But he's not likely going to make any money in the next several months, so for now he should just build. If he starts making substantial revenue, he can deal with the legal stuff at that point.
I respect where you're coming from -- just concentrate on building, make it awesome, and everything else can wait -- but that's a good way to end up in an ugly situation, especially since he's a non-citizen. I don't know the rules around non-citizens starting a business in the U.S., do you?
Also: if the business is starting to make money, then that's the ideal time to really concentrate on it. Iterate, iterate, iterate. It's hard to do that though if you have to step away and deal with the legal stuff instead; it becomes a distraction at exactly the wrong time, and you don't even know ahead of time how long it will take to deal with.
There's a reason that YC helps their startups incorporate, even before they have a product to sell. It's best to just deal with that immediately, get it out of the way, and then get to work on the product. (This is also the advice of most of the books I've read on starting or maintaining a business.)
I did it your way, actually, and this year I have a tax bill that I cannot afford. You might say that I should have handled that when I knew that the business had grown that much, and you'd be right, but the problem was that I was too busy making money and keeping up with demand to slow down and deal with the legal and tax stuff. Now I have a much larger problem than I would have had if I'd taken care of this in the beginning.
And I'm a U.S. citizen. I have no idea how it would work for someone who isn't.
I see where you're coming from, too. I guess I just worry that by the time this guy takes care of all the legal stuff associated with being a foreigner starting a business, the window he actually has to build is going to close.
And you're right -- I have no idea what happens in terms of his taxes should he actually make money, but I feel very similarly to jhancock, who also commented on the post:
"I'm in the middle of immigration process with my wife. Fortunately, the one place the USCIS and IRS do not look is on your home PC to find out if you've been programming for the startup that probably won't make any revenue until after your immigration process is through."
You can defer filing your tax forms for 6 months, yes; however, any amounts that you owe must be paid by April 15th. From the link: "Please be aware that an extension of time to file your return does not grant you any extension of time to pay your tax liability."
It is possible to file an application for a payment plan with the IRS. IIRC, you can only do this once every 5 years or so; having done it anytime in the last five years disqualifies you from being eligible for a payment plan. You must also show that you can't actually afford the amount owed. You're able to choose your own payment plan -- $/month for N months -- but the longer you stretch it out, the uglier it gets, due to interest. If you default on the payment plan for any reason, there are some pretty serious fees and other interest added on (so said my CPA).
The big lesson for me here is that there is a 15% self-employment tax for sole proprietors and partnerships, and that it's assessed against your AGI, no matter how low your AGI is. I was confused about this and hadn't bothered to figure out my tax situation ahead of time because I was certain that my AGI would put me below the usual poverty line. But, there is no such thing for those that are self-employed. Oops.
I would have saved myself quite a bit of money if I'd taken care of this earlier last year, rather than waiting until the deadline was too near.
Things get complicated as soon as you start making money.