Should I incorporate my startup company?

ASK SCOTT FOX:

Dear Scott,

I really cannot decide if I need to form an LLC or not. I will not be selling anything except advertising on my information site. I plan to operate more than one site but maybe just 2 or 3.

Any advice on this????

Chris

SCOTT FOX'S ANSWER:

Dear Chris,

This is a common question from new entrepreneurs but a good one.  Planning for contingencies such as the legal protection provided by a corporation is a good example of the thinking ahead needed to become a successful entrepreneur.

However, I actually recommend against incorporating a new startup. 

WHAT?!  I am probably the only guy on the whole web who says this but here's why:

There is a whole industry of web sites (and radio commercials and print ads, etc.) set up to sell legal services to small business people.  Much of their pitch depends on scaring you into thinking you somehow need their services and a lawyer's stamp of approval to do business. 

But guess what?  You can make as much money as you'd like without their permission! (At least in the USA.) (I wouldn't ignore the tax authorities, however...)

My conclusion?  While incorporating does have value, the point of legal documentation is to protect you from liability.  If your business is so new that it has no assets or revenue, it probably does not yet need protecting!

Now the key word that I used there is "yet".  If you are running a revenue-generating business, one that already has assets, or you personally have assets to protect, you definitely should incorporate.  A corporate "shield" can protect you and your personal assets from being tangled up with those of the new company in case of a lawsuit.

But from what Chris says above, he is not yet operating.  And even when he does, he's planning on selling ads as his primary revenue stream.  With little current liability because the company is new and probably little product-based liability because he's selling information, Chris' risk profile is pretty low.

My Recommendation:  Save your money and focus on building a business.  Most startups change their names, product mix, and even concept multiple times before finding their groove.  Once your operation has gelled into a revenue-generating business, then go ahead and incorporate to protect what you have created (and separate it from your personal assets). 

But first things first - build your business.  Make some money before you spend all of yours just "setting things up." 

As I discuss in Chapter 23 of my book, Internet Riches, entrepreneurs need to avoid becoming "tweak freaks".  This means falling in love with tweaking your web site or wasting productive time on administrative activities like incorporating instead of actually generating revenue. 

This is definitely not legal advice - but my "real world" answer is "Get out there and make it happen now.  Incorporate later."

If this answer was helpful to you, plan to attend my fr-ee teleseminar next Wednesday, April 2.  This exclusive Q&A session with me will be fr-ee to my readers!

Email me your question now at tele@scottfox.com to reserve your spot!