When to Incorporate

So you’ve got a great idea.  And over a few drinks at Murphy’s, you’ve assembled a crack team that is going to bring this multi-bagillion dollar idea to market.  You’ve even get to a great name and the domain is even available.  Everything is falling in to place – but is it time for you to incorporate yet?

Incorporating your business is a great way to set up some basic protections for your idea as well as organize your business.  Depending on the type of corporation you set up, you can also distance yourself personally from the financials, which can be helpful.  But on the downside, incorporating is a few hundred dollars.  As a college student, that’s can be a hefty chunk of change.

Here are some of the upsides of incorporating in college:

• Adds to your professionalism: It’s an uphill battle as a college student trying to win over VC interest, clients, even employees/workers.  When you are a fully legal entity, though, you are setting yourself apart from all the other college startups by saying that you believe in this idea, and you are willing to invest it in at the outset to make sure it’s done right.
  
• Protects you as an individual: Got an unhappy client?  That contract you got from RocketLawyer isn’t necessarily going to protect you from their wrath.  Should they choose to push the matter, engage you in a legal dispute, or want more than just the money they spent back, you could find yourself in some deep waters if you’re operating as an individual.  While I’m no lawyer, and while I haven’t been in a situation like that, having the work go through the corporation helps keep you as an individual safe.
• Makes things formal: So that great partner you made over drinks decides he’s going to run with the idea and business, leaving you in the dark.  Without legal stuff on paper, like articles of incorporation, you can find yourself left in the dust.  And while it’s good to believe in the inherent good and beauty of humanity, sometimes it doesn’t come across too clearly.
• Resume building: Even if all you get out of your business is a whole ton of real world experience, that’s something you need to put down on your resume to help you stand out.  There’s been a lot of buzz lately about college kids making up fake businesses on their resumes to make it look like they did more stuff than they did.  Don’t be one of those kids.  If a potential employer or graduate college looks up your business, making sure it’s legit is super important.  Also, if your business is all you’re doing outside of class, it’s good to be able to prove to those reviewing your resume that you were, in fact, legitimately occupied otherwise.

And some of the downsides:

• Money: In Illinois, it’s roughly $300 to incorporate, and then a little over $100 each subsequent year (could be different in your state).  Unless you have the revenue the back that up, paying that out of pocket can hurt, especially when you’ve got rent, food and books to worry about.
  
• More tax returns: Even if your corporation makes $0, you’ve still gotta file that return.  While this is not much of a problem, it’s still boring and time consuming.

Personally, I’d advise you to incorporate if you have the money and the business plan and model to back it up.  Worse that happens is you spend $300 on a really valuable experience.  When put in perspective against your $90,000 in student loans, it’s not that bad.