
Ask HN: Do I need to incorporate? - trainiac
In order to validate my startup idea, I want to see if people are willing to pay for the product&#x2F;service (thus, I want to accept payments). At this stage, does it make sense to incorporate? Or rather, do I need to incorporate?<p>I&#x27;ve read some blogs&#x2F;articles about why and when one should incorporate, and while all that makes sense, my question is based on the aspect of accepting revenue (albeit limited) alone.
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justboxing
Disclaimer: I am not a Lawyer. This is not legal advice.

I've done this and wasted about 2K (Lawyer's fee, LLC Yearly fee, Bank
account, credit card for purchases) only to spend 2 years on my startup idea
and realize I couldn't properly monetize it. It was - and still is - a tech
blog like TechCrunch and I'd built traffic all the way to 100K visitors a
month, inbound links from BGR, MacRumors, TechCrunch etc and yet was making
only about 100$ / month on ads and sponsors (circa 2010 - 2012). I could've
explored other avenues, but I moved on to building Web apps and APIs.

Don't do it, especially if you are a 1-man startup. Waste of money. Build and
validate your MVP and once you start generating revenues, then think about it.
Even then, if you are a 1-man show, you can use a DBA (Doing Business As) for
your Tax returns. If you are worried about getting "sued", get a Professional
Liability Insurance for a lot less than incorporation fees and taxes. I found
out that it's a bit challenging to get Professional Liability insurance for
software devs, since most such insurance has traditionally been for old
professions like Tax Consultant, Accountants and other such service providers.

Still not convinced? When Dennis Crowley created FourSquare and got crazy
traction, he still hadn't incorporated. See:
[https://techcrunch.com/2011/03/02/founder-stories-crowley-
fo...](https://techcrunch.com/2011/03/02/founder-stories-crowley-foursquare-
origins/)

> The company incorporated just so that it could get into iTunes. And when he
> raised his first $1.35 million angel round in 2009, Foursquare didn’t even
> have a bank account. He remembers (at the very end of this clip, around 6
> minutes in) having to run to a Chase branch office in Manhattan, and telling
> the bank officer, “We need to set up a business account and we are going to
> wire in, like, a million dollars. Is that okay?”

~~~
dragonwriter
> Don't do it, especially if you are a 1-man startup. Waste of money.
> Especially in California. If you incorporate a single-member LLC, you don't
> really get an of the LLC protections, and on the other hand, you pay 800$ /
> year in LLC fees.

The minimum franchise tax for a corporation is the same as an LLC, and a
single-shareholder corporation absolutely does get the protections (including
limited liability) of the corporate form (provided the behavioral rules are
followed), so if you are going to incorporate, you may want to _actually_
incorporate, rather than do a single-member LLC.

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blacksqr
If your question is limited to the topic of receiving revenue, then it is
perfectly acceptable to do business yourself as a sole proprietorship. Your
state may require you to do a DBA (Doing Business As) registration, so you can
legally operate under a name other than your own, but that's probably the only
structure you need at this point.

Once you get the DBA you should open a separate bank account and get a
separate credit card to use solely for business. The IRS might get cross with
you if you can't clearly identify and justify business revenues and expenses.
Plus it will make things much easier when doing your taxes.

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WestCoastJustin
I'd flip things around. What if the idea is a flop and you spend ~1k talking
to a lawyer, setting up all these accounts, and spending a month of effort on
this work. Are you okay with that? Like, if you are okay with only getting $15
bucks for this then do it. But, I'd probably wager not, if you don't have some
sense the idea is going to take off. On the other side, what if there is
demand and then you cannot accept revenue ASAP. I've had that, and it really
sucks, you need to pretty much drop everything and implement a cash register,
and this takes time (set up company, get bank account, get stripe working,
figure out pricing, plans, etc). So, I guess it really depends on if you think
there will be demand, it's probably worth spending the time and money to get
it done. This is a gamble though. Sorry, there isn't really a one size fits
all here, it is highly dependant on your confidence that this will work. If
you think it will, then invest the time.

You haven't really said if this is an on-line product or something you can go
out and ask people about. Patio11 had a pretty good comment (cannot find it
now) about mocking things up on an iPad and then going and asking people. Like
have screenshots, flip through it with them, and ask if they would pay for
something like that. It sounds like you are firmly in this area of wanting to
know if it's a good idea people will pay something for. So, you probably don't
want to create a company yet. Again, just guessing here. Providing more info
will greatly help in giving advice.

~~~
trainiac
Thanks! That makes a lot of sense.

This is intended to be an online service geared towards a humanitarian cause.
Your reference about mocking things up and asking people is a really good one.
I've been validating the idea by asking people questions through interviews
and surveys and so far I have a good feeling about it. I'd be doing mockup
validations too but as this is a service and not a product I may defer it for
a bit (or not).

I'm with you on not wanting to create a company yet, but I wanted to know how
practical is it to accept money into one's personal account? I obviously don't
want to risk my personal assets but I also realize creating a company could be
unnecessary hassle/expense. I'm trying to sort that confusion.

~~~
WestCoastJustin
I'd be extremely careful about mixing your personal accounts with any
potential company funds. It will become a nightmare to keep things straight.
Save yourself and just create a dedicated account. As, I think you'd be
opening yourself up to all kinds of hurt if you attempt something like that.

~~~
trainiac
Thanks! That's what I fear.

When you say dedicated account, do you mean just another personal account? Or
a business account (hence setup company)?

~~~
jtrtoo
You do not need to incorporate or form an LLC to establish a business account.
A sole proprietorship is just doing business as yourself. It's particularly
easy if you have your own name in the business name. No paperwork/DBA
publishing required for the bank.

(For that matter, you don't even need a business account... Just an account
that is dedicated to your business transactions.)

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saluki
IANAL

y, I agree with others.

Sign up for an EIN number so you don't have to use your SSN.

Use stripe for payments.

You can operate as a sole proprietorship initially once your startup has legs
then you can form an LLC or inc.

