Incorporate Now, Even If You're Not Sure Yet

You have an idea. You’re torn on whether to launch a startup. You want to try some prototyping and experiments.

If that’s your situation, incorporate for now regardless.

There are several clear merits, and the only real demerit is that it costs money.

First, let’s correct a few things most people seem to misunderstand.

< Registering a company barely takes any time > The specifics are covered in various blog posts and local government explanation pages, so check those, but the tedious parts basically come down to making a company seal, thinking up a company name, and opening a corporate bank account. That’s about it. For reference, I thought “I need to do this on 4/3” and ended up registering on 4/5.

< If you’ve only just set up the company, tax processing isn’t hard > A company that’s just been launched doesn’t need to hire a tax accountant yet. You do need to keep proper books, since you should file blue-form tax returns, but existing services like Money Forward or freee are more than enough for that. As for filing corporate tax, once things get more complex you should hand it off to a professional, but before you reach that point, you can handle it yourself. Going into detail here starts to look like tax advice, which is illegal for me to give, so I’ll leave it at this.

So incorporation itself isn’t that big a deal. The roughly $1,800 (¥200,000) the general procedures cost is probably the heaviest part.

Now, let’s organize the merits. Broadly, they break down as follows:

• practical merits
• tax merits
• psychological merits

< Practical merits > Once you incorporate, the stakeholders become clear from the outside. Suppose someone gets interested in your business plan and considers investing. No matter how many engineer members or advisors you have, what they need to check first is the shareholders and founding members. Registering a company means these things must be recorded clearly as numbers, so there’s no longer room for ambiguity in the discussion.

But if your status is “I plan to start a company, timing undecided,” then from an outsider’s perspective the stakeholders are unreadable, and it’s also unclear what kind of support would actually help your company.

This can invite quite a lot of practical confusion. Deciding on something even provisionally and changing it later is, as a general rule of thumb in most matters in the world, far better than deciding nothing at all.

< Tax merits > I’ll leave the details to specialized books, but the big merit is the carryforward of losses.

Deficits can be carried forward for the next 10 years. Once you start a company, you realize that a surprising number of things count as expenses, meaning deductible losses.

So if you start a company this year, the costs of purchasing goods, travel, technical research, conference registration fees, and so on are all deductible losses. Naturally, since you have no sales at the start, you end up deeply in the red, but even if you succeed the following year and turn a profit, the accumulated losses from last year can be deducted from this year’s profit. So if the numbers line up well, you don’t have to pay corporate tax. The important thing is that incorporating means being prepared to enjoy the benefits of incorporation, and that makes a huge difference from operating as a mere individual. The basic thinking is this:

If nobody starts companies, the economy ends.

People on the government side, including bureaucrats, know this very well, so in that sense incorporation comes with all kinds of preferential treatment. Make full use of it.

From another angle, there’s the merit of exemption from consumption tax for two fiscal periods when founding a company, and this is definitely worth securing if you have solid prospects of generating sales soon. But if a startup with no near-term prospect of sales incorporates with great fanfare thinking “Now’s the time, two periods of exemption!” and then ends up not generating much revenue anyway, that’s embarrassingly bad. And since sales under ¥10 million are continuously exempt from consumption tax anyway, delaying your founding just to factor in this benefit strikes me as somewhat nonsensical.

< Psychological merits > One is “familiarity.”

Generally, “starting a company” sounds like you’re stepping into something outrageous, but in reality, incorporation is something that has been repeated routinely, over and over, throughout human activity across history.

I read somewhere that, aside from “regular employee, no title,” the most common title among Japan’s population is “representative director and president.” I don’t know if that’s true (the book wasn’t exactly reliable), but it does have a certain ring of truth. The number of business startups in Japan apparently runs around 100,000 to 130,000 per year. That means 1 in 1,000 people starts a company this year. Narrow it down by age bracket and the figure comes closer to 1 in 500-600. My junior high school had about 200 students per grade, so that works out to roughly one of my junior high classmates starting a company every 2 or 3 years. That’s the scale of the thing.

It’s no big deal. Just incorporate for now and become president.

Also, by creating a company, you come to genuinely understand, through firsthand experience, the merits of creating a company already described above. This is an asset you can use for life. Once you become president, many people go on to create subsidiary after subsidiary, joint venture after joint venture. Once you get used to it, it’s no big deal, and since the merits are real, everyone realizes there’s no reason not to use them.

Another point is “preventing ‘I’ll get around to it’ fraud.”

Having spent time as a salaryman at a major corporation myself, I understand this well: there are plenty of talented people around, no shortage of them, and quite a few who are burning with hope, have ambition, take a bird’s-eye view of things, or are skilled at looking ahead to the future. But among them, a huge gap opens up.

Between people who do and people who don’t.

People who do keep doing. As if it were the most natural thing in the world. As if there were no other option.

People who don’t just talk about various things and never actually do it. Every single time, they don’t do it. They always find some reason not to.

People who do sometimes bail after starting, sometimes fail badly and shrug it off with an awkward laugh, and sometimes suddenly keep doing in a completely different direction than before.

People who don’t stagnate. Nothing changes. This year, next year, the year after, nothing changes. Forever unchanging.

Just do it first, and reflect afterward. That’s it.

I know full well that reading a piece of writing like this isn’t going to make 9 out of 10 people think “I’ll start a company tomorrow!” (if it somehow did, I’d love for the Ministry of Economy, Trade and Industry to fund my activities). So I’d be happy if this serves as even a small message to those who don’t know about the idea of “incorporating for now” in the first place.

On the merits of “incorporating for now”

Author Profile

Yuichiro “kuz” Kuzuryu Engineer / Executive Has experience falling into all manner of deep valleys, from launching new businesses at major Japanese corporations to Silicon Valley startups. CEO, Founder, ClayTech Inc. Director, EYS-STYLE Inc. Director, 144Lab Inc. Visiting Professor, Tohoku University Also serves as technical advisor to multiple other companies https://twitter.com/qzuryu https://www.facebook.com/qzuryu https://www.linkedin.com/in/yuichiro-kuzuryu-kuz-27b92838/

Originally published in Japanese at https://clazytech.com/2019/09/241/. Translated with LLM assistance and reviewed before publication.