We've automated all of this at Clerky - you can do everything completely online using our software. We do a ton of company formations. If anyone has any questions on the topic, feel free to ask!
Along the same lines, while it appears Clerky annually renews a DE registered agent for startups, I don't see anything regarding filing of the DE Annual Report/paying Franchise Taxes. Is this a service behind the scenes or something Clerky just prefers to defer to the startups and/or other professionals?
DE Annual Report / franchise taxes - I personally think this is easy enough that founders can do this on their own. We have a support article for it here:
But the registered agent that we partner with can also help people with this if they need.
The minimum tax for the Assumed Par Value Capital Method of calculation is $350.
you save $175/year and any time you wish or for example receive external investment you can do a stock split or authorise more shares.
For example, amending the certificate of incorporation to authorize more shares is probably going to cost around $500 a minimum (and definitely much more if you use a lawyer). That's roughly triple the $175 in tax savings you get from authorizing 5,000. But of course by then, you probably would have already issued shares to people, so you would probably want to do a stock split. That's going to definitely require a lawyer... my guess is at least a few thousand in legal fees.
So it seems like it could make sense if (1) you don't plan to ever raise venture capital or (2) you think it'll be at least 3 years or so before you raise venture capital and you can hold off on issuing stock until then (unlikely to be a good idea). I suppose the analysis would also be affected by the time value of the $175 / year. E.g. how much more that $175 means to your company now than it will a few years down the line.
though i do agree, some of these small savings may or may not make sense depending on what you want to do in the future.
But in any event, I was referring to authorizing more shares under the certificate of incorporation - which is basically setting the maximum number of shares that the company can issue. That's a different process than issuing shares (though every time you issue shares, you should make sure you have enough authorized and available for issuance).
Based on a cursory review of this service, which claims to be free, it looks like vesting, the appointment of directors/officers, an IP assignment agreement and even the 83(b) election letter is provided.
Does Clerky provide something other than the usual template documents startups should sign?
We started Clerky exactly to solve this problem - as startup lawyers, every time we saw someone try to save money by doing paperwork on their own, there was some sort of issue with it. Yet we could definitely see why they wanted to do it on their own. So we built software to make it impossible to mess things up (as long as the information entered is correct).
It's hard to say why people reliably mess things up. I think part of it is that it requires of a level of attention to mundane details that is not natural to most of humanity. Another part of it is that it really helps to know some of the reasons behind why those mundane details are important - which requires some knowledge of how corporations work, contract law, etc. And it's one of those things where you don't know what you don't know.
Definitely a you don't know what you don't know and it's hard to test safely. Done wrong, this stuff doesn't immediately blow up in your face, that happens later, usually at some future inconvenient time.
I'm still sad that I don't have debuggers, test suites, sandbox environments etc for incorporation/legal work.
Can clerky do that for me?
- Listing a phone number with one of the large online directories helps with various verifications (including EV SSL if you need it and facebook page)
- insureon.com to shop for insurance.
- Get bookkeeping software. Right away, and keep it up to date
Edit: the docracy docs are by Techstars: https://www.docracy.com/userprofile/show?userId=30
and Orrick, a law firm: https://www.docracy.com/p/10881/orrick
For payroll, Gusto (formerly ZenPayroll) is wonderful. I can't emphasize enough how much of a headache this takes away from me.
So if you are planning to incorporate in CA, be sure you are serious and don't mind an automatic $800 on the expense side without anything on the revenue side.
Please correct me if I am wrong on this.
Also, does anyone know why this is the case? I haven't seen this in a few other states where I have resided. What does this buy my company in terms of benefits? Was there some ballot proposition that got passed to levy/enforce this fee?
While in stripe it was a breeze. We got incorporated + a bank account in 3 days, I guess. Signatures were online, no hardcopy or anything. (and the 15K aws credits)
edit: Hey @cmadan, my email is <my_username>@gmail.com
But, based on Patrick's comment, maybe Atlas is now open for everybody.
I looked into Atlas and definitely got the impression that it's only for non-US businesses.
Why Stripe Atlas is Bad for Foreigners?
Thank you. Thats exactly what I would classify it as. Drown the startup in a bathtub (using a bit of Grover Norquist rhetorical flourish there). I am just not bright enough to see what the upside of this fee is, especially in CA which I thought was a business/startup friendly state.
It is greed. Plain and simple.
I'm a lawyer who deals with startups in Toronto. Quite a few people ask about how to set up a Delaware corporation because they've seen online that that's how you create a startup.
