to assume personal liability. This can happen due to several factors such as needing to hire more staff or investing into machines or infrastructure (please note though: Banks generally expect the principal owners of a business to act as guarantors for loans anyway. So, limited liability doesn't help all that much in that case.).
- Some third party wants to invest money in your business in exchange for company shares.
Re: Ask HN: At what point did you incorporate for your startup or side project?
#44Unless your customers need you to incorporate, the idea is to incorporate when you start seeing potential liability. One of the earliest sources of potential liability, is when you hire a W2 employee (in the US). So that is a great time to incorporate i.e. before hiring your first W2 employee. And if you don't intend to raise money, issue stock, or setup international offices any soon, then LLC is a far simpler, chea…
The LLC is great for smaller businesses and startups. Which is why it's a shame countries like the UK and Canada have no such structure and business owners are left to choose between sole proprietorship and a corporation. I have lived in both of these places and I know the governments in both talk a lot about promoting small business and entrepreneurship but talk is easy, they need to do the work necessary to make company structures available that would work for this group. I have written to the relevant UK government department and received no response.
Re: Ask HN: At what point did you incorporate for your startup or side project?
#45I haven't incorporated and don't intend to. I don't need limited liability, and I am not working with companies that require me to incorporate. Incorporation would mean a ton of paper work, more taxes (in Canada at least), more complications, and 3x the accountant's fees. For what it's worth, my project nets 200k, is 3 year-old, and I have a degree in accounting and taxation.
I run a sole prop in Canada too. I agree for the most part, but I think the "more taxes" aspect would be very situationally-dependent. Perhaps if you intend to flow all of the corporations earnings through as income immediately then you may pay more taxes, but often one reason to incorporate is to be able to defer those taxes by only taking the income that you require at the time (tax deferral to years when you'll be in a lower bracket). The only way I've been able to avoid huge income tax bills as a sole prop is by making massive RRSP contributions. Being incorporated would give me a bit more flexibility in that regard.
You could also employ a spouse in a role (e.g. administrative) to provide a form of income splitting (although the gov't is planning to crack down on abuse of this).
Re: Ask HN: At what point did you incorporate for your startup or side project?
#46I have one corporate entity that I use for both my "side projects" and for consulting work. Mostly did it to ensure limited liability. Also, if one of the projects goes big, it will make things easier later on. Also, if we're talking about iPhone apps and such, a corporate name looks more professional in the app store.
> Mostly did it to ensure limited liability Did you consult with a lawyer? I've heard that "limited liability" doesn't really apply to one-person operations, it's intended to protect liability between multiple participants - though that may depend on the state.
From the research I did, limited liability is not at all to "protect liability between multiple participants", but indeed protects you from outside claims. It is indeed not bullet-proof (for example, if a one-person corporation owes taxes they can still go after your assets), but it is much better than nothing.
Re: Ask HN: At what point did you incorporate for your startup or side project?
#47I work on a nonprofit and to receive donations, you need to have 501(c)(3) status, which can be a very painful and long process (took us 8 months, I've heard of it taking as long as 18 months).
The nonprofit industry has collectively come up with a hack to avoid this process called fiscal sponsorship. Through fiscal sponsorship, you basically "rent" someone else's nonprofit status for a percentage of your revenue (typically 7 - 12%). You operate as an independent project under someone else's 501(c)(3), so contributions to you are tax deductible and you don't need to wait on the state and the IRS before you can start taking contributions.
We had a fiscal sponsor and incorporated as soon as we could reasonably justify the expense (our lawyer cost ~$6k for the whole process) because being under fiscal sponsorship is so painful. You typically don't get access to your bank account directly, payroll has to be done through your parent org and sometimes they won't have systems in place for seemingly common situations, like hiring international contractors, and every large expense (large being >$500) has to be sent through their accounts payable department.
I'd really love to see someone start the Stripe of fiscal sponsors. I think you could enable a lot more people to start a lot more nonprofits without being stunted by fiscal sponsors or the large (for new nonprofits) legal costs.
Re: Ask HN: At what point did you incorporate for your startup or side project?
#48Earlier quoted context omitted.
> Mostly did it to ensure limited liability Did you consult with a lawyer? I've heard that "limited liability" doesn't really apply to one-person operations, it's intended to protect liability between multiple participants - though that may depend on the state.
From the research I did, limited liability is not at all to "protect liability between multiple participants", but indeed protects you from outside claims. It is indeed not bullet-proof (for example, if a one-person corporation owes taxes they can still go after your assets), but it is much better than nothing.
My lawyer said that's not the case, at least in my state. LLCs protect against criminal and contractual liabilities, but not tort liabilities.
I google'd it since I couldn't remember his exact legal reasoning, this blog post just about sums it up: https://www.litigationandtrial.com/2009/05/articles/attorney...
Certainly better than nothing, but I was personally not concerned with criminal/contractual liabilities
Re: Ask HN: At what point did you incorporate for your startup or side project?
#49When I had a confirmed deal and knew I would be invoicing in 30 days.
Re: Ask HN: At what point did you incorporate for your startup or side project?
#50Unless your customers need you to incorporate, the idea is to incorporate when you start seeing potential liability. One of the earliest sources of potential liability, is when you hire a W2 employee (in the US). So that is a great time to incorporate i.e. before hiring your first W2 employee. And if you don't intend to raise money, issue stock, or setup international offices any soon, then LLC is a far simpler, chea…
The LLC is great for smaller businesses and startups. Which is why it's a shame countries like the UK and Canada have no such structure and business owners are left to choose between sole proprietorship and a corporation. I have lived in both of these places and I know the governments in both talk a lot about promoting small business and entrepreneurship but talk is easy, they need to do the work necessary to make co…
I’m not too sure what problems you feel a UK private limited company has. It’s super easy to set up, requires minimal paperwork, and indeed most IT contractors I know work through their own limited companies.