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MenuShould I incorporate a new business?
Hi, I'm starting a new idea with my business partner. My concern is about if we should incorporate the business or not. In order to make everything clear and transparent and to not have problems in the future if the idea works.
We also need to accept payments and configure a merchant account.
There is a company already incorporated where my partner is the owner. Should we use that company as an umbrella until we can afford the incorporation costs for the new company?.
Answers
You do not need to incorporate, and you may use the other company for now. Of course, it is always better to incorporate so that you have a legal entity by which you operate, collect fees, pay taxes, and so on.
If you choose not to incorporate at this point, then you should at least have a written agreement with your partner. It should say that you both intend to start a company and are using the other corporation only temporarily and only for the purposes of the merchant account, and that as soon as you have enough money, you will incorporate properly.
Your agreement should also spell out the different roles you both will play, and who owns what. I would assume you stipulate that you each own 50% of the new company, and therefore each of you are entitled to 50% of any profits after all expenses and taxes are paid, and you are both equally responsible for any debts that are incurred
You should also stipulate that for the terms of the agreement, all decisions must be unanimous, but that either of you may withdraw from this agreement at any time and end the relationship.
If you need help drafting the agreement I can help. I'm an attorney as well.
Yes, it'll help support your new corporation better if you have another right hand corporation in your corner and will help with some start up costs instead of you having to come out of pocket with the costs and if the other corporation is well known and has a good reputation then that can be put onto your new business and give it a good reputation from the start.
Incorporating a new business is a complex and expensive process. You will need to make sure you have the right legal structure, hire experienced professionals and make sure your books are in order. Decide on a name for your company. Find a lawyer who specializes in forming businesses for entrepreneurs and small businesses. Read https://www.sportsgossip.com/modern-students-and-their-problems-in-education/ article to learn further about the modern students. This can be a difficult task because most lawyers do not specialize in forming businesses for entrepreneurs and small businesses, so they may not understand your needs or know how to help you with this important task.
Related Questions
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I'm a Canadian selling ecommerce products on Amazon (US only). Need info on cross border tax clarification & if it's time to incorporate (in US or CA)
Regarding US taxation of internet sales. Since you are a foreign entity or person (in regard to the US), and there is an income tax treaty between Canada and the US, you will not be liable for US federal income tax on internet sales unless you have a “permanent establishment” in the US with which the internet sales income is effectively connected. So as long as you do not have a warehouse, physical store, sales office, etc... in the US you don't have to file US returns or remit tax to the US. Amazon should be charging to the customer and withholding any sales tax due to a state in which your products are sold. If you sell through other merchants or directly you may have to deal with this yourself. Regarding incorporation Incorporation is almost always a good idea from a liability standpoint as it prevents a judgement for damages from taking all your property and limits the collection to what is owned by the business, With the facts you have given I would suggest incorporating in Canada unless you have a business reason to establish a physical presence in the US. This will eliminate US taxes and related compliance costs. Once you establish a US presence you will need to begin filing returns in the US even if you are running a net operating loss. If there is no benefit to having a physical presence in the US then the related compliance costs and tax would be an unnecessary expense. Feel free to setup a phone call if you would like to chat for a bit regarding the matter. ThanksDM
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Where to incorporate a new software as a service busines?
I'll keep try to keep this answer brief, but there are several factors and nuances that can be discussed in more depth. Where you decide to incorporate partly depends on what your future goals are with your company. Companies that plan to seek venture capital or go public typically choose Delaware as the state of incorporation, and usually choose a C-Corp. Delaware has a very well developed body of law surrounding corporate governance and that provides comfort and more certainty to future VC investors. If you're not planning to seek VC money any time soon, an LLC is a smart decision because of the tax benefits it can provide to you as the owner. It sounds like you want to grow your company on your own without outside financing. If that's the case, I would recommend forming your LLC in California. Regarding California vs. Delaware, one benefit to forming your LLC in California is that you can avoid paying a registered agent fee which can cost anywhere from $100-200 a year. If you plan to seek venture capital down the road, you can reincorporate in Delaware.JI
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What is the best business structure for a tech company?
It depends :) Financing: When you're ready to start raising funds, C Corps (especially Delaware) are still preferred in the VC world although some angels are increasingly willing to invest in LLCs. Risk: When you're just starting off it's okay to have a holding LLC with DBAs. As you grow one or more of the ideas, you may want to separate out the risk so that if one company has issues it doesn't hurt the others. But it isn't necessary when you're early on. Once you add employees, cofounders, and/or investors, it's probably time. Your holding LLC could have equity in the idea and you could setup the idea as a C Corp. It's a good structure. Also -- this ain't legal advice. Just general blahblahblah about legal structure. Really good article from a fellow Seattle startup attorney here: http://www.startuplawblog.com/choice-of-entity/BH
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Best way to incorporate a software company in the USA?
The best way to incorporate a software company in the US is to request a consultation with a US-based attorney. Start by seeking an attorney in the state where you plan to hire your US-based sales manager. Answering this question in full without knowing a lot of business details will lead to an inaccurate answer for your company's specific needs. Therefore, a consultation is best to obtain a full response. During the consultation you will be asked about the existing business, the targeted states for transacting business, any proposed location for your sales manager(s) and other business activities in the US. Other variables involved in answering your question include tax implications, existing and estimated revenue and gross profits, estimated employees over the next year in the US, and a slew of other details. Once an incorporation state is elected, an attorney can assist you elect a business entity type and ownership structure most beneficial to your business needs.AD
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We are 3 Co-Founders in Ideation phase of our SAAS product.
How do we split equity fairly?
When do we incorporate the company: Now or later?
Unless you need to be incorporated to complete trial sales, market fit testing...don't do it. Wait until you can afford the couple thousand dollars it will cost you and or until you get an investor if you will go for one. a C corporation is most likely your best bet. Fairly is all on perspective. The original ideator shouldn't leverage that fact to get more. Equity should be based on time involved, possibility of the individual leaving, value added in the long term picture... once you get employees how critical will this position be? how critical is that value now? Whatever way you split, leave about 10-30% open for future partners or investors or negotiations of any kind.HV
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