When to incorporate a business: before, not later.
When to incorporate a business matters more than most people think, because few businesses ever change their legal form. Fewer than four in a hundred unincorporated businesses switch within four years. So the structure you start with is usually the one you keep.
The plan that rarely happens.
Many people plan to start small and simple, then make it a proper company later. It sounds sensible. However, Levine and Rubinstein found that businesses seldom change their legal form at all.
The paperwork is only a symptom. The real reason is that the business gets built around you in the first weeks. Your clients hire you personally, and the work lives in your head. As a result, the version that runs without you would have to be built from scratch, in the evenings.
When to incorporate a business, in practice.
Decide the structure when you decide the plan. That is the cheap moment, because changing your mind costs only an evening. Later, it costs systems, clients and time you no longer have.
The author learned this himself. He registered a company in Estonia, which is the half the records can see. But he never built the other half: staff and work that runs without him. So on paper he looks like an owner, while in practice he still sells his hours.
Incorporation alone does not change the type.
A company registration is a clue, not a cure. Therefore ask the deeper question too: who does the work, and do customers buy from you or from the company?
Decide your structure tonight.
Under your one-sentence business, write two lines: who will do the core work in year two, and who customers will believe they are buying from.
If both answers are “me”, any registration you choose will still describe a job. That is allowed, as long as you choose it on purpose.
From the book.
The reason that plan mostly doesn't happen isn't failure. The business got built around them in the first week, and by year two it can't be handed to anybody else. Your clients hired you personally. The work lives in your head. Every system has your fingerprints on it, and the version that runs without you would have to be built from scratch, by you, in the evenings, out of time you no longer have because you're busy being the business.
I Want to Start a Business but I Can't Quit My Job, chapter 1: Only one kind of self-employment pays
Questions about when to incorporate a business.
Should I incorporate before I make money?
The book does not give tax advice, and rules differ by country. Its point is about timing: the structure you start with is rarely changed, so decide it on purpose at the start.
Is it too late to incorporate an existing business?
No, you can still switch. Just know it is the rare path, and plan the extra work of making the business run without you.
Does incorporating make me a business owner?
Not by itself. It is a strong clue in the data, but the real test is whether the business keeps earning when you stop working.
Read the whole chapter.
This lesson covers one section of chapter 1, “Only one kind of self-employment pays”. The book goes further, with the full evidence, the stories and every exercise.
