When Should I Incorporate?

One of the most important decisions you’ll make is when to incorporate. There’s no one-size-fits-all answer for this decision, but there are some key milestones that signal it is time to incorporate.

You Have One or More Co-Founders

If you have co-founders, incorporating is essential so that (i) you can protect your personal assets such as your savings, car, and home and (ii) ensure that you and your co-founder(s) set clear expectations for ownership and management of your venture.

Incorporation also requires co-founders to analyze, decide and establish how to share ownership and management responsibilities. Through incorporation, you uncover and articulate your values and expectations for each co-founder, which will mitigate a major cause of startup failure – founder disputes. Failure to set clear expectations quickly sows the seeds of misalignment, hindering the trajectory of your business.

You Are Creating Intellectual Property

Intellectual property is the crown jewel of a company. Intellectual property, however, is not limited to the concepts of patents, trademarks, and copyrights. Intellectual property includes work produced such as code, ideas, strategies, and so on.

Without an entity, a default owner of any intellectual property is its creator. That means before incorporation, your intellectual property is yours. Incorporation transfers intellectual property to the company, making a magic moment when you establish that intellectual property is a corporate asset owned by your entity. This is essential in winning investors and parties who seek security that they’re investing or doing business with the intellectual property owner they're doing business with.

You Launch Your Product or Service

As you launch your product/service (even a beta version), you open yourself to legal issues with customers and users, while needing to establish your business's credibility. Incorporation addresses these issues in that it provides you with a layer of credibility and legitimacy that resonates with customers and investors.

You Are Fundraising

Investors will require you to have an entity for your business. An entity allows investors to (i) have unambiguous and discrete ownership of the business to participate in the upside, (ii) ensure necessary intellectual property is properly owned by the entity and (iii) have confidence that the business is a legitimate enterprise.

You Are Recruiting Talent

Building a team is a major milestone. Beyond limited liability protection, incorporation signals to potential hires that your startup is serious, structured, and ready to grow, while giving a structure for benefits such as equity awards and health insurance that would be difficult to provide without an entity.