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Comment by cwilbur | Hacker News Reader

Incorporating protects your personal liability somewhat, in the event that your startup tanks. It can be a paperwork- and lawyer-intensive process, and if you wait until you're seeing significant traffic, you'll be converting from a sole proprietorship, which will make for even more paperwork and lawyering, at a time when you'd rather be focusing on technology.

In short, if your company fails, you want to be incorporated because it protects your personal assets. If your company succeeds, you want to be incorporated because it makes hiring and taxes and office leasing much simpler. Venture capitalists won't fund a sole proprietorship, and they certainly won't buy one.

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I live in Canada so won't incorporating my company here make it more difficult to get funding in the US?

I would like an answer to this question too.

dupe

Yes, I'm looking at incorporating outside the United States as well (HK to be precise) and would be very interested in hearing this point addressed.

How can a company fail? Can't you always pursue different web 2.0 apps over time? Or do you need to incorporate each one separately?

A company fails if its liabilities exceed its assets, and there's no reasonable way the situation can change.

You can always pursue different web 2.0 apps; but it's probably a good idea to spin them off into separate companies.

Imagine a case where you have four projects. One of them really takes off, while the other three are just barely profitable, and you hire someone to help you with the project that's taking off. After six months you decide to let him go. He slaps you with a discrimination lawsuit. Doesn't matter if it's true or not.

If you have incorporated your companies separately, the only company that lawsuit can take down is the one that employed him, because the assets of the other companies can not be used to pay off the liabilities of that company. If you incorporated them all together, that lawsuit can take all of them down. And if you haven't incorporated any of your companies, your assets can be used to pay off that lawsuit.

And the reason it doesn't matter if it's true or not is that, even if you were completely above-board and non-discriminatory, it takes lawyer time to establish that in court, and lawyer time is not cheap.

I understand the legal point, but I don't think incorporating should be a barrier to building another application. I wouldn't be afraid of pursuing different web 2.0 apps under the same company, but would definitely consider a spin off if one became successful.

Well, yes.

The key points are (a) when one interest starts to run in the red, you don't want it taking down your other interests; and (b) when your app takes off, you don't want to have to worry about app scaling and availability and converting from a sole proprietorship to a corporation or spinning off a company at the same time.

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