MARTIN OMANDER: Hi.
Welcome to Root Access, the show for start-ups on Google
Developers Live.
I'm Martin Omander, and I'm joined here by Googler and
longtime investor and start-up evangelist Don Dodge.
Today we're going to talk about setting up a company.
So Don, I often get this question.
When in the life cycle should I form a legal corporation for
my start- up?
DON DODGE: As soon as you can.
It's important to have a company to be able to accept
money, to be able to hire people, to extend offers, to
own assets.
So you want to have a company set up as soon as possible.
It can be a simple, little corporation.
It can be an LLC or a Sub S corp, but you should have
something with a bank account as soon as you possibly can.
MARTIN OMANDER: So as soon as you possibly can.
Does that mean before the friends and family round that
we talked about in earlier episodes?
DON DODGE: Yes.
Again, you need a company to accept money.
You need a bank account to put the money in.
So you mentioned earlier about Larry and Sergey.
They didn't even have a company put together.
So when an investor wanted to write them a check, he wrote
it to them personally, because they didn't
have Google set up.
I don't advise doing that.
It worked in their case.
MARTIN OMANDER: It worked for them.
DON DODGE: Quite well.
But it's better to have a company set up and a checking
account set up, so that you can pay for things that you
need and accept money as soon as you can.
MARTIN OMANDER: All right.
And seeing that checking account statement does
something to your-- it reminds you that you have a company,
too, I guess.
DON DODGE: Exactly.
Every month when that checking account statement arrives, it
reminds you, yes, I'm in business, and yes, I need to
be doing things.
I need to be hiring people.
I need to be setting up my website.
I need to be building my app.
So it's another little reminder that this is serious.
You're starting a company.
MARTIN OMANDER: We're actually doing.
So you mention LLC, S corps, Sub S corps.
What should a start-up founder do here?
Do you recommend what type?
DON DODGE: Yeah.
It depends on how quickly you're going to accept money
from investors.
But typically, start-ups lose money, maybe for the first
year or so.
So you can set up an LLC, or what's called a Sub S
corporation.
In both cases, the losses from the company flow through to
your personal return.
So you can actually take a deduction on your personal tax
return for the losses of the company.
Now that changes when you accept money from an investor.
Then you have to be a full C corporation.
But it's easy to make the transition from LLC or Sub S
corporation to a full C corporation.
It's fairly easy to do.
You can do it yourself, if you want.
But if you're not comfortable with that, then you should
have an accountant or a lawyer.
MARTIN OMANDER: Right.
And even if you may be comfortable doing that, you
should focus on your start-up idea, perhaps, and not so much
about figuring out these different types of
corporations and such.
DON DODGE: Yeah.
Well, you can do Google searches and find the answers
to most of these questions online.
And most of the things that you would need from a lawyer,
for example, Articles of Incorporation or IP assignment
rights, or hiring kinds of agreements, employment
agreements, you can find those things online.
And they're pretty boiler plate.
But if you're too busy or not comfortable doing that, then
it's good to have a lawyer who can do it.
And they'll do it relatively inexpensively.
Because those are fairly basic things, but they're things
that need to be in place.
So either do a search and find them online, or get a lawyer
to help you with them.
But there are things you must do.
You cannot have a company that creates value where you don't
have employment agreements and IP assignment rights and Board
Articles of Incorporation.
Because things get messed up in a hurry.
So those are basic things that you need to have done before
you accept money from investors or
before you hire employees.
MARTIN OMANDER: I see.
So what other infrastructure?
We mentioned checking account.
We mentioned think through what type of
corporation I'm creating.
Is there other basic infrastructure like that that
I should have in place early on?
DON DODGE: No.
Not from a legal or accounting point of view.
Those things are pretty basic.
You can run a company out of a checkbook for quite awhile.
As long as you have a checking account where you can accept
investment or accept revenue from customers and you can pay
for things, you don't really need to have much of an
infrastructure for quite awhile.
When you take on friends and family money, you can still
run it out of a checking account and be fine.
When you accept money from angel investors or venture
capitalists, then you've got to have more systems in place
to be able to handle those things.
So it's pretty straightforward.
But having an accountant or a lawyer that you can call on
when you need them is probably a good idea.
MARTIN OMANDER: So you have that relationship in place and
you don't need to go look for them.
DON DODGE: Right.
You don't want to be having to stop what you're doing and go
do all of this, when the business is growing and you're
moving along.
Take care of that stuff in the early days, when things aren't
quite as hectic.
MARTIN OMANDER: Early is better.
All right.
Great.
Thanks, Don.
That's all for today.
Please add your comments and questions for the YouTube
video, and we'll get back to them in future shows.
Thanks for joining us and see you out the
next time, next week.