employment tax-law corporate-law corporate-tax-laws
Starting a business: is it legal to hire freelancers if you haven&#39;t registered the company yet?
<p>The reasons I would want to delay the registration of this business as much as I can are:</p>

<ul>
<li>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).</li>
<li>Given the above, the first months of operating would be all costs (employees, plus any bureaucracy costs) with no income.</li>
<li>And last but not least, I didn't think of a name yet!</li>
</ul>

<p>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?</p>

<h2>You don’t need a company to run a business</h2>

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

<p>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.</p>

<p>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:</p>

<ul>
<li><p>As DaleM also says, having a company keeps personal and business assets separate. You <em>really need</em> 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.</p></li>
<li><p>Paperwork and accounting are considerably simplified when there is a clear distinction between your company spending and your personal spending.</p></li>
<li><p>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. </p></li>
<li><p>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.</p></li>
<li><p>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 &amp; 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.</p></li>
</ul>
