
Ask HN: At what point did you incorporate for your startup or side project? - bradtx
At what point did you incorporate (if at all), and why did you choose to incorporate when you did?
======
nish1500
I 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.

~~~
kohanz
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).

~~~
tempestn
This is all true, but if you haven't seen them already, you'll probably want
to read up on the changes that are being proposed to taxation of CCPCs
currently. All the details are supposed to come out with the 2018 budget, but
here are some blog posts covering the developments so far:

[http://www.thebluntbeancounter.com/2017/09/tax-planning-
usin...](http://www.thebluntbeancounter.com/2017/09/tax-planning-using-
private-corporations.html) [http://www.thebluntbeancounter.com/2017/10/tax-
planning-usin...](http://www.thebluntbeancounter.com/2017/10/tax-planning-
using-private-corporations.html)
[http://www.thebluntbeancounter.com/2018/01/the-revised-
tax-o...](http://www.thebluntbeancounter.com/2018/01/the-revised-tax-on-split-
income-rules.html)

------
soham
Unless 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, cheaper (taxation at exit) structure to setup.

~~~
ajeet_dhaliwal
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.

~~~
matthewmacleod
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.

~~~
ajeet_dhaliwal
They have no other choice. A private limited company is like a US corporation,
it doesn’t have the pass through income an LLC does.

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ajdlinux
A few years ago, some friends and I entered a local government innovation
competition, made a "bid", gave a presentation and were selected to deliver a
proof of concept.

We incorporated pretty much immediately upon being advised of our selection
for the PoC. This involved ~AU$600 for government fees and incorporation
services.

We then retained a lawyer to provide us with a shareholders' agreement
(~$1500) and obtained our legally required workers' compensation insurance
(~$500).

We didn't sign the contract for the PoC until that point.

Conveniently, the rules of the competition allowed us to expense all that to
the customer...

As for why we chose to incorporate - the majority of my team are somewhat
risk-averse and legally-minded, and even though we were and remain close
friends, we wanted to formalise our business structure to help manage any
potential for disagreement later down the track.

As it turned out, our government customer was very happy with the PoC and was
interested in engaging us further, but their timelines didn't match up with
ours and we ultimately decided to take the $12,500 prize money, open source
our PoC code and move on to regular megacorp/government careers.

Had we chosen to continue on, however, having a corporate structure would have
been an absolute, non-negotiable necessity for taking on a proper government
contract.

During the period our company was active, we never got an accountant - I
learned more than I ever wanted to know about how to fill out an Australian
corporate income tax return, with pen and paper...

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wdrw
I 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.

~~~
blparker
I realize it’s state specific, but what were your approximate total charges
for incorporating?

~~~
wdrw
In my jurisdiction the actual incorporation is actually quite cheap (don't
remember exact numbers unfortunately, but cost wasn't an issue at all). What's
expensive is the services of a lawyer, but you really don't need it for a
basic incorporation, the process is pretty self-explanatory. (Of course, if
it's a startup with multiple co-founders, outside investment, etc, then a
lawyer is definitely a must-have). The major cost, for me, is all of the
ongoing tax accounting - you either need to pay for expensive
bookkeping+accounting, or spend _a lot_ of your time learning to do it
yourself.

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cyberferret
I ran a side project for about 12 months as a subsidiary of my main business,
but as soon as I brought a co-founder on board for it (as the side project
grew), I filed for creating a separate company (Australian Pty Ltd - even
though my co-founder was US based). That way, I could formally list both of us
as directors and shareholders on it. Much cleaner legally (and tax wise) too,
plus it made it easier to set up a separate bank account etc.

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skraelingjar
I incorporated at the very beginning, after a few beers at 2am. Ignorant of
the law, I thought it was necessary to form right away. If I was doing it
again, I would still at least have an LLC or equivalent entity for liability
protection and to "look official". It has also come in handy for consulting
work.

