Questions

Is it best to incorporate a new company or just make a private contract?

A friend of mine just asked me to start a new venture. I'll be the developer and I'll have more work in the first stages until we have a MVP. Should we incorporate a company or we should just make a private contract?

3answers

Making a new company will cost some money up front with no certainty of commercial success.

A simple workaround, if you both know and trust each other, is to make a shareholder's agreement for the company to be incorporated and a contract saying how the shares will be divided.

Since you're the developer, writing code before you incorporate puts the risk on your partner since the work will be your property until you put it into a corporation in which he is a shareholder.

The critical thing is to determine how many shares you will get for the work you've done and what exactly he has to do to acquire his shares.

You'll also want to know what your responsibilities will be after the business is up and running and what compensation you'll get for 'working in the business' at that point.

I've helped a lot of people unravel their partnerships because these things were not thought through properly at the beginning and would be happy to discuss your specific situation in a Clarity call.

Thanks and good luck.

David C Barnett


Answered 5 years ago

Guideline - Defer consideration of organizational entity till after you've made your first sale.


Answered 5 years ago

One thing I always recommend is to not waste time incorporating or otherwise setting up any legal/financial government structures until you have some traction - demand, sales, POs, etc. With that said, a contract is always a great thing to have, even if you have a corporation registered. Mutual agreements are best handled that way.

Being that you are a developer, you have to protect your time and your expertise, make sure that you both calculate skillset value to the final product as well the development and longevity of it all. Don't just assume it's ok to split 50/50.

If someone is putting up money, chose for options of payback with interest rather than straight up more equity.

My name is Humberto Valle, I'm the founder and CEO of www.Unthink.me - a digital marketing team that brings big business tools and experts to small, growing companies.


Answered 5 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2022 Startups.com LLC. All rights reserved.