Incorporating your Web3 startup may seem like an added expense and headache, especially if you're in the early stages. But taking this step sooner rather than later can provide a range of benefits that set you up for long-term success. Here’s why incorporating early is a smart move for every Web3 founder.
When you operate without incorporating, you and your business are legally seen as the same entity. This means if your startup runs into debt or legal trouble, your personal assets—like your savings, property, or investments—are at risk. Incorporation, however, creates a distinct legal entity that separates your personal finances from your business’s obligations.
Why It Matters: In the volatile world of Web3, risks are everywhere, and unforeseen events can sometimes occur out of the blue. If your project faces unexpected legal issues, financial problems or market failure, incorporating means only the company's assets are on the line, not yours. This legal shield can be a lifesaver, especially in a space where circumstances change rapidly and the outlook of the entire Web3 space can suddenly become bearish.
How to Protect Yourself: Set up a company early to create that legal barrier. This will help you avoid personal liability and safeguard your financial future even as you explore the complex landscape of Web3.
Incorporated businesses often benefit from various tax incentives that individuals don’t have access to. They can deduct business expenses like salaries, operational costs, and investments before taxes are applied. Additionally, many jurisdictions offer lower corporate tax rates than personal income tax rates, allowing for more efficient tax planning.
Why It Matters: For example, in Singapore, the corporate tax rate is 17%, while personal income over S$160,000 is taxed at 18% or higher. Assuming your Web3 business takes off, it would easily attract a personal income of over S$160,000. By incorporating a company, you can take advantage of the lower tax rates offered to companies and maximise your startup’s financial resources.
How to Save on Taxes: Research favourable jurisdictions for incorporation that offer corporate tax benefits. Countries around the world are competing to attract businesses through corporate incentives—take advantage of this to give your startup a financial edge.
Incorporation boosts your credibility in the eyes of investors. A company structure is seen as more legitimate and secure compared to operating as an individual or partnership. This not only makes it easier to attract investors, but also allows you to sell shares or offer tokens as part of your fundraising efforts.
Why It Matters: In the Web3 space, although anonymity stands out as a unique feature, credibility is key to establishing trust with investors and raising funds. Incorporating signals to investors that you are serious about your project and have a clear legal and corporate structure in place for growth. This can open doors to future funding, whether through shares, SAFEs, or token warrants.
How to Attract Investors: Incorporate your startup to create a clear, professional structure that appeals to potential backers. This also sets you up to issue shares or tokens more efficiently, providing investors with the legal security they need to invest in you and your startup.
Incorporating your startup establishes a governance structure, including a board of directors and other key roles within the company. This structure improves decision-making processes and promotes accountability, giving your business a solid foundation for growth.
Why It Matters: Investors appreciate a well-governed company. Incorporation creates specific obligations, like Directors’ Duties, ensuring that those in charge act in the company’s best interest. This level of transparency can make your startup more appealing to investors looking for stable, well-managed projects.
Next Steps: Incorporate a company to formalise the corporate governance structure of your project. Define roles and responsibilities to streamline operations and improve accountability, making your startup more attractive to serious investors.
Incorporated companies offer a straightforward process for transferring ownership, whether you’re selling shares, bringing in new partners, or even planning an acquisition. This flexibility is crucial if you intend to scale or eventually exit your business.
Why It Matters: Let’s say a large company is interested in acquiring your project. An incorporated structure makes the transfer of ownership seamless and legally secure, allowing you to reap the rewards of your hard work without running into complications.
How to Enable Easy Transfers: By incorporating, you make it simpler to transfer ownership stakes, whether through share sales or acquisitions. This flexibility not only benefits you but also provides investors with a clear exit strategy.
Quick Glossary of Terms
Limited Liability: A legal structure that limits the personal financial risk of the business owner(s).
SAFE (Simple Agreement for Future Equity): An agreement between investors and the company to issue equity at a later date, often used in early-stage startups.
Directors’ Duties: Legal obligations that require directors to act in the best interests of the company.
Conclusion
Incorporating your Web3 startup isn’t just about having a fancy name or logo. It’s about protecting your personal assets, maximising tax advantages, building credibility with investors, establishing a governance structure, and simplifying future transactions. While it might seem like a hassle upfront, the benefits that incorporating offers far outweigh the costs in the long run.
Still unsure if incorporating is right for your startup? Our team at GVRN can guide you through the process to find the best fit for your project. Reach out for more insights and make incorporation work for you.
