Ask HN: What's the quickest and cheapest way to de-risk my startup?

6 points by boldpanda 12 years ago | 7 comments

I have a little startup doing $10K+ MRR and I've done nothing on the legal front in terms of having a lawyer review the business or my site. I haven't written a terms & condition on my website.

I don't have any insurance.

I haven't incorporated, etc. I run it as a sole proprietor & have no employees.

So, I'm wondering what's the minimum effective dose to de-risk my business. I'm looking for an 80/20 solution to minimize my legal risk without dumping a bunch time & money into lawyers.

Any suggestions?

patio11 12 years ago |

Incorporate an LLC ($500 or less). Consider getting liability insurance, depending on what your site does. It will cost below $2k per year. Lightly adapt the ToS of Wordpress (which is OSSed) or similar for your purposes (free as in beer).

Then sleep easy.

I would advise involving a lawyer if you're in a particularly risky space. If you are, you probably know it.

philiphodgen 12 years ago |

IAAL.

You don't say what your business does. That is critical. No one can answer your risk mitigation questions until you identify (most of) the risks. Ask yourself "What could possibly go wrong?" And then deal with each risk with a surgical strike. It's a combination of targeted and broad spectrum antibiotics you need here.

Incorporation. These cheap outfits that set up corporations or LLCs are fine but that's like me wanting to be a programmer and buying a laptop and saying "Right, what next?"

You have to be anal retentive in the maintenance steps with your corporation or LLC. If you are not rigorous in this step any half-alert lawyer will blow through it. What's the saying, "security is a process?"

That means never ever using the company's money to buy personal stuff. That means doing all of the paperwork annually to maintain the entity of your choice.

The least brain damage for you will be an LLC, if you live in the USA. Company formalities are minimal, it doesn't have any tax impact, it is easy to understand.

Don't optimize for tax. I am a tax lawyer. :-) There is not enough potential savings to make it worth your while. Optimize for income. Optimize for sale of your company. Hire a bookkeeper to keep the finances immaculate and an accountant to review the bookkeeper's work.

The opportunity cost for you doing this work is astronomical. If you have crap financial records you can't show an acquirer how well your product is doing. They don't buy your company. You lose all your money. You are pushing a shopping cart in the street while your grandchildren curse your name. OK slight hyperbole there. :-)

nostrademons 12 years ago |

Incorporate. That's by far the biggest bang for your buck you can do. Without that, you're personally liable for everything your startup does. If you get one disgruntled customer, they sue you instead of your startup, and all your assets are at risk.

Incorporate.com offers standardized Delaware incorporation for $79, and (YC-backed) Clerky offers it for $99. I haven't used either of these personally, so YMMV may vary, but they seem legit.

jeffmould 12 years ago |

IANAL, but at minimum I was say to form either an LLC or S-Corp. Your costs will be at most a couple hundred dollars, but if something should happen down the road it can greatly reduce the risk of personal loss if a customer comes after you.

Not sure what your business is, or what you are doing for customers, but you may also want to get the lawyer to draw up a simple terms/conditions or contract (depending on your business). This lays the groundwork for preventing problems with customers. If something does happen and your case goes to court it is your word against theirs and without anything in writing their word is most likely going to be a lot more believable to the court system unfortunately.

Other than that, I would keep finances separate. If you form an LLC or incorporate open a business bank account and keep that money separate from your personal money. No cost in doing this and it will make things easier should the tax man come digging into your finances.

georgemcbay 12 years ago |

You should probably incorporate into at least an LLC. Various other posts here have mentioned this but while they mentioned the "couple hundred dollars" of fees to start an LLC, also keep in mind that in some states you may pay a minimum yearly tax as an LLC. If you register your LLC in California (YMMV elsewhere) it costs $800/yr in taxes to maintain the LLC, even if you don't earn a dime from it.

dsparry 12 years ago |

Best 80/20 solution is to form an LLC in your state through legalzoom.com. Actual incorporation (i.e., forming a corporation, usually in Delaware) is usually only necessary once you're ready for equity investment.

Learn more about LLCs here: http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html

dennisgorelik 12 years ago |

If your business has no profit, no revenue and no employees, and there is not much personal worth to protect - change nothing and focus on business.

When any of the above change - incorporate.

Most likely you would want to start with S-corporation or LLC.

IANAL.