~~~
_RPM
How did you incorporate at 2am?

~~~
ProAm
You go to your state website and fill out the forms. Takes 30 minutes and a
filing fee.

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gpsx
I had a side project that made some money and was eventually sold. Of course
it became an official business entity much after I started working on it. I
don't remember the exact timing.

At a later time, when I was applying for a job at a big company, I was
informed by HR there was a mistake on my resume. They said I had the wrong
start date on my one man company! I assume they looked at the incorporation
date and then thought I was fudging my resume.

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BjoernKW
I 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.

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freehunter
I incorporated after I decided I was going to make money, but before I
actively started trying to make money. I figured it'd be easier to talk to
potential customers if I could say the product was backed by a corporation.

I'm in a bit more conservative of an area than SV though, there's a different
set of values. YMMV.

------
ikeboy
Somewhere around the 100k revenue point. I don't recall the exact reason, it
was getting more serious at that point, I guess.

I wish I'd done it earlier, as certain loans (SBA) are only eligible if you're
at least 2 years old. If you might pursue bank funding later for this,
incorporate as soon as possible.

~~~
saagarjha
On the flip side, what would the downsides be of incorporating early?

~~~
freehunter
Depending on where you live, as soon as you incorporate, you have to start
paying taxes. If you're not making money, it's just an additional burden and
likely extra money involved.

You may also have to submit paperwork to the government every year describing
your business in some fashion. Failure to do so might land you in some hot
water. Basically, almost every business is subject to at least _some_ kind of
regulation in most jurisdictions, even if it's just bare minimum.

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tempestn
Around the time my hobby started making as much as my day job. Probably should
have done so earlier, but had no clue at that point!

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zachlatta
I 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.

------
thisisit
I guess it depends on type of business. If you end up running like healthcare
etc which is heavily regulated, it is better to incorporate as soon as
possible. Otherwise delaying it a bit is fine too.

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client4
You should incorporate when you make $1500 and/or when you need to start
signing contracts. Why $1500? Stripe Atlas is $500 (comes with enough AWS
credits to host your app for at least a year) and your increased accounting
cost will be ~$1000 which is a high estimate.

Your company will start at break even, and you will be able to start a clean
paper/bank/accounting trail for your profits and expenses.

~~~
tudelo
Are you saying sign up for stripe atlas?

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maringerov
About 4 months after starting - basically before we had to start paying our
vendors. In retrospect, I think we could have done it even later, just before
opening the online store.

I guess it matters where you are and what your business is. In our case, we
are based in Europe and run an ecommerce company, so we had to be incorporated
quite early on.

------
jcadam
Formed a Florida S-Corp for my side project about 5 months ago (Single member
LLCs in Florida don't provide as much liability protection as they do in the
rest of the country).

Started accepting sign-ups about 5 days ago. Have had 2 trial sign-ups, $0
revenue so far

Maybe I should advertise? :D

~~~
toomuchtodo
Rough cost to S Corp incorporate in FL?

~~~
jcadam
The initial filing fee isn't bad: ~$80 or so. Annual reports come with a fee
of $150 though.

~~~
toomuchtodo
Thank you!

------
inertial
Similar question but for those who live in a place where legal liability is
not a concern and are working solo. Is there any significant advantage to
incorporate until you are "big" ? It's just a lot of paperwork & compliance
headache IMO.

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tompetry
From what I remember, in order to sign a lease for the solo office I was
using, the property manager required payment from a business banking account
(not an individual) and to have incorporation documents. It was at that point
that I incorporated.

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iameli
Was doing long-term contract work for two companies. Incorporated (Washington
S-Corp), moved contracts over there for liability, tax, structural reasons.
Huge pain in the ass. Basically took a year of my co-founder's time to set
everything up properly and learn everything necessary to drive the thing
financially.

On the other hand. Now we have revenue, payroll (Gusto), health insurance
(Premera), an attorney, proper corporate paperwork, and products that we wanna
make. Pretty happy to have done that all before looking for investment. Seems
like we're likely to retain more of our independence than other potential
paths.

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qntmfred
I've been running a site that started in 2000, never incorporated. Looked
briefly at turning it into a non-profit a few years ago when I thought I was
going to transfer it to new owners.

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mattbgates
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.

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amasad
Right after I quit my job and just before I decided to raise money.

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tobltobs
One 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.

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boysabr3
Highly recommend this Stripe Atlas guide on incorporation:
[https://stripe.com/atlas/guides/incorporation](https://stripe.com/atlas/guides/incorporation)

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austenallred
When we started to make money.

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buf
I never incorporated, but I formed an LLC. I did it when my startup: 1\. made
money 2\. could become a legal liability

~~~
Megan_Wale
Cant agree more. Whenever I will feel more confident and ready.

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chuhnk
When I had a confirmed deal and knew I would be invoicing in 30 days.

