Can you have a merchant bank account and setup payments via braintree/recurly prior to incorporation?

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February 21st, 2013

We are in super-MVP mode, have a product and want to start charging soon. Is incorporation basically a requirement at this point?

Mike Preuss Growing Visible & helping other early stage co's

February 21st, 2013

I got only speak to my experience but yes you have to be incorporated as we had to provide that info and Federal Tax ID #

Michael Brill Technology startup exec focused on AI-driven products

February 21st, 2013

I'd surprised if anyone mandated a business structure.  I'm almost certain you can open a merchant account with most banks as a sole proprietor (using your social instead of an EIN)... you can with AmEx.

However, don't do that!!!!!  In addition to all of the normal reasons you want to create a limited liability entity, you don't want to assume personal responsibility for chargebacks which banks can unilaterally issue.  On that point, avoid signing personal guarantees as well! 

Anita Ortiz

February 21st, 2013

Even if you can, it will save you time and hassle if you do it all now.  If you switch entities, you have to reopen new bank accounts, new documentation, etc for both the bank and I assume merchant.  


February 21st, 2013

An individual can set up a merchant account if their credit is good, but it can be messy if you do end up successful and try to transition that to a corporate account.

Jessica Alter Entrepreneur & Advisor

February 21st, 2013

For recurly I'm pretty sure it is. Their provider requires that documentation.

Robert Victor Founder and CTO at PebblePost

February 21st, 2013

It's unlikely that you need a Merchant Account as an early stage startup. Worry about that when payment processing fees and the time for money to arrive in your account becomes unmanageable with a Gateway like Braintree or Stripe. Even Paypal may be sufficient for you.

You need your EIN before you can open a Small Business Bank account as a Corporation. Until that time, you can open an account as a Sole Prop or even a Partnership.

I know you can use Stripe and Paypal as a Sole Prop and EIN will not be required.  I assume Braintree is similar (we use Braintree with our C-Corp and really enjoy working with them).

Just because you can do something, does not mean you should. You're taking on a huge amount of risk to save a minimal amount of time and investment. Michael highlighted some specifics above involving chargebacks, but there are other reasons. I'm not going to go through all the reasons to incorporate, assign inventions and price shares before you take in money, but it's important for you to understand.

Matt Mireles

February 21st, 2013

Nope. With Stripe at least, all you need is a bank account. Does not need to be business related.

IMHO the only good reasons to spend $$ on incorporation at this stage are:
  • Limit founders' personal liability in case your product triggers lawsuits & legal claims 
  • Nail down the equity split agreement between founders 

Toan Do Director, National Security Programs at Red Hat

March 4th, 2013

Best advice is to set up your company first and incorporate or via LLC.  Afterall, the IRS is going to want to see where the money is going, and if you open it in your name...well guess who is going to be filing on April 15th.  You can also write off the merchant fees as the company.  Just keeps everything a lot neater for accounting purposes.