
How necessary is it to have a lawyer incorporate you? - brianmckenzie

======
Peanut
that sounds like an absolutely TERRIBLE idea.

dealing with competent lawyers is bad enough, do not subject yourself to what
will amount to a miserable experiment in futility just because he's the only
lawyer you know.

if you need money (first off ask yourself what you actually need money for),
get someone with money who will let you do your thing

to set up the C-crop, you SHOULD use a lawyer. ask friends or friend's of
friends for recommendations. get a lawyer who will charge a flat fee, ours is
only charging us $750 to issue the stock/create the bylaws/etc. use a bigname
incorporation service to actually incorporate you in delaware if you have not
yet done so (we used www.ctadvantage.com, cost us like $900 but only because
we were stupid and had started off as an LLC and then decided to switch to
C-corp).

the mental-illness dude does not sound like he can help you with either money
or legal matters and will be more trouble than he's worth. STAY AWAY FROM HIM

hope this helps

~~~
lindsayrgwatt
If all you want to do is incorporate and you are going to be the sole
shareholder, you can do it via an Internet service. Lawyers are useful if you
need anything more complex than this e.g., agreements for the initial
shareholders, stock options agreements, etc.

If all you're doing is creating a corporation for legal protection, then do it
yourself.

One word of advice though, think through how many shares you want to issue. If
you're going to offer stock options, then issue a huge number - like 10
million. If you don't think you'll need options, then go for just a few.

If you pick too few now, you'll need to hire a laywer in the future to help
you with a stock split or share issue to increase the number of shares.

Also, one other word: if you're just incorporating for yourself and don't plan
on getting any venture funding in the foreseeable future, incorporate as an
LLC so you can pass the tax losses from your company on to your personal
taxes.

~~~
waleedka
Don't issue 10 million shares just yet. Otherwise, I agree with the rest of
lindsayrgwatt advice.

Since you're incorporating in Delaware, keep in mind that Delaware taxes are
calculated based on the number of shares you authorize. You could end up
paying tens of thousands of dollars in taxes
(<http://www.corp.delaware.gov/frtaxcalc.shtml).>

I used incorporate.com and they cost about $200 or so for a Delaware
corporation, and I would recommend them. If you're the sole owner then there
is not much to worry about. After you incorporate, you can have your
"accountant" look at the documents and tell you if you're missing something.
They usually know how these things work. You don't necessarily need an
attorney at this early stage.

------
brianmckenzie
So, I need to incorporate my startup. After some research I'm pretty sure I
want to be a Delaware C Corporation so I can sell later.

A friend of mine, a corporate lawyer, is interested in funding my startup and
providing the initial legal services, but there are a few big catches: this
guy is extremely difficult to deal with (history of mental illness) and
doesn't seem to know much about the issues surrounding startups. I had to
explain to him why I want to be a C corp, and I'd think he should already
understand that.

My intuition obviously tells me to avoid this guy if I can help it, but here's
the real problem: I'm a complete bootstrap startup and I have to pay the bills
in San Francisco. If my friend doesn't incorporate me, I'll have to use one of
those incorporation websites - I can't afford to actually pay a lawyer to do
it. Am I insane to even consider this option?

~~~
yubrew
It seems like your gut is telling you not to do it, and I agree.

Run. Run far away from this guy.

Now for the rational explanation: What is he offering besides money? It's nice
that he is willing to give you money, but does he have any contacts or
experience or skills that might put you in a better position? Doing something
just because you are cash strapped is a horrible idea.

There was a good convo here a while back for lawyers with software start up
experience: <http://news.ycombinator.com/comments?id=16419> pg uses WSPR in SF
and Goodwin Procter in MA.

~~~
brianmckenzie
Thanks for that link, yubrew.

You're right - I know dealing with this guy is a bad idea and I'm not going to
do it. What I'm really trying to figure out here is what my options are.

------
davidw
I recently created DedaSys as an LLC in Oregon for the grand total of $55. I
will probably have to do more research and spend more of my own time to make
sure things are done properly, and that I don't miss anything, and I'm sure
I'll have an accountant do the taxes. However, I actually didn't mind the
research, being the kind of person who likes to know how things work. I'll
probably spend some of the money saved on books (or, even better, maybe I'll
check some books out of the library when I'm home this summer).

