Shall we register our company before testing the MVP?

We are building our marketplace's MVP and are wondering if we need to register the company before we launch it. Our question arises on the fact that selling through our MVP would imply the receipt of payments and the corresponding legal responsibilities with the users. It would be painful to register the company now, because its not cheap and we haven't validated our business model yet. We would be glad to hear your suggestions and make a call later on. Thanks!


I do not believe you should incorporate your company yet as there is a chance you will scrap the idea or iterate on the assumptions after analysis. I suggest you run your initial testing on a very minimal MVP to see if there is interest. I would go further in saying that you should not even allow people to pay only have them click on the payment option because at that point you know that it would be a conversion. The ONLY thing you are proving with an MVP is validation of an idea. Only make the mousetrap front end and see if you can drive users to where you want and stop. Even if you frustrate some people, it was worth it as you now know for sure people will buy or do what it is you wanted. Schedule a call with me to find out more. God knows I have done this enough times.

Good luck

Answered 9 years ago

MVP is a product development methodology - fail fast, fail forward and be agile to customer changes. It is not be confused with a legal entity formation.

If it is a market place, the MVP would still be able to do a transaction. Do you want to tie any liability issues coming from the transaction, or the parties involved to you ?

Company formation is so damn cheap now that you should not be even thinking twice. I would say register it.

MVP is for the product , not for business. If you want to translate the lean approach to business, it would be a lean business. Don't have a company accountant, loyar, hr person etc .. you can use on-demand services.

But you still need to have the corporate functions in a lean way. Say you get $500 in sales. It is still taxable and needs to part of someones book.

You don't have to register a company
- If there is no $ or liability involved
- If you are not raising money now
- If it is just a Proof of concept

If you are launching (even it is MVP), it is better to launch with a trim version of a company (LLC atleast). If it is a B2B market place then the parties / vendors will not work with an individual, you need a company then..

I have had situation in the past, where the company field was mandatory and I had to fake it many many times...

Hey, if you need any kind of help related to technology, feel free to chat. - My expertise are in Solution Delivery, Project management, Technology management, Product architecture, Technology advisory.


Answered 9 years ago

You are approaching this bass-ackwards. Incorporation is never the goal or a milestone. It's a means to a certain end.

You should not be asking yourself, "are we big enough to incorporate?" Your question should be "What am I trying to accomplish and is incorporation going to help me get there?"

Is your goal to look cool because you have a registered company? Do you have investors knocking on your door hoping to buy shares in your business? Are you trying to shield yourself from some liability that is inherent in your product? Are you looking for a better tax structure for your business?

Until you know WHY you are even contemplating incorporation, you can't answer when is the right time to do it.

This is all very fact specific. Feel free to request a call if you want to discuss

Answered 9 years ago

Deciding whether to register your company before testing your MVP involves weighing the benefits and drawbacks. Here are the key considerations to help you make an informed decision:

### Benefits of Registering Before Launch

1. **Legal Protection**:
- **Liability Shield**: Registering as an LLC or corporation provides a shield for your personal assets against any legal claims related to your business operations.

2. **Credibility and Trust**:
- **Professionalism**: A registered company can enhance credibility with customers, partners, and potential investors, showing you are serious about your business.

3. **Compliance and Legal Requirements**:
- **Payment Processing**: If your MVP involves receiving payments, having a registered company simplifies setting up business bank accounts and payment processing systems.
- **Taxes and Licenses**: Operating as a registered entity ensures compliance with tax obligations and necessary business licenses.

### Drawbacks of Registering Before Launch

1. **Cost**:
- **Upfront Expenses**: Registration fees, legal fees, and ongoing compliance costs can add up, which might be burdensome before validating your business model.

2. **Administrative Burden**:
- **Complexity**: Managing the administrative requirements of a registered business can be time-consuming and complex, diverting attention from MVP development and testing.

### Considerations for Delaying Registration

1. **Testing and Validation**:
- **Proof of Concept**: If you are in the early stages and want to validate your business model with minimal costs, you might opt to delay registration until you have some initial validation.

2. **Lean Approach**:
- **Iterate Quickly**: Without the formalities of a registered business, you can iterate and pivot quickly based on user feedback.

### Mitigating Risks If You Delay Registration

1. **Use Personal Accounts**:
- **Temporary Solutions**: Use personal bank accounts and payment processing tools to handle transactions temporarily. Ensure clear records to separate business finances from personal ones.

2. **Draft Basic Agreements**:
- **Legal Documents**: Even without formal registration, draft basic terms of service, privacy policies, and agreements to provide some level of legal protection.

3. **Insurance**:
- **Business Insurance**: Consider getting business insurance to cover potential liabilities during the testing phase.

### When to Register

- **Receiving Significant Payments**: If your MVP starts to generate significant revenue, it’s prudent to register to handle financial transactions professionally and comply with tax regulations.
- **Engaging with Investors**: If you seek or receive investment, most investors will require you to have a registered entity.
- **Legal Exposure**: If your business involves significant legal risks (e.g., user data handling, substantial financial transactions), registering early provides necessary legal protection.

### Conclusion

If the costs and administrative burden of registering now are prohibitive, you might consider testing and validating your MVP first. However, keep in mind the legal and financial risks involved. Use temporary solutions to manage transactions and mitigate risks, and plan to register your company as soon as you have validated your business model and are ready to scale.

Would you like assistance with setting up temporary legal protections or further guidance on when and how to register your business?

Answered 23 days 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 © 2024 LLC. All rights reserved.