
Ask HN: Should I incorporate my new company? - taurenk
I started a project on the side and would like to release it to the world for use - charging users a tiny fee to use the service.<p>My question is - do I now need to file for a business name, Corporation vs LLC, or any legal things? This is my first time releasing a service&#x2F;product and have no idea where to start, can any one assist me?
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tptacek
I'm not a lawyer, but I think you should (a) get an LLC, and (b) not spend
real (meaning: hundreds of dollars) money on it. You can get a DE LLC online
about as easily as you can order a book from Amazon.

The LLC allows you to enter into contracts as your firm and not you yourself.
If any arrangement you enter into ever blows up and threatens you with tens of
thousands in liabilities, the company eats it, not your home equity. If you're
savvy at negotiating, you can even get some of your overhead expenses (rent,
Internet) in the LLC's name, so if the firm dies you're not on the hook.

Having an LLC also makes it possible for you to do business-to-business
transactions with big companies. Consultant friends of mine have learned that
invoicing a bigco as a sole proprietorship is likely to end up with that bigco
withholding taxes, or worse, severing the contract altogether.

The reason not to spend money now is that contract liability protection is
really the only thing an LLC is getting you. Most of what you're spending
legal dollars on with a new company has to do with equity allocation. With
neither partners nor investors, there's no reason to get that stuff nailed
down perfectly. In fact, should you ever raise a round, chances are you're
going to rip all your current incorporation stuff up anyways.

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lsllc
I am also not a lawyer, but unless O.P. is in DE, he/she will almost certainly
have to register as a "foreign entity doing business" in his/her home state
despite being registered in DE. In many states, this is about as expensive as
simply registering the LLC there in the first place. Some states (such as NY)
have somewhat byzantine requirements such as having to publish the application
for your foreign (or even native) LLC in two local papers.

But otherwise, an LLC is the way to go; you might however want to elect to
have the LLC taxed as an S-corp so you don't get taxed twice.

~~~
pw
Diddo. My understanding is if you're doing an LLC, you should just do it in
the state you're operating in not Delaware.

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pzxc
You're familiar with the term "premature optimization", right?

Don't bother forming a corporation, renting office space, or even making
business cards when you don't have any customers or revenue.

It's perfectly acceptable, and the recommended approach, to simply operate as
a Sole Proprietorship (no legal entity for the business, just self-employed
income for you) until you have a REASON to form a corporation -- things like,
to mitigate liability, to hire employees, to take on investors, etc.

As a sole proprietorship, you can still do business under a company name -
this is called DBA, "doing business as". So if you go to get a business bank
account, for example, you can open the account under the name "Firstname
Lastname DBA MyCoolInternetCompany". You can also get an EIN or TPIN (employer
ID number, taxpayer ID number) from the IRS without an official business
entity.

Later on, once you have customers and revenue, you can then form an LLC for a
few hundred bucks depending on which state you are in. You can do this first,
of course, before actually starting your business and getting
revenue/customers, and many people do -- but it's a common mistake for new
entrepreneurs to focus on the fun/exciting stuff like making business cards
etc instead of the boring but critical stuff like, you know, actually making
money.

~~~
taurenk
Thanks for the advice! When I file for DBA, lets say "cool internet company",
is it best to get the business bank account, EIN, etc? Or can I just skip this
step?

~~~
patio11
The chief reasons to get a business bank account are a) if you're going to
invoice larger companies it will make getting payments rather easier (you
appear to not be doing this) and b) it makes it marginally easier to segregate
business and personal finances, which will simplify your tax compliance.

I didn't have a separate business bank account for, hmm, ~7 years. It is
skippable.

~~~
taurenk
I think I may go the business bank account route though, it seems to
complicate things less...and hey maybe my service will be a success : )

Thanks again for the advice

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martinflack
I would urge you to find a local lawyer that handles incorporation. Most small
law firms will do a one-hour introductory consultation for free where you can
get professional advice. They can explain properly the various choices and
what that means for your situation specifically.

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actraub
It really depends on your product, what you are doing, etc. pzxc is right, do
prematurely optimize. You also need to decide if you have any serious
liability. Is it just you are do you have any partners...

How to start a startup legal lecture
[http://startupclass.samaltman.com/courses/lec18/](http://startupclass.samaltman.com/courses/lec18/)

How to file in delaware
[http://corp.delaware.gov/howtoform.shtml](http://corp.delaware.gov/howtoform.shtml)

Types of companies [http://www.bizfilings.com/learn/compare-company-
types.aspx](http://www.bizfilings.com/learn/compare-company-types.aspx)

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cylinder
Operate as a sole prop (report income on Schedule C) until you make serious
money (really $75k+/yr). If you have substantial assets to worry about
protecting from liability, then it's worth it to do a proper LLC or corp.

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relaunched
Without knowing what you are doing, I would say this is an ounce of prevention
vs. a pound of cure problem.

Limiting your liability by setting up an LLC, or other liability-limiting
entity, is worth the peace of mind, at least it is for me.

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logn
For a C-corp you'd be in over your head trying to meet all the requirements to
stay legal. And it's totally not needed unless you have investors. An LLC in
your home state is easy and probably about $100. But it's also not needed
unless you expect substantial income--because the only way to actually limit
liability is to separate personal finances from business. Probably with an LLC
you'd end up filing a tax return where you merge business income into your
personal income, so there's not really a tax reason then.

In summary, if spending $100 is no sweat, sure get an LLC.

\--not a lawyer--

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chadkruse
For those suggesting an LLC for liability protection purposes, just a quick
note to be careful here. Depending on your state, a single-member LLC might
not actually provide any legal protection. For those interested, do a quick
search for "piercing the corporate veil".

tl;dr the courts may see through the LLC "veil", determine the "company" is
really just you, and may stick you with any liabilities/debts.

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saluki
Initially I would start out as a Sole Proprietorship, you can get an EIN
number in your business name so you don't have to provide your SSN when
working with companies who will be sending you a 1099.

Once you gain traction or see you have revenue growing then form an LLC . . .
I would only form a corp if you take on investment or your accountant
recommends it.

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debacle
Do you have any assets? If your personal net worth is 20k+, I would form an
LLC. It's relatively painless, depending on which state you file in, and the
cost isn't ridiculous.

