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When to incorporate a SaaS?


#1

I am running a SaaS platform for over 6 months and just passed 100K USD in ARR. Of course, this is a tiny amount of money and this makes me wonder - should I incorporate now or wait when I hit more in revenue?

What is the right time to do it, when did you incorporate yours and why?


#2

There’s no “right” time. Decide for yourself, when you need it, when you’re comfortable etc.

I incorporated at about 300k ARR and in my case the main reason was - I got sick tired of that “oh, you’re self-employed” look in banks, insurance companies, border control booths, the school my kids go to…

It sounded like “unemployed” to them. Well, OK, the world is not ready for us bootstrappers… Fine, I’m a “CEO” now. Hope they’re happy.


#3

RIght.

Were there any legal issues running it without the incorporation and charging people’s cards? What people think is not my main concern here but rather legal/tax issues.


#4

Also massively depends upon jurisdiction I would expect. Since you didn’t mention then I am assuming that you are in the US.

For example here in the UK you don’t have to be ‘incorporated’ but with any revenue you would have to declare on your tax return - also need to be aware of VAT registration rules. Its complicated.


#5

I would say, very complicated.

I am not based in US/Europe but indeed most of my clients come from there (mostly US/UK/Australia) so this is even more complex I believe. I need to find a lawyer who has a good understanding of international taxes and recurring transactions, perhaps someone who helped SaaS platforms that are “global”.


#6

There might be some tax benefits.
There might be some liability benefits.

If you are in the USA, you might consider S-Corp. It’s very simple. I think it was $100 20 years ago when we did it. Very little work. Less Liability protection than a C-Corp. C-corp has some overhead : meeting minutes, etc. You can always convert from S to C later.

BTW, Congrats on $100K ARR. I assume with a SaaS business you have crazy good incremental margins. So hopefully that’s nearly all profit (before investing to expand:)