There are a few factors to consider when making this decision. If you are actively engaged in business activities that creates liability concerns (translation: you could be sued), you should formally set up your business immediately. This goes without question. Conducting business without organizing or incorporating under state law will leave you open to personal liability should a judgment be entered against you. In other words, if a legal or financial disaster occurs, your personal assets could be seized.
If you are in the early planning stages and have not yet hit the marketplace, you MIGHT be able to hold off. If you are a working alone and are still fleshing out your ideas, it may be a little early to form a company. However, if you are collaborating with one or more partners and everyone involved has agreed that you have a business endeavor worth pursuing, create an entity as soon as possible. This will help flesh out such key considerations as 1. how ownership of the company will be divided; 2. what happens if one partner decides to jump ship; and 3. whether the company will own any related intellectual property created by a partner. Whether you are a sole founder or have partners, if you are seeking outside funding from investors, you most certainly should set up an entity. This will prevent unnecessary tax problems when issuing stock in exchange for investment.
No matter the circumstances, forming an entity gives you credibility when promoting your business to outside parties and entering early-stage contracts with vendors, potential partners, consultants, etc.. Simply put, it will help you begin to build your brand. One last point – skip the online company formation services. They talk a good game, but will not consider the intricacies of your business and advise you on what corporate structure is best for you. Consult a business attorney. It will cost, but will potentially save you a considerable amount of money down the road.
