mistake

Well, I’m sure I’ve made bucket loads more but thought this one would be a helpful start to first-time entrepreneurs.

You see, last year when I arrived in the States, I started thinking about setting up the company entity for my startup. At the time, we were still early days and I wasn’t entirely sure what our growth journey and resourcing would look like. I therefore set up an LLC in Delaware (a popular jurisdiction for startups). It cost around $500 using a third party to help with the registration and to expedite it.

Six months later and things get serious – I realise we should change to a DE Corporation. It’s relatively easy to change the structure but we need to pay the state taxes applicable – regardless of if the entity was active or not. The US runs its tax years by calendar year – so we then have to pay $250 for each year, totalling an additional $500 for 2012 and 2013 (despite it only being two weeks in the latter). This whole conversion process now starts to be a thousand-dollar-plus affair.

It’s a a waste, especially when sites like Clerky offer new company registration from just $99.

While annoying, fortunately it’s not a massive amount. The thing is many startups aren’t on a production line being fed knowledge by an incubator or accelerator, or are yet in a position to engage a lawyer. It can be tricky knowing what the best things to do is. I’ve since started thinking about other things like shares, employee arrangements and the like. If you’re about to reach a similar stage, the following links can kick you off:

Cheers and happy incorporating!
Kate

P.S. Insert generic disclaimer saying this post isn’t offering or substitute for legal advice. 
P.P.S. I’m so American now!
P.P.P.S. Regular readers not in startups – regular programming returning soon.

One thought on “My first mistake

  1. Right after startup abroad, I incorporated as a Delaware Corp. Since I was 95% sure I was planning to take money from investors, I went ahead and used a lawyer since I really did want a partner in the process who has my best interests at heart — even though that comes with a price.

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