The following are a few points that any startup entrepreneur needs to keep in mind in terms of forming their company from a legal perspective.
First, formation is not the same thing as incorporation.
Incorporating a company is literally the act of filing a document in Delaware (or another state). It achieves 1% of what needs to happen in a proper startup formation. A full formation involves forming a Board of Directors (or if an LLC, Managers), issuing equity with vesting schedules, assigning IP, forming an equity plan, and a number of items. When comparing offerings from different firms, pay very close attention to what is actually included in a package, because it’s easy for firms to leave things out in order to appear to offer a lower price.
Second, don’t assume you want a “standard” Delaware C-Corp.
If you read info from Silicon Valley – and most content out there is from SV – you’d think 100% of tech startups are C-Corps. That’s not true. Yes, most are, but your particular business model and growth trajectory may make it a less obvious choice. See: More Tech Startups are LLCs.
Be aware of fully automated options.
There are fully automated and safe options like Clerky, if you are comfortable with no customization and a very standard structure. If keeping legal costs to an absolute minimum is a top priority, Clerky is far safer than a DIY project with templates.
LegalZoom and RockeyLawyer are not appropriate for a startup, because they are designed for small businesses, which have much simpler/less complex needs.
Most startups hire law firms. Hire one right-sized for what you’re building in the next 5 years.
See: Checklist for Choosing a Startup Lawyer and Why Startups hire law firms, not a lawyer. Most startup-specialized firms have fixed fee packages for formations that will allow for more flexibility/customization (and guidance) than a fully automated approach, without incurring excessively high costs.Leave a Comment