startup-costs, lean-startupMy co-founder insists that it’s too early to register as a corporation before we crowd-fund as we do not have the money to register.
When is the right time to become a corporation?
Also, we still do not have a co-founders agreement as we can’t afford a lawyer to do it correctly. Is it foolish to run a campaign anyway?
This might sound like a foolish question but who wants to pay out of their own pocket for a lawyer to make an agreement for a startup that I am told 95% of startups fail?
Should we wait to see if it will be successful first?
Thanks
You have tagged this “lean startup”. However, there is no good reason for a lean startup to simply eschew legal arrangements. Those should be in place to protect individual contributions and limit risk.
Incorporate at the point that the company is about to own anything of real value. The might be the code or designs for your project. It definitely includes the funds from any investment or kick-start. Don’t wait until you are already holding something of significant value, because that’s a bad place to start negotiations.
Whether you end up in the 95% fail pile or make a success, there will be questions about ownership, accountability, value of contributions. Although you don’t plan to fail, you also don’t plan to ignore the consequences of it and hope that you can amicably split e.g. some +- $10,000 assets if and when the time comes to wind things up.
If the name of the company you are incorporating is important to your brand, then it could be worth doing right away. The same goes with a domain name. Otherwise you will need to form the Corporation when you start doing business - like setting up a bank account.
Because this is a corporation, you will be shareholders. You don’t need a formal cofounder agreement immediately, however, you should have some basic document stating “x” number of shares (or percentage of ownership) for each founder. You can develop a formal agreement once you have the money to do so (but do not wait long).
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