Ask HN: Legal timeline for a successful web startup?

I'm not a lawyer, but I have helped launch a couple companies:

* Form an LLC now, so that your business operates under limited liability, as its own entity that can invoice and be invoiced, instead of out of your bank account. Cost: $200-300. You don't need a lawyer to do this in a one-person shop; just fill out the web form and give them your credit card number.

* You want a business lawyer once you have multiple employees (whereupon you'll restructure the company, often to a C corp so you can issue equity) or before you sign your first complicated contract.

* If you charge money, you probably have terms and conditions, and you probably want those reviewed before you publish them.

* You don't need to do anything special to claim copyright in the US, or anywhere else the Berne Convention applies.

* Nothing stops anyone from copying your idea and launching their own site except for a contract that they actually sign that prohibits them from doing so. When you launch, the clock starts ticking.

* Regarding your next question: welcome to the Internets.

They're called corporate lawyers, but many small firms and individual lawyers do corporate law along with other areas of practice.

There are tax issues on what you get to deduct before and after starting a company, but really I think your main concern should be the reason why you want to start a company. If you have considerable individual assets and your venture might be risky in terms of owing people money if it fails, then you would want the strong legal protection a company can provide. If you're doing something very benign, like starting a blog thats unlikely to get you into trouble, well, you can wait.

It also matters how much capital you have. If you spend it all on a lawyer you might end up with a nice document and not enough capital to carry on a real business. On the other hand, you can have a great business and get caught without legal protection.

This question was much more easily answered before the internet when people started businesses with real profit estimates and business plans. Its a little harder now with the "build first, worry about profitability later" attitudes because you might build a web 2.0 business and it never takes off, so you'll come away thinking your thousand dollar investment in a lawyer was wasted. It probably wasn't, but you'll think it was because the venture wasn't successful.

When actual money starts to change hands, the legal protections become more easily visible and the value they provide is clear.

If you're not sure you'll make money, i.e. you're building a website and hoping it will take off, my down to earth advice is to get a Nolo book, pay the $200 to incorporate an LLC somewhere, and live with that crappy legal situation until you start to make money. Its at least some protection at a cheap price.

Mistake number 1 is asking hackers for legal advice. This is far worse than asking lawyers for programming advice, because at least lawyers will tell you they don't know. You're going to get 100 opinions here ranging from uninformed to semi-informed, and all answers will be based on their own experiences and not your specific legal needs.

Talk to a business lawyer immediately. They won't charge you anything for the initial consultation and will answer these questions.

1. You can probably file LLC papers with your state (or another state) for ~$200. I did that for my first company and didn't hire a lawyer until 3 years later. I highly recommend doing this before you launch your startup. You really should talk to a lawyer before launch, but this is better than nothing.

2. Nothing stops someone from stealing your idea, except: (a) patents, (b) copyright, (c) trade secrets.

You only have to file paperwork for (a), not (b) or (c).

3. You can build on someone else's idea, unless it violates (a) or (b). (c) only protects you as long as it remains secret.

4. Talk to a lawyer. :)

re: #2. Actually, that doesn't stop them either, only your willingness to sue them and the amount of money you have to sue them with does.

(RE: #1)

That's fine and dandy for LLC documents, but if you're working with partners and don't have a clear Operating Agreement written out then you're asking for trouble. I had serious issues with my first successful startup because our Operating Agreement was basically pieced together from little things my partner and I found on the Net with collaboration from a first year Yale law school student. Terrible, terrible, terrible idea.

To make a long story short: the company became wildly successful very quickly and re-doing the Operating Agreement wasn't really on the top of our minds -- it never is when you're doing well. Then three years later the two of us grew apart and wanted to take the company in different directions. Sadly, we had a poorly written agreement that made this a very difficult process with lawyers on both sides fighting to interpret it. If you do nothing else, I'd say get this done professionally sooner rather than later.

Yeah, my advice was definitely for a one person company. Two people should get it done professionally. With one person the focus is on protecting yourself from others. With two or more, the focus is not only protecting the principals, but regulating the relationship between the principals and the process by which that relationship might end. One thing a good lawyer will make you do is think about what will happen if your company breaks up, and they can advise you on how to structure your document to avoid a giant litigation mess.

