Company Structure, Formation & Corporate Basics

The right time to incorporate

Once you are ready to move forward with an idea, you should formally incorporate your startup as a legal entity. It is important to do this relatively early for a variety of reasons. 

First, you’ll want everyone that contributes to the development of the idea to assign all rights in the idea to the entity. The longer you wait to set up the entity the greater the risk that one or more team members will not be willing to do this, which could very well make the entity unfundable. Second, as you start vetting your idea with third parties, you’ll want them to sign a confidentiality agreement, joint development or other agreement—and you’ll want them to sign those agreements with your entity rather than with you personally. Finally, by creating a legal entity, you can protect yourself from personal liability, since, in general, only the assets of the entity (rather than your personal assets) would be at risk for the actions of the company.