At the very least, check the name isn't a registered trademark in a similar business (at uspto.gov), and that there isn't another significant company with the same name globally (opencorporates.com is a good starting point, as well as Google).
You don't want to limit international expansion later by picking a name that is a well-known company already. For example, when Burger King expanded to Australia in the 1970's the name Burger King was already trademarked locally, so they had to rebrand as Hungry Jack's.
Of course also do a Google search to see if words in the name are widely used, perhaps meaning something unsuitable in another language.
Finally, although maybe becoming less important, it's useful if the .com domain is available (either unregistered, or at a reasonable price).
Better to do all this before spending the money on incorporating with a name you might need to change later.
California does add an extra layer of burden and compliance that I did not expect, but if you plan to have employees in California you must incorporate there as a foreign entity (also my case).
I've also heard from a fellow entrepreneur who has a distributed workforce that you need to incorporate in every state with an employee. This is certainly outside the scope of my checklist.
The reason to incorporate in Delaware is if you want to sell your business or to get investors - this is the standard investment vehicle in the US.
Additionally, if there will be multiple owners/members of the new entity I strongly suggest buy/sell agreements (basically a contract stating who can sell their interest and when and to whom - saves a lot of headache later to figure these things out up front).
(Co-founder of HelloSign and HelloFax)
In my case, I used the InCorp service to file my DE docs since I needed an expedited service and they could walk the documents over on my behalf. In the past, I did that portion myself.
Thanks for building a great service and down with the fax machines!
Down with the fax machines! :)
We have a way to publish checklists like this so users can actually check things off.
See our Show HN post for more details! :-)
Thanks! Glad you liked it. This checklist is what I've been going through for the past many months with my startup. Creating the list was a cathartic process and my original audience was meant to be friends who are building their own businesses. Glad to see it's getting more attention now.
I'd be fine with it getting added elsewhere as a more usable checklist as long as there's a link back to the github repo. I plan to update the checklist as I learn about new requirements and/or get pull requests.
If you have a 'nexus' in California, you are subject to that tax. Ask me how I came to find that out :)
"Who Must File
Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an
income tax return whether or not they have taxable income. Domestic corporations must file Form 1120, unless they are required, or elect to file a special return. See Special Returns for Certain Organizations, below"
LLCs have a similar requirement.
I've been told I'm a member. I'm also the only person. Should I be the manager? Is all members plural and I shouldn't use that? Thanks.
Isn't there a DE requirement that you have an agent(?) operating within the state if your HQ is in CA ? Incorp currently charges me $100+ a year to do this.
- Buy registered agent service in DE - 1 yr Free
all assets can later be sold to another LLC or Corp as the need arises, but doing all these steps in advance can just cause undue headache and complexities.
also, california is about the least small business friendly state in the union. and AFAIK, having a delaware corp doesnt save you all that much in taxes anyways. so glad i no longer have to deal with that state.
complex corp setups also confuse some investors, certainly if you are raising capital from those not savvy in the plethora of ways corps are setup to circumvent taxation and game the domicile game. they basically think you are a scammer(been there)
There's no reason to do it in Delaware, except want to part with a lot more of your money. Even if you form the LLC in Delaware, you will have to register it as a foreign entity in your home state, so you're only doubling your paperwork and annual costs.
It's worth chatting with an accountant about this. Many of them offer a free 30- or 60-minute consultation to new clients (or potential clients).
I've heard that for pre-funded DE corporations you can basically ask your registered agent to formally "resign" as your agent and then the corporation is orphaned. The proper way involves filing paperwork to dissolve the entity along with paying some filing fees.
You're probably better off having those meetings first, and waiting to incorporate until you're sure you have a business.
I've seen and heard multiple co-founder friendships fall apart once things started to get "real". Good luck!
This effectively encourages you to not form a company in CA if it's only expected to produce a tiny amount of income.
Take the time to read about this before doing anything. One impulsive action could lead to thousands of dollars in annual fees and even more in filing costs (accountants, lawyers).
In your case of a 50/50 split, make sure your agreements also have a clause that deals with disagreements. IT's likely you'll come to a point in your business where you do not agree and 50/50 ownership can make your business stall. Codify how those disagreements are solved before you get there.
I worked for a company that tried to build an in house sales tax rule calculator, it's damn near impossible unless you want to devote a team of people just to sales tax, and certainly not worth the risk.