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Ask HN: Do I need to incorporate?
In order to validate my startup idea, I want to see if people are willing to pay for the product/service (thus, I want to accept payments). At this stage, does it make sense to incorporate? Or rather, do I need to incorporate?
I've read some blogs/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.
- WestCoastJustin 10y agoI'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.
- deleted 10y ago[deleted]
- trainiac 10y agoThanks! 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 10y agoI'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 10y agoThanks! 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 10y agoYou 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.)
- icedchai 10y agoI dump money from my consulting business and iphone apps directly into my personal account. It makes tracking expenses slightly more painful.
- justboxing 10y agoDisclaimer: 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-foursquare-origins/ https://techcrunch.com/2011/03/02/founder-stories-crowley-fo... > The company incorporated just so that it could get into iTunes. And when he raised his first $1.35 million angel round in 2009, Foursquare didn’t even have a bank account. He remembers (at the very end of this clip, around 6 minutes in) having to run to a Chase branch office in Manhattan, and telling the bank officer, “We need to set up a business account and we are going to wire in, like, a million dollars. Is that okay?”
- dragonwriter 10y ago> Don't do it, especially if you are a 1-man startup. Waste of money. Especially in California. If you incorporate a single-member LLC, you don't really get an of the LLC protections, and on the other hand, you pay 800$ / 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.
- blacksqr 10y agoIf 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.
- saluki 10y agoIANAL 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.