Having a private limited company incorporated (i.e. “set up”) means two things for an entrepreneur, legally speaking. Firstly, it means that the entrepreneur no longer has to sign contracts and buy things for his/her business in his/her name and secondly, that the entrepreneur has limited their liability.
As with most things, there is a cost involved in incorporating a new company to run a new venture, so when should you do it? Is it ever worth establishing customer buy-in and knowing that an idea has a fair chance of survival before incorporating, so that you don’t waste any money?
Many will probably say “yes, why incur more initial cost than is absolutely necessary when you are not even sure an idea will succeed? Surely that’s not a lean approach?!”
But note, ownership of “the brand” and all associated IP rights are likely to rest with the entrepreneur (or their creator) in the first instance and will not automatically transfer to the company upon incorporation. The way to fix this will be to effectively “transfer” the identified rights to the company at a later date (but it may also be necessary to involve assignments, gifts and sales). Depending on the size and strength of the brand at the point ownership of it and its associated rights are transferred to the company, identifying all the rights that exist and ensuring that they become properly owned by the company can be a complex and timely process.
As well as the additional cost further down the line, incorporating a company part way through a process exposes the entrepreneur to risk at the outset. While for many the “lean” approach is idealised, there is no getting away from the fact that some costs and liabilities will always be incurred when creating or launching new products and services. If a venture succeeds, then those costs and liabilities are recovered and forgotten about, but if there is a failure and an entrepreneur’s liability is not limited, then there can be some grave consequences.
There is no rule on whether incorporation of a company or creation of a brand should come first. As long as the persons involved are aware of the risks and the consequences of their actions, both approaches have their advantages and have been known to work.
