When a startup should be registered as a business is a difficult question to answer because it varies from person to person, company to company, and country to country.
On the whole, however, the easiest answer is really “when you decide that it is no longer a hobby”. This could be because you and some friends have decided to work together and the best way to divide ownership is by turning your project into a company; because the accounts need to be split from your personal finances to keep on top of things; or just because you are about to dive in head first and make your startup your main job.
Registering your startup as a company does add some extra workload, with accounts needing to be filed and working under further regulations, but as a company you have structured your business in a way that is the easiest to adapt to future changes such as taking on a business partner or investors.
This is not to say that sole traders and partnerships do not have value as structuring your business, and the regulations are easier less onerous, but if you are building a startup where you have ideas of finding investors or getting bought out by Google – then you should certainly look at becoming a limited liability company.
Creating a company has never been easier with the web making the process very straightforward, with those in the US there are service like LegalZoom to get through the process cheaply and quickly without the need to pay expensive lawyers fees, and those in the UK simply filling out the online form at Companies House.