We are now in the process of building a web application (startup company), I just want to ask if we need to register the company now or we will wait until the website (web app) is finished? And lastly, where can we register our startup company in here in US? Thanks a lot.
I am not a lawyer, but you can incorporate anytime. You can incorporate with sites like LegalZoom.com (I have used them to form an LLC) or you can use your attorney if you have one (I have also used this method). You can also file the paperwork directly with the state in which you are planning to form your company in. Delaware is a popular state because of its business friendly laws. My lawyers advised that I file in Delaware because of this. Good luck!
@Paul Garcia-you are misusing some of your terminology as well as giving advice that is extremely risky from a legal standpoint, which is the reason I want to point out the following:
To begin with, a sole proprietorship is not an LLC. You can have a single member LLC, but a sole proprietorship is just that, not an LLC, not a corporation. And it is a very poor choice due to the fact that the owner has unlimited liability.
And that should be the key focus to the poster of this question. If one is doing any form a business, it is wise to register as an LLC, or incorporate as an S-Corp or C-Corp in order to limit one’s liability to that of the business entity.
Whether or not this poster is paying an employ is beside the point. IF this entrepreneur is doing business, and he/she is not protected through a proper legal entity (LLC, Corp) he/she runs the risk of personal liability and loss should someone bring suit. THAT is the most important element to when someone should register or incorporate. For example, most home owners who rent a house operate very naively as a second source of personal income. They aren’t paying anyone, but they are exposed to lawsuits and loss of personal assets by not placing that property under the business of an LLC or a corporation-example of why payment of employees has nothing to do with time to protect/form structure.
Any lawyer worth his/her weight will tell you “the time to protect yourself by registering an LLC or incorporating was yesterday.” If you have a building, and an employee slips and falls…he can sue for your personal assets. Your employee feels mistreated and can prove unfair compensation, breach of contract..etc; he can sue for your personal assets. Wise advice is limit your liability now..don’t wait. Furthermore, to correct your use of terms, one does not incorporate an LLC because it is not a corporate structure, it is a limited liability company. You register it, form it, organize it. One “incorporates” an s corp or a c corp. The advice you give that is good is for this individual to speak to an accountant to discuss the way profits and losses flow through and the options of taxation. Another valuable bit of advice would be for the poster to pick up a good book on entrepreneurial law to save on the hours spent with the CPA and the lawyer.
Some hints for you:
1. If you will push your web app online and live, you definitely need to run it by the name of company instead of individual since all legals liabilities will go to your company not you. You will personally get protection under corporate law.
2. We've used Clerky.com to do incorporation. It's straightforward.
3. You might want to register a Delaware company for tax benefits. Clerky will give you options to choose.
Paul, while I appreciate your passion for entrepreneurship, the problem with your thoughts on this entire post illustrate a lack of foundational understanding of entrepreneurial law and the formation phase of any partnership/business. Absolutely, this entrepreneur should treat it as "much of a company." They address themselves as a "start up company" therefore they need to treat their business as a company and properly register or incorporate in preparation for their future.
And I only point that out because there are entrepreneurs in this forum who actually do seek to gain advice on proper steps. The problem with your approach of an entrepreneur not needing to register or incorporate because no money is being paid out or "external" business, completely ignores what is going on internally even if you want to dismiss potential internal liabilities (which one should not).
Aside from the potential legal risks that can occur internally, and yes even if no business is being done, from a formation standpoint when one incorporates or registers an LLC the roles are defined as is ownership, and at least an initial operating agreement is drafted. So even if you want to take the more liberal loosey goosey stance that as long as no external business is being transacted so the entrepreneur has little to worry about legally/liability wise (an approach I would not advise or support), one must consider the relationship of the founding partners and avoidance of ownership arguments down the line which 99.9999% of the time occur when entrepreneurs do not lay that foundation early on.
Now, this poster has stated "We" which conveys he/she is working with someone else. They clearly know they have a startup company, and they are clearly working to produce a product that will be available to the public. So its not just an "idea" as you suggest. This is a real entrepreneur who is transforming an idea into an actual company. For that, they need to respect themselves and their business as a legitimate, operational business soon to be doing business outside of any internal business they are doing presently. So again...doesn't matter about payroll, doesn't matter about external business. Smart approach is, lay a proper base sooner than later as soon as the entrepreneur knows he/she as a single member, or they as a multi member start up are going to move forward from the idea phase.
