Ask HN: At what point did you incorporate for your startup or side project?

A few years ago, some friends and I entered a local government innovation competition, made a "bid", gave a presentation and were selected to deliver a proof of concept.

We incorporated pretty much immediately upon being advised of our selection for the PoC. This involved ~AU$600 for government fees and incorporation services.

We then retained a lawyer to provide us with a shareholders' agreement (~$1500) and obtained our legally required workers' compensation insurance (~$500).

We didn't sign the contract for the PoC until that point.

Conveniently, the rules of the competition allowed us to expense all that to the customer...

As for why we chose to incorporate - the majority of my team are somewhat risk-averse and legally-minded, and even though we were and remain close friends, we wanted to formalise our business structure to help manage any potential for disagreement later down the track.

As it turned out, our government customer was very happy with the PoC and was interested in engaging us further, but their timelines didn't match up with ours and we ultimately decided to take the $12,500 prize money, open source our PoC code and move on to regular megacorp/government careers.

Had we chosen to continue on, however, having a corporate structure would have been an absolute, non-negotiable necessity for taking on a proper government contract.

During the period our company was active, we never got an accountant - I learned more than I ever wanted to know about how to fill out an Australian corporate income tax return, with pen and paper...

I work on a nonprofit and to receive donations, you need to have 501(c)(3) status, which can be a very painful and long process (took us 8 months, I've heard of it taking as long as 18 months).

The nonprofit industry has collectively come up with a hack to avoid this process called fiscal sponsorship. Through fiscal sponsorship, you basically "rent" someone else's nonprofit status for a percentage of your revenue (typically 7 - 12%). You operate as an independent project under someone else's 501(c)(3), so contributions to you are tax deductible and you don't need to wait on the state and the IRS before you can start taking contributions.

We had a fiscal sponsor and incorporated as soon as we could reasonably justify the expense (our lawyer cost ~$6k for the whole process) because being under fiscal sponsorship is so painful. You typically don't get access to your bank account directly, payroll has to be done through your parent org and sometimes they won't have systems in place for seemingly common situations, like hiring international contractors, and every large expense (large being >$500) has to be sent through their accounts payable department.

I'd really love to see someone start the Stripe of fiscal sponsors. I think you could enable a lot more people to start a lot more nonprofits without being stunted by fiscal sponsors or the large (for new nonprofits) legal costs.

I did so for previous ventures. For my current consulting business I'm a sole proprietor.

I'd advise against incorporating early. Especially with product-based startups there's this temptation to "do it properly right from the start" and plan ahead for when you need to do things like raising venture capital.

This is the business version of premature optimisation. In all likelihood you aren't going to need it and you most certainly don't need it when you're starting out.

In general, I'd say that incorporating only makes sense if either

- The risk becomes too high for you to assume personal liability. This can happen due to several factors such as needing to hire more staff or investing into machines or infrastructure (please note though: Banks generally expect the principal owners of a business to act as guarantors for loans anyway. So, limited liability doesn't help all that much in that case.).

- Some third party wants to invest money in your business in exchange for company shares.

Was doing long-term contract work for two companies. Incorporated (Washington S-Corp), moved contracts over there for liability, tax, structural reasons. Huge pain in the ass. Basically took a year of my co-founder's time to set everything up properly and learn everything necessary to drive the thing financially.

On the other hand. Now we have revenue, payroll (Gusto), health insurance (Premera), an attorney, proper corporate paperwork, and products that we wanna make. Pretty happy to have done that all before looking for investment. Seems like we're likely to retain more of our independence than other potential paths.