On the Value of Incorporation {Million Dollar Idea Project}

As you know, I’ve been working what I’m calling the Million Dollar Idea Project, a side project I am doing in my spare time to turn $5,000 into $1,000,000 using only the tools I have available to me. I’ve pulled cash out from my bank account, and will be keeping track of everything I spend that money on and keep you abreast of my progress.

Some people say that you shouldn’t worry too much about legal risk at the very early stages of a startup. If you aren’t even sure you’re going to build your product, why bother with the legal costs of incorporation?

As a person who has been sued many times, that is a terrifying proposition for me. Filing a simple single-owner LLC takes less than an hour and is relatively cheap these days. You can file online, and if you want to make your ownership structure more sophisticated later, it’s easy to do.

It also helps for a number of other reasons:

• Forming an LLC gets you an EIN, so it can act as an employer.
• It’s critical to separate your personal expenses from your business expenses, and the expenses of your different businesses from one another if you operate multiple businesses.
• LLCs can enter into contracts as their own entities. For example, Apple requires you to have an EIN in order to brand your app as a business rather than an individual.
• It can be a form of protection from legal of financial liability, though debtors can often “pierce the corporate veil” for unscrupulous LLCs.
• Exercising the corporate hygiene best-practices of having regular corporate meetings, keeping minutes, and general parliamentary procedure prepares you for future stages where you might need to have outside stakeholders.
• It just looks more professional.

For Alphawave, I incorporated as a single-member LLC on Incfile, which cost me $354. Unfortunately, they did not accept PayPal, so this _did_ eat into the cash pile. But we’ll now be able to open a bank account and contribute the rest of the cash we have on-hand.

Financials Summary

We will be working to figure out what KPIs we want to be tracking, but now that we’re spending money, I think it’s a good idea to keep y’all abreast of our ongoing financial situation. So here are some stats:

• Cash on hand: $4,646
• Debt: $820
• Customers: 0
• Monthly Recurring Revenue: $0