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A friend and I are working on a website which we hope to launch before the end of the year. We would like to put off the actual incorporation for as long as possible (legal, accounting, & other misc. expenses). What are the pitfalls of incorporating after launching a new website? |
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Incorporating after you go live will not reduce your expenses - it only postpones them. You'll end up spending the same amount whether you incorporate now or whether you wait a few months. The downside of waiting has to do with liability. If your web site were to infringe on a trademark or patent that you didn't know about. If you go live without being incorporated, you and your partners would be personally liable in a law suit. I recommend you go ahead and incorporate as soon as possible. |
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There is also the issue of what may happen if after you go live (or even before) you do not have an agreement about who owns the IP. A break-up of the team leaves that in limbo and potentially contentious. Having that defined in advance if a good thing. |
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I keep hitting this issue. ...but think about it, you are investing all of this time, and all of these resources in your business, do you have an agreement about equity? Have you accounted for everything you have spent together? Incorporating is not only important insofar as it shields you from liability, may provide certain tax advantages, and allows your business to effectively function as a third person who can enter into contracts and the like - it is also an opportunity for you and your cofounder to really sit down and talk about what the business is, and where it's going. Any attorney you talk to (and I think you should talk to an attorney) will have pointed, specific questions for you about your business that may help focus you on what you are doing, and make clear everyone's rights. Incorporating later, in addition to putting off the benefits of a corporate entity, can, if you do not have a rock solid founder agreement in place, potentially endanger your enterprise, as disagreements about who worked when, and what that might be worth can easily arise. I am not your lawyer - this is information, not legal advice. |
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The only downside that I can see is who owns what when you incorporate. It would probably make sense to have some sort of Founders Agreement between your partners just so there is no issues once things get incorporated. |
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