The reasons I would want to delay the registration of this business as much as I can are:

  • I don't foresee having a single dollar of revenue until at least 2 years later (the product I'm building is way immature at the moment; users that are testing at the moment are only using the "free" edition).
  • Given the above, the first months of operating would be all costs (employees, plus any bureaucracy costs) with no income.
  • And last but not least, I didn't think of a name yet!

I'm perfectly aware that a business receiving income without having been registered would be illegal (because all businesses need to pay taxes from their income), but how about starting to pay workers (freelancers, not full-time employees) out of my pocket? Is this illegal?

  • Does the country matter? I'd imagine that for this specific purpose, most law-systems out there would have the same principle? am I wrong? Oct 7, 2019 at 11:56
  • Yes, it often does matter. Even when the overall system is the same the details can really trip you up. Don't assume, and since you were asked it would have been polite to just answer instead of wasting time questioning the response. Oct 7, 2019 at 12:06
  • thing is, the location where I'm based at the moment is kind of irrelevant because I move around a lot; and if there's certain advantages over this scenario in certain country I haven't considered, I'd think about moving there, so I don't want to rule out any possibilities by mentioning the country where I'm based now or the country of my citizenship either Oct 7, 2019 at 12:32
  • Probably another reason for having a company: pick your favoured jurisdiction and set the company up there. Then you don't need to worry about the rules changing just because you get on a plane. Your customers and suppliers will probably feel happier with a fixed jurisdiction too. Oct 7, 2019 at 14:58
  • that's an argument for setting up the company but I'm looking for arguments that reinforce my belief that I don't need it yet; whenever I'm convinced that I need it, then I'll certainly ask to know what's the best jurisdiction Oct 7, 2019 at 15:38

2 Answers 2


You don’t need a company to run a business

As an individual (sole-trader) you can operate a business, hire employees and contractors and do everything else a business does.

The purpose of a company is to separate and protect your personal assets from your business assets. As a sole-trader you are personally responsible for all the liabilities of the business - if it goes bust, you go bust. If the business is operated by a company, then, providing you and the company follow the law, your personal assets are not at risk if the company becomes insolvent.

  • It seems like there may be other reasons for forming a company, particularly with regards to taxation, and, although it doesn't seem to apply here, ability to attract other investors. For example, if a person sinks $500,000 into a business and then subsequently incorporates, what does the company's balance sheet look like? What about the person's balance sheet?
    – phoog
    Oct 7, 2019 at 14:46
  • It might also be worth pointing out that in the sentence "as an individual (sole-trader) you can operate a business, hire employees and contractors and do everything else a business does," the phrase "everything else" includes paying income tax and other taxes.
    – phoog
    Oct 7, 2019 at 15:14
  • @phoog the company would buy the business from the owner - tangible assets and liabilities would go to the balance sheet as normal, intangible assets (like goodwill) go to assets. If paying with shares (as is likely) then they go to equity.
    – Dale M
    Oct 7, 2019 at 20:22
  • @phoog tax impacts of incorporation are very jurisdiction specific but AFAIK limited liability is universal
    – Dale M
    Oct 7, 2019 at 20:23

There are lots of reasons to register a company, but the law on corporation tax isn't one of them; as DaleM says in his answer you can just be a sole trader. However:

  • As DaleM also says, having a company keeps personal and business assets separate. You really need to have that firewall. That way if something bad happens, like a lawsuit when your product doesn't work as expected, your worst case is that you walk away from the bankrupt business. If you don't have that firewall you can have your life savings cleaned out, your house taken away, and wind up personally bankrupt. You may not expect such a thing to happen, but having a company is a cheap form of insurance against disaster.

  • Paperwork and accounting are considerably simplified when there is a clear distinction between your company spending and your personal spending.

  • In the UK (and probably other countries) your investment in the business can be treated as a loan from you to the company. This means that when the company becomes cash-positive the repayment of the loan is not considered to be either company profits or personal income, so you don't need to pay any taxes on it.

  • Also in the UK you can get your company VAT registered, which means you can claim back any VAT (i.e. sales tax) you pay during development. I don't know how sales taxes work in other countries so this may not apply to you.

  • It sounds like you are developing software. At some point you will need to start signing executables or otherwise getting recognition for the fact that you are producing a real product and not some kind of malware. This is much easier if you have a company that appears in places like Dun & Bradstreet, has a website, phone number, an accountant who can vouch for you, etc, so waiting until you have a product before registering a company is likely to create unnecessary delay.

  • "There are lots of reasons to register a company, but the law on corporation tax isn't one of them": but the law on personal tax is one of them, as your third bullet point shows. And once the company is profitable, corporation tax may indeed be a reason.
    – phoog
    Oct 7, 2019 at 14:50
  • @phoog True, but the original question was about the legality of hiring contractors in a personal capacity. My answer is somewhat off-topic, but I posted it because I thought this was stuff the OP really needed to consider and it was too long for a comment. Oct 7, 2019 at 15:03
  • Agreed. I've already upvoted the answer. Your comment also makes me want to point out that "a business receiving income without having been registered" would not be illegal as long as the sole trader pays personal tax on the income. At least, that's how it works in the US.
    – phoog
    Oct 7, 2019 at 15:11
  • As soon as I receive income, I will register the company (I'm not interested in other formulas, but thanks @phoog for noting that). I cannot really mark this answer with the green tick because Paul, you yourself are saying that are not answering my question. Even knowing all the advantages of having a company (TBF some that you mention I didn't know, thanks), I'm not convinced that they outweight the disadvantages. I just want to know if I can operate without a company for now (since the employees would be freelancers, AFAIU I don't even need to report that I've hired them, to the tax office?) Oct 7, 2019 at 15:43
  • 1
    @user1623521 I think you really need to spend some time talking to an accountant. Not only do you have lots of questions, its becoming evident that you don't know what other questions you should be asking. BTW, the answer that should get the green tick is DaleM's. Oct 7, 2019 at 17:44

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .