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When to register our startup

Posted at — Mar 22, 2019 by Abishek Muthian

Well, creating a startup means registering our company right? Not necessarily.

Company Registration

Registering a company means informing our government that we are officially open for business  & we are ready to adhere to all compliances in-turn receiving the credibility of a registered company from the government.

Depending upon where we live there could be different types of companies defined by the government like, Private Limited Company or Limited Liability Company where the ownership & liabilities of the company is according to the number of shares a person holds, Proprietorship where the ownership & liabilities belong to an individual, Partnership where the ownership & liabilities belong to each partner.

There could be other types of companies depending upon our region including a separate type for startup (or) additional recognition as a startup for the aforementioned types of companies.

Compliances

As I mentioned earlier, registering a company means we having to adhere to certain compliances associated with the type of the company. This activity could be expensive, exhaustive, robbing out valuable time we could utilise for building our product, especially if we are creating our startup with a lean team.

Since there were no special privileges for a startup when I started my company in 2014, from the eyes of the government my startup is just as same as a multi billion dollar corporation; so being the single executive of the company I spent much of initial years trying to learn all compliances & adhering to all of them.

The time & money; I spent doing that could have been utilised in building my product & I was at a competitive disadvantage when compared to a startup from a startup friendly ecosystem.

So it is essential to know when & where we should register our startup as a company.

Internet Startup

If we are building an Internet consumer product where the face of our product is an App or a website or both & there is no monetisation integrated yet, then there is no need to register our company till we have a viable business model.

Playstore/Appstore

When releasing the app on Google Playstore or Apple Appstore, if we don’t have a registered company the publisher name would be our own (individual) name. Playstore requires tax details of the company & Apple explicitly requires the company to have been registered & uses a third party service to verify the same, incase we need the publisher name to reflect the name of our company.

We can always transfer the app from our individual publisher account to company account after registration, but if we want the publisher name to reflect the name our company then; we have no choice but to register our company before we publish our app.

Monetisation

If  we want to monetise our Internet product before we have registered our company, it is certainly possible but remember that we individually represent a business entity w.r.t to the payment gateway & we have to bare the taxes individually according to the government tax laws.

Payment Gateways

Most payment gateways explicitly require a company to be registered in order to offer their services. If you are individual, testing waters for your product or service then you can use PayPal or Escrow in the beginning without having to register your company.

Accelerators/Investors

Some reputed early stage accelerators & investors prefer if our startup wasn’t registered, because they would like our startup to be registered in their favourable location if they choose to invest in us.

E.g. YCombinator prefers its startups to be located in the San Francisco Bay area, requiring the startup to be registered in USA; though there has been some exceptions to it when the startup provides solutions unique to their country of origin.

B2B

If we are building products or services which is being offered to businesses, it is likely that they would prefer dealing with a registered company for the sake of clarity in invoices & may be for tax benefits.

To conclude,

If we are capable of generating revenue from our startup, or if we plan on selling our products/services to businesses, if we have dedicated personnel in our team who can take care of compliances & regulations; then we should register our company.

For anything else, it is advisable that we wait for a viable product or service before we register our startup as a company.

Structure of the company

Structure of a company or business is the type of the company as defined by the government. The labels may vary according to the country, if in a federalized government; it could vary according to the state as well.

But, most of the countries have agreed upon some fundamental structures based upon the following characteristics -

If a small scale business is started by a single person and if the ownership is limited to that person, some form of Single Person Company exists in major governments.

If a small scale business is started by a group of people, who would like to limit the individual liability according to their agreed contribution, some form of Limited Liability Company or Limited Liability Partnership exists in major governments.

If the founders would like to share the liability, some form of Partnership Firm exists in major governments.

If the company is willing to issue ownership stocks in private to its members, some form of Private Limited Company exists in major governments. If the company is selling stocks to the public, to be traded in a stock exchange, then it becomes a Public Limited Company or a Public Company according to most governments.

Due to the flexibility in sharing ownership, a startup looking forward to raise money externally against ownership usually starts as some form of Private Limited Company.

There are other types of companies, such as corporation according to tax structure, usually varying according to the state in a federalized country.

Internal company structure, type of goods sold, ownership, liabilities, state in which the company operates in a federal country should be the major factors for consideration when choosing the type of company for registration or incorporation.

Best place to gain more insight upon company structure available from our government is to check its commerce/business website. There are also tools available to help us calculate the company structure.

Change log

February 2020 - Structure of the company.