5 Reasons To Incorporate Your Startup As Early As Possible
Imagine you’ve spent the past 3 years building a startup from the ground up, watching it grow and become a success. Now imagine that somebody who barely contributed to the project claims to own 30% of the company. This horror story is a reality for many founders who don’t incorporate their startup soon enough.
First-time entrepreneurs often struggle with when to incorporate and formalize equity split between founders. The legal cost of incorporation is often the first major expense founders face, at a time when funds are scarce.
Since the benefits aren’t immediate, it’s easy to delay incorporation. Yet, unlike first-time entrepreneurs, serial entrepreneurs often learn the hard way just how quickly things can get ugly, and eagerly incorporate as early as possible.
To the question “when to incorporate my startup?” the answer is simple: the earlier the better. The shareholder agreements, bylaws and other corporate documents lay the foundations upon which a startup can thrive.
Here are the top five reasons to incorporate your startup sooner rather than later.
1. Establish Co-Founder Ownership and Avoid Fights Between Founders
2. Buy Stocks at a Nominal Price
3. Avoid Adverse Tax Consequences
4. Keep Your Intellectual Property Safe and Sound
5. Protect Your Personal Liability