The better then nothing bit still applies.

Agreed. If you have partners, employees, licensing agreements, or any other contracts, then you should hire a lawyer for good organizational documents. And don't copy & paste out of a book or website. :)

This is true even if you're good friends with your partners. Or maybe even especially if you're friends with your partners. :)

I have been told that you also have to do a few things to make your LLC "real", like get a bank account with your EIN and keep occasional records of meetings.

Go here to get the EIN free online. http://www.irs.gov/businesses/small/article/0,,id=102767,00....

Depends where your business is registered. Different jurisdictions place different reporting requirements on business. Some jurisdictions require business residency and address. This guy needs to talk to an accountant who does this sort of thing rather than a lawyer.

My recommendation is that if you will need to bill people online using credit cards, set something up in the United States if at all possible. Doing the paperwork yourself will save you a bit of cash as will opening your own corporate bank account. You will NEED a US-based bank account (not necessarily corporate) in order to set up a merchant account somewhere as anything but a high-risk company (which basically means you pay more for processing and find it more difficult to get a merchant account and access to a processing gateway). The major advantage of being incorporated here is that you can bill people in the name of your company, rather than as an individual.

We are registered in the BVI. The setup is a dream as far as accounting and tax liabilities go for the organization itself, but it has been a major pain in the ass trying to get our banking affairs in order. It isn't as if you really save money with offshore companies until you are profitable anyway, and even after that you're still liable to treat corporate income as personal income until ownership is significantly diluted. If you're looking for an environment in which company books are essentially closed, it's not a bad call. If I were American, I would probably have registered in Delaware.

Just fyi the copyright symbol has nothing to do with being a company or not. The copyright law in this country basically says that if you made it, its yours.

As far as timeline, I would go with registering an LLC. Its cheap and will give you a form of legitimacy.

Forming an LLC is cheap and easy, but be sure to keep up with paperwork. I showed our "books" to an accountant and he told me that if we ever went to court with that, our LLC status would be stripped away immediately and we'd be personally liable on everything.

Micah, could you share a little more about what state your books were in and what you would have done differently?

Well, the books were in the "nonexistent" state. We had a bunch of receipts from web hosting providers, plus maybe $100 in ad revenue. We wanted to declare all the hosting costs as a loss on our income taxes.

The accountant recommended setting up QuickBooks online, I believe. The basic idea is to track each and every bit of income and expenditure. It can be a real pain, but that's what it means to run a business.

Note: We're still in the "nonexistent" state now, because we just never get around to it. So, don't listen to my advice!

Good advice Micah. A lot of people think once they sign the LLC document they're magically protected and can just ignore it until something comes up. One of the advantages of LLC's over C-Corps is that they get rid of a lot of the formalities, but that doesn't mean you get to ignore everything. There are a few things that can get you in trouble, but like you mentioned, mixing your books is a HUGE deal.

Yep, magically protected. That's what we thought :)

Is this webapp a hobby, or a business? Are you serious about it being a start-up? If so, I'd definitely talk to a lawyer before you launch, and get yourself organized.

Do you have a business plan? A budget?

I'd be interested to know more about what people actually did versus what they should have done. And how did it work out?

There's more legal work than just incorporation. Do you need business insurance? Do you need to register somewhere for DMCA protection?

"You only need insurance when you need insurance" Ok, I just made that quote up, but its true. You can never really answer that question, because the people that paid for it and never used it would say it was a waste of capital, and the people that never bought it and needed it will say you should always buy it. Insurance is, and always will be a risk calculation that only you can do. A lawyer just reminds you of a lot more bad things that can happen to you than you probably had on your list, but ultimately, you need to decide the chances of them happening to you, and how much you're willing to pay to be protected.

With that said, some businesses are required to have insurance and bonds by law, but that's usually something you can easily find out by looking at a government website or Googling.

Actually, we just took on a customer who required insurance. So sometimes you need it when you don't need it. I was pretty surprised when the request came through and didn't know anything about how to get it or what to look for.