Accepting money too early


1

I want to start charging for some features on my site, but I don't have the business side sorted out yet. As a South African, I was thinking of starting an LLC in Delaware for example and my associate has an American bank account which he can convert to a business bank account which we can use as the company account.

My question is, can I start accepting money before I get this stuff done, and then do it later? Am I going to be breaking any laws by doing this?

Are there any other strategies to minimise startup costs such as those associated with getting the business registered etc?

How do very small businesses handle such things?

Legal

asked Jan 26 '10 at 00:49
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Matthew
108 points

2 Answers


2

If you and your associate start operating a business before forming an LLC (or corporation), then you will be operating as a partnership, and each of you will have unlimited personal liability for the partnership's obligations, and each of you will have the power to create such obligations. See Pre-formation Contracts: Avoiding Personal Liability.

Banks want personal accounts to be used for personal purposes, and commercial accounts to be used for commercial purposes. I recommend that you not use a personal account for commercial purposes. Furthermore, to have a bank account in the LLC's name, the LLC will need a federal Employer Identification Number, which means that the LLC will need already to have been formed.

As to where to form your business, please see Why (not) incorporate in Delaware? and Why (not) form an LLC in Nevada? For general information about legal aspects of starting a business, Nolo has many helpful publications.

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

answered Jan 26 '10 at 03:41
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Dana Shultz
6,015 points

0

Dana's answer is very good. I'll only add a little bit of detail.

Many companies stay as General Partnerships until there's some reason to protect the founders' assets, sell shares, fool with taxes, or otherwise get the benefits of incorporating. You can continue as a GP as long as you like.

You don't mention whether or not your associate is a US Citizen. If not, it may be difficult to incorporate in the US. Even if your associate is, be conscious that many states have limits on what share of a company a foreign citizen can own. You may want to shop beyond just the obvious DE and NZ incorporations and look for a state that is friendly to your particular international interests.

Business registrations depend on just where you're doing business from. Usually there's some city license, possibly some county license (most cities are in counties), and usually some state registration (cities and counties are in states). These days, cities, counties, and states have actually gotten pretty good at being user-friendly and telling you what to do to get in compliance. (Years ago, it was your job to figure it out, but they'd still go after you if you didn't... turns out they make more$ this way!) Call yours or go to their Web site. There'll be some fixed price but it's usually pretty low. You can get fined if you operate without these licenses in some jurisdictions.

Compared to your overall startup costs these costs should be pretty low, even if your other costs are just "buy that new laptop I deserve."

answered Jan 26 '10 at 12:35
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Wade Armstrong
181 points

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