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I am from India and am offering a set of online tools which are currently free to use. Soon I would like to convert to a freemium model where members can upgrade to a pro account with an annual charge. Is it mandatory by law to incorporate a company before payments can be received from members. I basically do not want to focus my energies towards creating an entity at this point in time without seeing how the paid service fares.

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AV (add value): in your locality in India do all small businesses need a)legal entity, b)tax tracking number? Global Internet <> Local law/taxes. – Bob Walsh Nov 28 '09 at 20:31

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No you don't need to incorporate, nor should you.

You're right in wanting to just get started. You can just do and run credit cards in your own name, whether by PayPal or other intermediary, or whether you use a merchant account and a payment processor.

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Jason is right that in the US you don't need to incorporate although you might have to get a business license in your local jurisdiction.

The only real reasons you would want to incorporate is for liability protection (so people suing you can't get at your personal assets which I'm sure is not a problem for you right now) and for tax reasons (which you should not worry about until you're really making money).

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The part about protecting you from lawsuits IS NOT TRUE. Common misconception. It protects only from creditors in the event of bankruptcy. – Jason Nov 28 '09 at 18:08
@Jason - I didn't realize that misconception. Thank yuou. – James Black Nov 28 '09 at 18:20
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Jason, what I have seen is that most corporation have indemnification agreements with their offices and directors which provide significant protection against civil lawsuits. Are you saying these agreements are not valid? – Dane Nov 29 '09 at 7:59
@Dane @Jason Indemnification agreements can protect officers and directors from any harm -- it is provided for in the By-Laws. Depending on the state law, there is indemnification any time there is good faith, or the officer or director is successful on the merits. – Henry the Hengineer Nov 30 '09 at 9:48
Disclaimer: My postings for this question are not legal advice. Consult an attorney for legal advice. – Henry the Hengineer Nov 30 '09 at 9:48
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