Remember, you can always transform an LLC into a C corporation at a later
date. To me it made sense to start small, and only spend that money when I'm
sure I need it.

~~~
nickb
"Remember, you can always transform an LLC into a C corporation at a later
date."

Sure, but the process is not easy nor cheap! It will cost you more to convert
LLC to a C than by forming C right away.

What you should have done is form an S and then convert it to C later on.
Converting S to C is a matter of filing one form and you don't even need an
accountant/lawyer to do it.

~~~
davidw
With S-corporations,

"Shareholders must be U.S. citizens or residents, and must be natural persons"

Since I live in Europe, the potential to find and add a co-founder or two who
is not a US citizen is there, and an LLC would still work for that, afaik. Or
at least it may be a possibility, whereas I'm sure it isn't with an S-corp.

~~~
nickb
Why did you form a US company then? VC money?! You should have formed a local
one.

~~~
davidw
Cost of an LLC in Oregon: $55

Cost of an SrL in Italy: north of 3000 Euro

Cost of something similar in Austria, where we recently moved, and I don't
speak the language yet: much closer to the Italian one than the Oregon one.

It would be insane for me to throw that kind of money away when I can just do
it at 'home', and any businesses I do are likely to be internet based.

~~~
weel
If you are anywhere in the EU you can probably start a British limited
company, even if helpful government officials say you should register with the
local overpriced companies registry. In The Netherlands there are several law
firms that specialize in this, and they charge about EUR 500. I imagine
lawyers in other EU countries have figured out the same trick by now. One
thing to keep in mind is that you may expose your company to being sued in the
UK, but you probably should be avoiding getting sued anyway.

~~~
davidw
Yep, thought about that too, but in the end, it's still an order of magnitude
more expensive, involves a country I'm less familiar with than the one I'm
from, and I just wanted to get something set up for Squeezed Books without
thinking the choice through any more (I've been considering it for several
months).

~~~
weel
You can also consider setting up a single proprietorship or an unlimited
partnership for the time being. That's a lot cheaper in Holland, and I imagine
also in most European countries. The only big problem is that you cannot
borrow money without being personally liable, and you cannot sell shares, but
if you just need a "business" for the time being for tax purposes and to order
stuff from places that will only sell to businesses (more common in Europe
than in the US), it will do fine. In fact, I once set up a single
proprietorship for the sole purpose of being able to buy food for cheap at a
restaurant supply store, and it cost me about half of the Oregon LLC referred
to earlier, and was done in a half an hour at the Chamber of Commerce, without
lawyers involved.

------
brianmckenzie
I'd like to thank everyone who has responded to my question - you all rock.

The verdict: I will not be going with my friend the lawyer, but rather look
into some sort of fee-deferral arrangement with a firm that specializes in
this type of thing.

------
Mistone
i think if yc startups are being set up by lawyers vs. incorp service than you
might consider going that route. There are a ton of variables involved for
each situation, but if your going for the angel to VC path, paying for a
lawyer with experience in web/tech startup financing is a good idea.

Many top law firms will defer the fees, and it looks good to an investor when
you have decent lawyer backing you up.

~~~
ashu
Thinking that getting a good lawyer will get you investment is fallacy. The
only thing that gets you an investor is showing traction and having a business
model (at some point in the future, at least.)

That said, having a good lawyer is important just for legal reasons and
because the lawyer can foresee complex situations (founders splitting up and
so on) that you wouldn't.

~~~
Mistone
your right, my comment was not intended as having a good lawyer gets you an
investor. simply shows your going about things in a professional manner and
not likely to have some dodgy legal snaffu derail you at the last minute.

Some advice about what not to do is a good way to put it.

------
litepost
This is the main reason I wanted to join YC, to limit lawyer expenses.

~~~
brianmckenzie
I know that many people say this, and pg often cites it as a major benefit of
YC. That's why I'm wondering.

~~~
pg
Yipes. Decreasing legal expenses is about 1% of the value of YC. By far the
most important thing we do is work with people on their ideas. Then teaching
how to present to investors, then introductions, technical advice, advice
about negotiating deals, help in disputes between founders, the value of the
other YC founders, help in recruiting...

~~~
brianmckenzie
Thanks for disabusing me of that notion - I don't mean to spread
misinformation or anything.

~~~
litepost
Ditto. I misspoke. ("contributing motivator" would be more accurate than
"_the_ main reason.")

Having legal counsel in the know is certainly just one of many pieces, it all
depends on which ones you need (most). (And that in turns depends on what
precisely you're going after.)

