
If I Launched a Startup - fusionman
http://thestartuplawyer.com/startup-issues/if-i-launched-a-startup
======
travisp
I'm surprised to see the recommendation to incorporate in Delaware.

Downsides to incorporating in Delaware:

1) You still pay full taxes in the state you are operating in (you don't get
to avoid taxes by incorporating somewhere else).

2) If someone sues you, they can choose to sue you _either_ in Delaware
(forcing you to travel to Delaware to defend yourself), or your local
jurisdiction. The Delaware courts can be friendly to business, simply because
they are often not jury based, but since you're not operating there, they
don't have to sue you in those courts. And, the person suing you gets to
choose the place they are most likely to win in.

3) Many states will require you to register as a "foreign corporation",
possibly for more money than just incorporating there.

Yes, you can structure your company more flexibly, but are you really using
some complicated structure that is only allowable in Delaware?

 _Edit_ : Just in case I'm misinterpreted, I do think this is a valuable post
as a whole.

~~~
ryanroberts
My recommendation is always home state OR Delaware--the post is what I would
personally do. I'd rather deal with the administrative issues early than
reincorporate later.

Also, in true hacker tradition, it's probably easier to hack the available
free startup legal document sets if you are a Delaware corporation. Most if
not all the docs assume the startup entity is a Delaware corporation.

~~~
grellas
Great post, Ryan! It is always easy to quibble with this or that aspect of how
to launch a startup legally, but this is a great roadmap for founders to get
them started in their thinking and to keep them focused on the right issues.
It is quite consistent with the rest of your high-quality blog.

~~~
ryanroberts
Thanks George. We need to catch up soon!

~~~
brezina
awesome to have you in this community Ryan. Legal stuff is my least favorite
part about operating a startup. It is great to have the perspective of someone
who is passionate about it. Also, this is great away for you to get involved
with great startups.

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ww520
I actually don't understand the straight 4 year vesting schedule for founders.
It seems unfairly favoring the investors. For founders who have poured their
hearts and souls into building product and market initially, they still have
to wait for 4 years after accepting funding to get their full reward? And risk
losing their work along the way? And yes, many founders have been forced out
from their startups before their 4-year schedule.

For startups that have product and market before funding, it would be more
fair to have a "regressive" vesting schedule, e.g. 25% immediately vested, 30%
1st year, 20% 2nd year, 15% 3rd year, 10% 4th year.

~~~
Flemlord
It prevents a founder from quitting early and keeping all their stock. The
article doesn't mention it, but usually there is an acceleration clause that
fully vests the shares if the company is acquired.

~~~
rdl
Usually I see the start date for 4 years for founder vesting back-dated to
start when the people actually started working on the project, not necessarily
from taking funding or even incorporation.

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joshu
Pretty good articles. The blog is really nicely designed, too.

~~~
ryanroberts
Design credit goes to Dave Onkels, co-founder of Magntize.
(<http://daveonkels.com>)

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vinhboy
"Asking a VC to sign a NDA is tantamount to splitting 10’s at the blackjack
table" - Funny.

~~~
anamax
> "Asking a VC to sign a NDA is tantamount to splitting 10’s at the blackjack
> table"

Splitting 10s makes sense in certain circumstances.

VCs will sign NDAs when doing so benefits them. Such situations do exist, but
they're rare.

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epi0Bauqu
I don't see the point of authorizing that many shares. I've always authorized
1,000 and initially issued 100 to the founders. 1,000 is enough to get the %
breakdowns you need and you aren't charged for having that many shares:
<http://www.corp.delaware.gov/frtaxcalc.shtml>

~~~
ryanroberts
If you use the assumed par value capital method to calculate your franchise
taxes (instead of the authorized shares method), your startup's franchise tax
bill isn't likely to be very much.

~~~
epi0Bauqu
Why pay any extra $ when you don't have to? Many scenarios will end up with
you paying greater than the minimum ($75).

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CoachRufus87
it's not.

~~~
epi0Bauqu
Here's his article on it: [http://thestartuplawyer.com/incorporation/the-
delaware-freak...](http://thestartuplawyer.com/incorporation/the-delaware-
freak-out)

His example comes to $175.

And it may be much worse depending on specifics or if you take this specific
advice but incorporate in another state.

~~~
ryanroberts
Well, the example assumed the startup's gross assets were $250,000. If gross
assets were $100,000 the tax would be $75 (actual calculation gives you $70
but min is $75).

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kullar
if you have vested share scheme with a 1 year cliff then also have
'acceleration on change control' i.e. if you get bought out early then you
don't want to be waiting years for the remainder of your money, get the
payment accelerated

~~~
joshu
If you get acquired, the payout schedule gets renegotiated anyway. So what's
the point?

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kullar
kinda chicken and egg... why do they have an 'acceleration of change control'
if it gets renegotiated anyway? I figure its worth mentioning either way.

~~~
joshu
It's a good question. Paging grellas?

Anyway - single-trigger acceleration can lower the valuation of an
acquisition, because the founder can then walk away. This is something VCs
won't really like. Double-trigger is more usual.

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soyelmango
Thanks for the link - bookmarked for further reading, I wish I'd read this a
lot earlier. This is why I love the internet - information empowers us all.

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necrecious
It is great that he summarized many of his posts in one concise post.

I've read and followed his advice to form my first corp recently. But it took
a few days of research to understand what he was saying and why.

It still costed me over $2k to get incorporated though.

~~~
jbellis
> It still costed me over $2k to get incorporated though.

Getting a lawyer to double-check things, or something else?

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necrecious
Just getting a lawyer to double check things. Just the base fees of DE
incorporation, getting a registered agent then register as a foreign entity
will cost you around $500.

