Hi YC, so I'm in the process of building a prototype of an idea I've had and I need to purchase some equipment to do this - probably about $3000 worth. Is it better to just use my own personal funds to do this as an individual or is there a significant benefit to incorporating? What state would you incorporate in as a software startup? I was thinking about MA, but CA and Delaware seem popular too - what do you think?
If you're just prototyping something for yourself I'm not sure it matters. The major reasons to be a corporation are:<p>* You have assets that you want to shield from liability when your customers sue you -- you'd rather have them sue the corporation instead. But, no customers yet = no problem yet. Assuming that your new idea doesn't involve radioactivity or anything.<p>* You want to give away shares in your new business to angel investors, VCs, or partners. No investors = no problem.<p>In any case, if you really think you want to form a corp you should talk to an accountant, and possibly a lawyer, about the details.
I incorporated my last startup when someone offered to buy it. This is probably slightly too late, but I think you should delay it as long as possible.<p>If you need an entity for tax purposes, a sole proprietorship or LLP works fine.
If you're going to take investment form a C-Corporation. If you're not going to take investment right away (or ever) elect S-Corporation status.<p>It's a hassle to sell "shares" of an LLC to investors for capital, so I wouldn't bother because it the possibility is left open with a C-Corporation or S-Corporation.<p>Being a sole-proprietor or partnership doesn't limit your liability and investment doesn't really apply to either, so they're right out at the start.<p>And if you're just making something for yourself then there's no need for any of this.
I incorporated right away so that I could write off big chunks of my day-to-day expenses. I write off a big chunk of my rent and most of my meals that I go out to eat.
You can write off purchases before you incorporate (as a sole proprietorship), if that's what you're asking. Incorporate if you need liability protection or if you're going to take investment. I typically do that right away if it's a project I'm serious about... why not?
if u r going to apply to YC (or anyother YC clones) then they suggest/prefer not to inc. this is b'cause they (YC) help you with all these formalities in the best possible way - they have lawyers lined-up to help you.<p>But if u want to write-off ur expenses then its better u meet an accountant, most possibly he/she will suggest to inc.