Do startups need to incorporate to receive funding?


2

If a startup is going to take venture capital, is it necessary to incorporate so shares can be exchanged to the VC firm?

Is it the same with angel or individual investors?

Funding Venture Capital Seed Funding Fundraising

asked Jan 19 '13 at 14:02
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4th Space
125 points
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  • I would say the only way to receive funds without being incorporated is from the first round of supporters: the so-called _"Friends, Family and Fools"_ group. – Pablo Marambio 6 years ago

3 Answers


3

Looking at this question from a differnt angle, if you do not incorporate, then there is no legal separation from your venture's assets & liabilities and your own. If your unincorporated venture racks up liabilities in excess of your ability to cover, you may be facing loss of your house and bankruptcy. Investors will face the same concern if they become owners of an unincorporated venture.

answered Jan 20 '13 at 01:17
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Yorick
826 points

1

Yes. You can't own something that doesn't exist. If you haven't incorporated, generally you're a sole proprietorship.

answered Jan 19 '13 at 15:02
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Casey Software
1,638 points

0

A startup wouldn't need to incorporate to obtain angel funding- since so many angels have no clue what they're doing.

To obtain funds from a reputable lender, a reputable angel investor or a VC fund, then yes, the startup would need to be at least an LLC and, for a reputable VC fund buying equity, usually a Delaware corporation.

answered Feb 10 '13 at 10:42
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User6492
1,747 points

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