Just wondering whether to form a company straight away, or wait until some point before launch. I guess the 2 most important things are to protect ip, and ensure I get my stake in the future.
Any advice on this?
You should probably vest some or all of the founders' stock (the usual time is 4 years) as a way of deciding in advance what happens if you split. It is a huge distraction to negotiate that later.
Don't incorporate as an LLC unless you don't plan to either take investment or sell the company.
You should postpone incorporating only if (a) you're still not 100% sure you want to start the company, (b) you're not sure yet what the stock allocation should be, or (c) you want to get funding soon from YC or some other investor who would prefer to start with a clean slate.
Use a lawyer. And if this is a startup, get one who works with startups, because the issues with startups are different from ordinary businesses.
"Don't incorporate, though, if you can avoid it. Especially as an LLC. It's much more complicated for us to deal with existing paperwork than to start from scratch."
And as a personal note, I've found the same logistically - tinker together with friends on a project, see how you gel together, then worry about forming a company later.
There's also a contract that might help if one of you originally came up with the idea and recruited the other - you can create one that says basically that all the ideas and work belong to one person, the idea originator, but that they all transfer to whatever company you guys form if you actually get around to forming one.
I have zero legal experience, so take it for what it's worth, this isn't advice either way.
It is one of the poorer pieces of advice on this site for someone who actually wants to run a company, and I wish YC would clarify it. To actually run a business, you need a incorporate for tax reasons, so you can invoice and be invoiced, so you can make binding, valid equity grants, and so your vendors, partners, and customers can't sue you for your house.
It will take you 2-3 hours, spread over 2 weeks, to set yourself up with an LLC and an EIN. It's not one of the Great Distractions you face starting up.
Yeah, how so?
To change from an S-corp to a C-corp is just one piece of paper. You're already a corporation, not an LLC, and you get the flow-through benefits and limited liability.
If everyone is on board for the 'new' structure, then this should be trivial. If you have investors, you grant them new shares equivalent to their old LLC member %.
LLC"s have huge advantages too, if you dont plan to raise money, or only do it from a few people. The fact that you can allocate losses and gains regardless of ownership % means that you can allocate tax losses to an investor who may only own 20%. Them taking a tax loss is effective to them not paying more taxes, so it is a form of benefit for them.
There are minor tax benefits to an LLC, and there's a major simplicity benefit. The driver (for us) to move to S-Corp is to safely grant equity.
There is no reason to overthink any of this. Just do what's easiest. But don't run a sole proprietorship just because an entry in the YC FAQ says you're easier to fund without incorporating. News flash: YC isn't investing in you anyways; by all available evidence, your odds of being accepted are low, probably lower than your odds of just succeeding with the company.
I guess we will 'tinker' until the point of release.
Thanks
Legal contracts aren't warm and fuzzy, but they keep everyone honest; as you can gather from the scenario I outline above, this isn't even about money -- in the Internet age, reputational risk is everything. You never know when/why you might get spit upon, or by whom.