Ask HN: $3000 to incorporate. Is it a good deal?
9 comments
Folks who have been there before will tell you not to waste a single cent on incorporating until you absolutely have to.
Wait until at least one of the following is true:
I'll go even further and say don't even bother spending time or money on a name, logo, domain name, website, or business cards until you've talked to enough potential customers to be sure you've understood their problem and are building the right product.
If you bring on a co-founder later, you can draw up a simple agreement (find a template online, or get an attorney to help you) that spells out the understanding between the founders in terms of ownership and control of the company once it is incorporated, who owns the leftover IP if the company fails before you get to that point, what happens if one founder leaves, etc.
I know it's exciting to finally "be a real business" and print business cards naming yourself "CEO". But that's all just vanity. Hiring a lawyer and filing some forms doesn't make you a real business; creating a product and selling it to people does.
Wait until at least one of the following is true:
1. You have investors who are ready to go.
2. You hire an employee.
3. You have actual customers and actual revenue.
4. You have any significant exposure to liability.
I'll go even further and say don't even bother spending time or money on a name, logo, domain name, website, or business cards until you've talked to enough potential customers to be sure you've understood their problem and are building the right product.
If you bring on a co-founder later, you can draw up a simple agreement (find a template online, or get an attorney to help you) that spells out the understanding between the founders in terms of ownership and control of the company once it is incorporated, who owns the leftover IP if the company fails before you get to that point, what happens if one founder leaves, etc.
I know it's exciting to finally "be a real business" and print business cards naming yourself "CEO". But that's all just vanity. Hiring a lawyer and filing some forms doesn't make you a real business; creating a product and selling it to people does.
I couldn't agree more with this post. Don't pay the money just to stroke your ego.
The cofounders at my current project were antsy about having the credibility that comes with becoming "official", so we incorporated very early. Currently, we're working R&D and looking for money -- not a single investor has asked if we're incorporated or been impressed by our business cards. They do, however, want to learn about the progress we've made with our product and the projected size of our market. Use the money for marketing and product development.
Another thing to keep in mind: we went the LLC route, and its likely that if/when investment comes, we'll have to amend the hell out of our Operating Agreement.
The cofounders at my current project were antsy about having the credibility that comes with becoming "official", so we incorporated very early. Currently, we're working R&D and looking for money -- not a single investor has asked if we're incorporated or been impressed by our business cards. They do, however, want to learn about the progress we've made with our product and the projected size of our market. Use the money for marketing and product development.
Another thing to keep in mind: we went the LLC route, and its likely that if/when investment comes, we'll have to amend the hell out of our Operating Agreement.
I absolutely agree with this comment as well. Regarding having a hard discussion with a co-founder and incorporation being a forcing function for this (from a comment below in this thread)... not the best reasoning. You can and should have this discussion regardless of whether you incorporate.
I've started several small businesses, dating back to 2001, and have never done more than filling out my state corporate commission's articles of organization.
This is not the safest route, but definitely the easiest and cheapest way to get started. Doing this will let you open a business bank account, get merchant services setup, get an EIN (tax id) from the federal government, etc.
In Arizona it takes about 3 minutes and costs $50: http://www.azcc.gov/Divisions/Corporations/forms/starpas/for...
This is not the safest route, but definitely the easiest and cheapest way to get started. Doing this will let you open a business bank account, get merchant services setup, get an EIN (tax id) from the federal government, etc.
In Arizona it takes about 3 minutes and costs $50: http://www.azcc.gov/Divisions/Corporations/forms/starpas/for...
Its between £5 and £50 here in the UK - depending on a few factors. You can do it online with a credit card in a few minutes...
£15 to do it online with Companies House, just done it myself last week.
Need some more info - State/Province/Country of incorporation? Federal or State/Provincial incorporation(again, depends on country) Includes any shareholder agreements as well?
Also, why not wait for the co-founder first, to save $$ on getting papers re-drawn / filing amendments?
Also, why not wait for the co-founder first, to save $$ on getting papers re-drawn / filing amendments?
This. If you have no cofounder, and have no immediate need for the company to be formed, put it off as long as possible until there are reasons i.e. cofounder(s), hiring, launch, etc..
That is a question I have. At what stage should a company (limited or unlimited) be formed for a startup? If there is no company I believe you would have to do business with your own name, which doesn't look professional. All incomes and expenses would be treated as personal income/exp.
This is the wrong way to look at it. Your expenses prior to launch (with exception to employees and all), would be minimal (unless you're just outsourcing a ton of work). Hosting and a domain name is like nothing.
