Starting an online business...do we need to incorporate?
My wife and I have a name and concept for an e-commerce website. Do we need to incorporate? We're basically going to be selling things that people can download and print.
I know that one of the benefits of incorporating is that it can potentially protect us financially from lawsuits and such. Would a disclaimer on our website protect us just as well?
6 Answers
I disagree - at least for now. Build something and test it. If no one buys anything, it probably wouldn't be in your best interest to spend the money to form an LLC.
An LLC will not protect you from a lawsuit, but it will protect your personal assets. As long as the company is adequately funded, you treat your finances correctly, etc, etc.. Most startups don't follow the rules early on and this corporate veil is pierced by accident. I'd worry about building something people will use first, then legalize next.
For what you describe, LLC would work well. If you have no assets (e.g., no house or other savings), a sole proprietorship might be fine.
Keep in mind that you can change the business structure later if things take off and you need more protection or structure.
Yeah, I wouldn't register until after you're business is already making sales and worth registering. You may find it won't work.. most businesses fail.
A disclaimer will not protect you as well as a corporation or LLC.
That said, no one answering your Q can say what you should do. You're the one who needs to decide whether the cost of forming and maintaining an entity makes sense in light of your personal exposure (assets at risk x the likelihood that an unhappy customer or other individual / entity will have a claim against your business).
You might find the following posts helpful (CA-oriented, but should be largely true for NY, as well):
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
No, as Bob said. Just get started now. Read into the customer development methodology by Steve Blank and build an MVP. If you've proven your model, then worry about incorporating.
My 2 cents.
I agree with Mitch. You should form an LLC. If there were a lawsuit, the LLC's assets would be separated from your personal assets, assuming you followed all the rules for separating business assets from personal ones.
A disclaimer on the website has limited protections for certain IP rights, but nothing for the event of a lawsuit.
