

Ask YC: When do you incorporate? - kcy

Hi YC, so I'm in the process of building a prototype of an idea I've had and I need to purchase some equipment to do this - probably about $3000 worth.  Is it better to just use my own personal funds to do this as an individual or is there a significant benefit to incorporating?  What state would you incorporate in as a software startup?  I was thinking about MA, but CA and Delaware seem popular too - what do you think?
======
mechanical_fish
If you're just prototyping something for yourself I'm not sure it matters. The
major reasons to be a corporation are:

* You have assets that you want to shield from liability when your customers sue you -- you'd rather have them sue the corporation instead. But, no customers yet = no problem yet. Assuming that your new idea doesn't involve radioactivity or anything.

* You want to give away shares in your new business to angel investors, VCs, or partners. No investors = no problem.

In any case, if you really think you want to form a corp you should talk to an
accountant, and possibly a lawyer, about the details.

------
webwright
I incorporated my last startup when someone offered to buy it. This is
probably slightly too late, but I think you should delay it as long as
possible.

If you need an entity for tax purposes, a sole proprietorship or LLP works
fine.

------
extantproject
If you're going to take investment form a C-Corporation. If you're not going
to take investment right away (or ever) elect S-Corporation status.

It's a hassle to sell "shares" of an LLC to investors for capital, so I
wouldn't bother because it the possibility is left open with a C-Corporation
or S-Corporation.

Being a sole-proprietor or partnership doesn't limit your liability and
investment doesn't really apply to either, so they're right out at the start.

And if you're just making something for yourself then there's no need for any
of this.

------
pkaler
I incorporated right away so that I could write off big chunks of my day-to-
day expenses. I write off a big chunk of my rent and most of my meals that I
go out to eat.

~~~
slackerIII
Has an accountant blessed the idea of writing off your meals? You may be
setting yourself up for an audit at some point where you have to explain how
exactly that meal was business related.

~~~
nkohari
True. You have to track your receipts also, and it might even be a good idea
to have the corporation "reimburse" you for the computer through company
funds. I hear you also have to be very careful with the home office deduction,
because it's a major red flag for auditors.

------
falsestprophet
When do you incorporate?

    
    
      As soon as you have to share (with investors or partners)
    
      or to protect assets.

------
jonah
Once you incorporate, you then transfer some personal money to the Corp. as
either Owner's Equity or a loan and pay your expenses out of that.

------
NoBSWebDesign
You can write off purchases before you incorporate (as a sole proprietorship),
if that's what you're asking. Incorporate if you need liability protection or
if you're going to take investment. I typically do that right away if it's a
project I'm serious about... why not?

------
white
If you're going to take an investment, you should consider Delaware C Corp.

------
extantproject
Do you really need the equipment?

------
ideas101
if u r going to apply to YC (or anyother YC clones) then they suggest/prefer
not to inc. this is b'cause they (YC) help you with all these formalities in
the best possible way - they have lawyers lined-up to help you.

But if u want to write-off ur expenses then its better u meet an accountant,
most possibly he/she will suggest to inc.

