Legal, Tax, and Accounting October 12, 2020

How do you legally sell Saas in the first days?

Francisc @francisc

Hello everybody,

I was wondering about how does it work in the beginning, when you just launch a SaaS business.

From what I read in the feed, there are a lot of people who just launched their SaaS and some of them start to make sales.

I wonder, how are the sales made in the beginning? Do you guys implement an online payment proccessor, but from what I know, you'll have to be backed up by a legal entity to do that. So the next question is: do you Incorporate from early stage?

Is it worth it to spend money opening a company before knowing things will work? Or are there any work arounds for the beginning?

Personally I have a registerd LTD in UK, but this curiousity keeps popping up and I was wondering if any of you are willing to share the stories of the first sales, like the payment method used and if Incorporated or not since day 0.

Thank you!

  1. 3

    I'm also in the same boat - it sound's like you've already registered a UK LTD company, so my advice is as follows:

    1. As a director of a UK LTD you have several filing obligations to meet with HMRC/Companies House. Once you start trading activity (e.g. making sales) against that company, you will be required to submit accounts/corporation tax returns - so I'd advise not doing this until you've established that the product will actually sell in order to make the administration/costs worth it.

    If your company isn't trading - you can generally file dormant accounts and nil corporation tax returns, which makes your life a bit easier.

    1. When it comes to taking payments, you have a choice between using a merchant of record (e.g. FastSpring, Paddle, 2Checkout) or a payment gateway (e.g Stripe).

    A merchant of record takes on the position of the legal entity selling the product and becomes responsible for things such as invoicing/refunds/chargebacks/applicable sales taxes - which can be great in the early stages - although you pay a higher % fee per sale than you would with a typical payment gateway and customers will see their name on their card statement/bank statement rather than yours.

    A payment gateway on the other hand, gives you more fine grained control over the payment cycle and charges a lower % fee per sale - but you become the merchant account holder, and as such are responsible for dealing with invoicing/refunds/chargebacks/applicable sales taxes.

    From what I can see, both FastSpring and 2Checkout don't require a registered company to sign-up - and would recommend this for an untested product, potentially grandfathering those customers with respect to payment method once you reach the size and scale to warrant moving to a payment gateway.

    1. 1

      Does 'trading' mean anything more than taking payments? I.e. if you're trying very hard to generate revenue but failing.. can you file dormant accounts? Asking for a friend...

    2. 1

      Thank you very much for your detailed reply!

  2. 3

    Here in India , it's straight forward. All citizens of India has Aadhar Card. It's a single identity card all citizens get.

    Using that card number I should just fill a online form and I will get company registered under Udyog Aadhar Scheme. It just take 5 minutes to get my company registered. It happens free of cost.

    Then I should submit this company registration details to my bank for creating a bank account.

    Then use the bank account details to get a verified online payment gateway account like PayPal, Stripe etc.

    That's it.

    1. 1

      Hey Sachin,
      This is interesting. I had not heard about this before. Have you tried this?

      I looked this up and it seems like the registration process for a company needs to be completed before registration of Udhyam (seems to be a new name for Udyog Aadhaar). Looks like this is meant to simplify registering an already registered business entity, as a MSME (small and medium business)

      I found the following links by searching online:

      Am I missing something?

      1. 1

        It is meant to register a new company. I have registered my company under this.

        Please go to below page

        https://udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm

        1. 1

          Thank you @sachingk

          For others reading: I found other pages via Google that says that this is good to register a sole proprietorship.

          But to be able to start a bank account, it does seem like the bank would ask for proof of address/establishment, which is when the Shops and Establishments License or GST comes handy.

          1. 1

            This depends on which bank you go with. All nationalized bank will allow you to open a bank account using Udyoga Aadhar.

            Now , if you go with private banks like HDFC, ICICI they don't entertain Udoya Aadhar. They ask for Shop Establishment or GST registration.

            Wait for 1 more year, even private banks will start accepting Udyog Aadhar.

  3. 2

    Hi @francisc,

    Here's my personal experience, at least in the U.S. While you can start as a sole proprietor, I eventually went for the LLC to separate the business from personal finances and also for some liability protection.

    I ended up using www.blook.io and they were super helpful and included EIN (company tax ID) and bank account for free!

  4. 2

    I have not made a sale outside of platforms, but from a legal perspective, I can tell that you can try to make a few sales before incorporating. It is not really necessary if your country's laws allow for that.
    Some countries ecommerce laws allow ecommerce activities only for legal entities, while other countries (USA) allow everyone to engage in ecommerce. If you are coming from a country that bans natural persons from doing ecommerce, some payment processors may refuse doing business with you.
    If the applicable laws allow you to sell without incorporating or if a payment processor (such as Paypal) has given you access to a user account, you're good to go. It is not necessary to incorporate before things become serious.

  5. 1

    I don't know what country you're in but in most places anyone can create a Stripe account and just get going.

  6. 1

    It depends on where you live. Most countries have laws where individuals can engage in "business" as a self-sufficient legal entity up to a certain annual revenue. Most of the time, as long as a Payment Processor let's you onboard the system without any incorporation paperwork, you're good to go.

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