That said, until you launch, hire employees, have a cofounder, raising money, etc... no one is going to know you really exist and the "looking" professional or whatever is non-existant, nor do most early adopters really care or think that way.
The reason most people advise (including really good attorneys) to put off incorporating until you actually need it is basically to save you money and avoid having to undo, amend, or fix anything.
Hope that help better answer the question.
That said, until you launch, hire employees, have a cofounder, raising money, etc... no one is going to know you really exist and the "looking" professional or whatever is non-existant, nor do most early adopters really care or think that way.
The reason most people advise (including really good attorneys) to put off incorporating until you actually need it is basically to save you money and avoid having to undo, amend, or fix anything.
Hope that help better answer the question.
Does a launch itself warrant incorporating (or just registering a business name instead of using own's name)?
I'm hiring outside contractors and planning to ask for cofounders soon.
A lot of the value of incorporating is "getting to know" your legal team. Wilson Sonsini in SV and SF will often defer or waive fees for a very small chunk of equity on ideas that they like, and other legal teams are open to similar arrangements.
The benefit of extending your network is huge here. A good legal team can be a gateway to capital, while a missfiled c-corp can scare away investors.
Aside from the oft-repeated, "don't do it until you absolutely have to", I would suggest that you to do some research on law firms that are specifically working with startups in your industry and area.
You may be surprised that many will set up your c-corp for just the cost of fees if they believe that your idea and future with them is strong.
The benefit of extending your network is huge here. A good legal team can be a gateway to capital, while a missfiled c-corp can scare away investors.
Aside from the oft-repeated, "don't do it until you absolutely have to", I would suggest that you to do some research on law firms that are specifically working with startups in your industry and area.
You may be surprised that many will set up your c-corp for just the cost of fees if they believe that your idea and future with them is strong.
Thanks for all the comments. So ya the attorney will incorporate in delaware as a c corp. i do sell apps on the app store right now as an individual.
I am outsourcing some of the development and so he mentions it is important to incorporate to protect the ip. It will include some form for freelancers to sign.
The third thing is that i plan to do this at night and weekends while i test out the market and i dont want it to potentially conflict with work ip. I plan to release and sell small pieces of software to test each step of the way. Or maybe just free software.
Thanks.
Ps: oh and he advice me to wait on patents since it is not critical and will cost 20,000. Just execute and that gets investor interested.
I am outsourcing some of the development and so he mentions it is important to incorporate to protect the ip. It will include some form for freelancers to sign.
The third thing is that i plan to do this at night and weekends while i test out the market and i dont want it to potentially conflict with work ip. I plan to release and sell small pieces of software to test each step of the way. Or maybe just free software.
Thanks.
Ps: oh and he advice me to wait on patents since it is not critical and will cost 20,000. Just execute and that gets investor interested.
I agree with all the comments that recommend for you to wait on filing, especially since you are a single founder company.
However, if you were in a two founder situation, there might be some benefit to incorporating particularly because it would force you and your other cofounder to ask yourselves tough questions about the future.
I have a 2 cofounder situation myself, and I would like to get the legalities out of the way, but I find the fees prohibitively expensive. The best startup package (most comprehensive and from a reputable firm) I've seen was priced at $5,000 USD. $3,000 sounds like a deal, but caveat emptor.
Good luck,
Jenny
However, if you were in a two founder situation, there might be some benefit to incorporating particularly because it would force you and your other cofounder to ask yourselves tough questions about the future.
I have a 2 cofounder situation myself, and I would like to get the legalities out of the way, but I find the fees prohibitively expensive. The best startup package (most comprehensive and from a reputable firm) I've seen was priced at $5,000 USD. $3,000 sounds like a deal, but caveat emptor.
Good luck,
Jenny
Take a look at Clerky.
https://www.clerky.com/
From their web site: Clerky helps startups get the legal stuff done fast.
Incorporation, convertible notes, employee documents, NDAs - everything the typical startup needs. Use Clerky to get your paperwork out of the way so you can get back to building your company.
From their web site: Clerky helps startups get the legal stuff done fast.
Incorporation, convertible notes, employee documents, NDAs - everything the typical startup needs. Use Clerky to get your paperwork out of the way so you can get back to building your company.
I heard good things about the startup lawyer Ryan Roberts and he charges $1,250 + filing fees ($148) as a standard fee when I checked with him (March). That's for a Delaware c corporation.
Background: I'm a single founder, looking for co-founder down the line.