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Ask HN: How important is it for a project to be a legal entity, early on?

7 points by lukev ↗ HN
I've been working on a potential startup idea in my spare time, and I think I'll eventually want to run with it.

The thing is, I don't know yet how "big" it's going to be. It may end up only being a hobby site I keep up for a few months, I may monetize it and keep it as a secondary income stream, or it may go viral and I might want to look for an exit.

Do I need to set up a legal company before I launch the site and/or start taking people's money? Or is it ok to launch, use Paypal while my volume is low, and only worry about setting up a company and a real payment service when and if the concept proves sound?

5 comments

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adrianscott
usual disclaimer of speak to a lawyer, and also, this depends on your jurisdiction: generally the most important things are:

- make sure anything you create is clearly yours (i.e. not owned by your employer if you have one, not worked on during work time or on work equipment etc)

- if you have anyone else creating intellectual property, make sure you have legal documentation of ownership of it.

in many cases, if you have these areas taken care of, you can create a corporation later if/when appropriate. (i'm assuming by take people's money you mean customers rather than investors)

hope this helps,

imp
It depends on the level of risk you want to take on. A lawyer will tell you to incorporate ASAP. Personally, I feel comfortable going without incorporating right up until I start taking people's money. Just my own comfort level though. It's not particularly hard to incorporate, so there's no real reason not to do it sooner rather than later. It's nice to do it before you take any money because then you can open a checking account in the company's name and your finances will all be in order from day one. That's probably the biggest reason to incorporate early. The chances of being sued when you only have 10 visitors/day is extremely close to zero. IANAL though...
canterburry
I am not affiliated with this website at all but recently got very helpful answers on a very similar topic from several lawyers.

www.lawpivot.com

imp
Wow, that looks interesting. I haven't seen that before. Thanks for the link.
ashleyreddy
I've try a bunch of little micro business experiments like making iphone apps etc. I wouldn't bother with any legal framework until the $$ starts rolling in. Keep it real.