Ask HN: Shall we incorporate when we launch our website? | Hacker News Reader

Ask HN: Shall we incorporate when we launch our website?

7 pointsxunx7 comments

Hi, my friends and I are working on a website. Our website will be free to use, and we might get people to register at our site with some of their personal information (does not include credit card info). When we launch the site, do we have to incorporate? Say if we cannot incorporate at first,(we are both non-US citizens and hold international visa, besides, we would first like to test the site to see if people like it) will there be any risk involved for us to run the site?

Your answers are greatly appreciated!!

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Reasons to incorporate include 1. limiting your liability and 2. establishing a formal agreement between you and your friends. First, if someone were to sue your company and you weren't incorporated (LLC, C-Corp, etc.) then they would be suing YOU personally and you would be liable. If you do incorporate, someone suing you is actually suing the company - the company is liable and only in specific cases can you be personally liable.

The second part is that incorporating typically puts out the terms of your arrangement with your friends - right now, if the hosting is in one person's name, they could essentially be the sole owner of the company (unless you had a lawsuit over IP, or something like that). Incorporating makes clear that the company owns the site and IP, and decides what percentage each party owns of the company.

Thanks, so I guess we have to incorporate then, in case someone wants to sue us. But then our main concern is our visa status. I am on a F1 visa and my friend is on a H1B visa. We are the main cofounders. I saw some answers by other people who say that if we incorporate, we can have shares and sit on the board but we cannot work for our company because our visa won't allow us to (While I can use opt, but my cofounder who is on H1B and who is the tech person can't). Their suggestion is to find a US cofounder, but finding a technical cofounder is hard for us...

If you just need someone to be the "face" of the company, you could consider finding a business or legal person to come on board just for incorporating and managing. Offer them some small-ish equity in return.

What would the lawsuit be about? Is there a way that you would be sued as the actors "behind" the corporation (http://en.wikipedia.org/wiki/Piercing_the_corporate_veil)? Will you be a director of the corporation as well? It's very common for people to sue directors of corporations (see D&O insurance for details [http://www.insurepro.net/html/directors_and_officers_explain...).

The liability might be less limited than you think. Liability for debt? Probably anyone that would lend money to you would want personal guarantees.

You may want to consult a lawyer if this could potentially be messy. Lawyers are expensive you say! See my comment below about law schools and clinics.

Not exactly an answer to your question but it might make the decision easier: If you're currently a university student at an institution that has a law school then you can probably incorporate for free/the cost of filing. Many law schools operate business clinics that are free for students.

Actually, doesn't YC suggest you not incorporate when you partner or launch so that if you apply for and get into YC, they can help you form with their preferred structure?

Someone is going to have to show me an assesment of the true liability exposure of a website with no personally identifiable user data, no financial information, and presumably no personal assets to collect against before I'm convinced that's not a perfectly sound initial plan.

We formed a partnership agreement, no incorporation, FWIW. The agreement is binding.

Have anyone run into similar situations? Or most startups have US cofounders?

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