Ask HN: $3000 to incorporate. Is it a good deal? I listen to mixergy interviews and they recommend scott edward walker and so i talked with the guy and he has a startup package. It's 1500+500+900 for filing. The total comes down to around $3000. Is this a good route to go for a startup? Background: I'm a single founder, looking for co-founder down the line. |
Wait until at least one of the following is true:
1. You have investors who are ready to go.
2. You hire an employee.
3. You have actual customers and actual revenue.
4. You have any significant exposure to liability.
I'll go even further and say don't even bother spending time or money on a name, logo, domain name, website, or business cards until you've talked to enough potential customers to be sure you've understood their problem and are building the right product.
If you bring on a co-founder later, you can draw up a simple agreement (find a template online, or get an attorney to help you) that spells out the understanding between the founders in terms of ownership and control of the company once it is incorporated, who owns the leftover IP if the company fails before you get to that point, what happens if one founder leaves, etc.
I know it's exciting to finally "be a real business" and print business cards naming yourself "CEO". But that's all just vanity. Hiring a lawyer and filing some forms doesn't make you a real business; creating a product and selling it to people does.
The cofounders at my current project were antsy about having the credibility that comes with becoming "official", so we incorporated very early. Currently, we're working R&D and looking for money -- not a single investor has asked if we're incorporated or been impressed by our business cards. They do, however, want to learn about the progress we've made with our product and the projected size of our market. Use the money for marketing and product development.
Another thing to keep in mind: we went the LLC route, and its likely that if/when investment comes, we'll have to amend the hell out of our Operating Agreement.
This is not the safest route, but definitely the easiest and cheapest way to get started. Doing this will let you open a business bank account, get merchant services setup, get an EIN (tax id) from the federal government, etc.
In Arizona it takes about 3 minutes and costs $50: http://www.azcc.gov/Divisions/Corporations/forms/starpas/for...
Also, why not wait for the co-founder first, to save $$ on getting papers re-drawn / filing amendments?
The benefit of extending your network is huge here. A good legal team can be a gateway to capital, while a missfiled c-corp can scare away investors.
Aside from the oft-repeated, "don't do it until you absolutely have to", I would suggest that you to do some research on law firms that are specifically working with startups in your industry and area.
You may be surprised that many will set up your c-corp for just the cost of fees if they believe that your idea and future with them is strong.
I am outsourcing some of the development and so he mentions it is important to incorporate to protect the ip. It will include some form for freelancers to sign.
The third thing is that i plan to do this at night and weekends while i test out the market and i dont want it to potentially conflict with work ip. I plan to release and sell small pieces of software to test each step of the way. Or maybe just free software.
Thanks.
Ps: oh and he advice me to wait on patents since it is not critical and will cost 20,000. Just execute and that gets investor interested.
However, if you were in a two founder situation, there might be some benefit to incorporating particularly because it would force you and your other cofounder to ask yourselves tough questions about the future.
I have a 2 cofounder situation myself, and I would like to get the legalities out of the way, but I find the fees prohibitively expensive. The best startup package (most comprehensive and from a reputable firm) I've seen was priced at $5,000 USD. $3,000 sounds like a deal, but caveat emptor.
Good luck,
Jenny
From their web site: Clerky helps startups get the legal stuff done fast.
Incorporation, convertible notes, employee documents, NDAs - everything the typical startup needs. Use Clerky to get your paperwork out of the way so you can get back to building your company.
That said, until you launch, hire employees, have a cofounder, raising money, etc... no one is going to know you really exist and the "looking" professional or whatever is non-existant, nor do most early adopters really care or think that way.
The reason most people advise (including really good attorneys) to put off incorporating until you actually need it is basically to save you money and avoid having to undo, amend, or fix anything.
Hope that help better answer the question.