Wow, no one mentioned Stripe Atlas. stripe.com/atlas -- it will be your sherpa.
What I meant to highlight David is that if you have no customers and no employees (or contractors) there's no one (external) to be liable to, only yourself. At the idea stage, it's not much of a company because no commerce is involved. Umbrella insurance policies are a great idea. Just don't go broadcasting that you have one.
When to register your company depends on when you start paying people and how your company is structured. If you are a sole proprietor and you have no direct employees, for tax purposes you generally have the ability to hold off registering your company until you want to file a loss on your taxes, start buying things wholesale, or pay contractors. You said "we" so likely it's time to incorporate, but first you'll need to decide what corporate structure you need. The purpose of incorporating is however to limit the liability of your company. Whenever you engage in actual business and aren't just building or thinking about your company, it's time to be legitimate.
The way you asked your question, it's unclear whether you are residing in the US or another country. This makes a very big difference.
Most (domestic) entrepreneurs start with an LLC, either single member or multiple member. Some states do not allow single member LLCs and you must have at least two corporate individuals. It's a little more costly to start a C-corp (stock) and more involved. And while there is the advantage that you can sell stock to investors, there is a higher cost in time, taxes, and effort to maintaining a C-corp. You can convert an LLC to a stock corp later if you get to that point. Taxes are handled differently between different incorporation types. How your company is structured (incorporation) will affect your liability, but is varies the the way you pay taxes too.
While you have the option to register your business in most any state, sometimes you may need a local agent to represent you that resides in that state if you are incorporating someplace you don't live. I personally feel that incorporating in a "business friendly" state as some suggest Delaware, is not worthwhile until you're actually doing a major amount of business. Dealing with your home state is more straightforward, and you can always re-incorporate later in another state if the advantages become meaningful.
Talk to your tax accountant first, that's probably going to have the most bearing on what you choose to do and when. I can't give you legal advice. Although you don't have to use a lawyer to set up your company, talking to one may help you sort through issues that could affect your company in the future, before they become an issue.
@paulgarcia, glad to see you went back and edited your original post to correct some of your mistakes. Always good to correct and learn. Still incorrect to state that registering a company depends on when one pays a person. That has no bearing on limiting liability, but glad to see you corrected the importance of limiting liability. In ammending my own statements, one thing I will point out. Regarding my rent example, the LLC is certainly a viable option for a lessor of property. One point I failed to mention in this example is that an umbrella policy for $3-4M can be taken out that will cover most people in the event of a lawsuit. Where I would still advise the LLC, is when lessor's net worth far exceeds this amount, AND where one deems limits with regard to potential law suits could exceed the protection of the umbrella policy. For the average lessor..if a lessee claims lessor was negligent...umbrella should cover any settlement or lawsuit. But if lessor of the house has considerable wealth..that could change.
You can incorporate anytime.
Three ways to file it.
1) Yourself (Little to no Experience) California (http://www.sos.ca.gov/business-programs/) not aware of other states.
2) Lawyers (Lot of Experiences )
3) Online Filing Websites ( Lot of Experiences) https://www.incfile.com/ , LegalZoom.com
I am not a lawyer but I am a Risk-taker(entrepreneur).
1. Yes you can register your company in the U.S.
2. As others have mentioned LegalZoom is a good place to go to incorporate a U.S. company. They are not the cheapest, but they are one of the best, if not the best.
3. I would stay away from an LLC. It will just create needless tax issues for non-resident shareholders. I would most likely just do a C corporation. (though you provide so little information it is hard to say so definitively)
4. Your U.S. corporation could be a subsidiary of your overseas corporation, or could be owned by the owners of your venture. You can also take an existing overseas corporation and register it in the U.S. But there are so many reasons not to do so, that it is almost never done.
5. If you incorporate a U.S. company, that company is permitted to open a U.S. bank account and raise equity funding from both U.S. residents and foreign residents.
You can do a raise under Regulation CF of $1M or less and you can advertise the raise online and on social media to both non-accredited and accredited investors and both U.S. residents and foreign residents.
For more info on how to do this see http://help.us.trucrowd.com/
If you decide to take this path, I would first select who you are going to use to do the raise, and most likely incorporate your new U.S. company in the state where they are located.
6. Why don't you tell us the nature of your application, what your capital needs are, if any, and generally what directions you intend to take your company. Knowing what it is will help us provide better and more useful advice.