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It's worth mentioning that incorporation by itself doesn't get you very far in terms of protecting against personal liability. It's really just the first step in company formation. You'll want to appoint directors and officers as well. And to protect against departures, IP issues, etc., you'll also want to issue stock with vesting to founders, and have everyone enter into IP agreements.

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!




The author raises 1 point that Clerky's services doesn't seem to include, Qualification of the Foreign DE C-Corp. I think this is a service/legal requirement applicable to almost any incorporated DE startup. Is this something Clerky does behind the scenes or something Clerky customers are advised to address with a local lawyer? Is there a chance some of these startups are not properly qualified in the States they are physically located?

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?


We definitely handle the "Register with CA" part of the checklist, and we have that as part of our checklist that we send to companies after incorporation. For companies not located in CA (where CA foreign qualification is usually not necessary), we partner with a third-party service that handles all the other states (we've negotiated a discount with them for our customers too).

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:

https://support.clerky.com/articles/how-does-a-company-file-...

But the registered agent that we partner with can also help people with this if they need.


Swampthing :) do you think is a good idea to incorporate in DE with only 5,000 shares? that gives a minimum anual tax of $175.

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.


I think it really depends on your situation, in terms of how likely you are to receive external investment like you mentioned (and when), and how much that $175 / year matters to you. By external investment, I think venture capital is probably the most relevant category - other types of investors may not be as insistent.

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.


why would it cost $500 to issue new shares, its just a document you sign and put in your ledger. at least that's how my texas corp does it.

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.


I'm not familiar with Texas law, but it seems likely that there's more to it than that... at the very least, you probably need board approval before issuing equity.

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).


tank you very much for your detailed answer. Incorporating thinking ahead on the VC route do you think is a good idea to allocate prefered stock one or more series?


Most likely not - the rights and preferences of the preferred stock will get determined by the deal you negotiate with the VC, so anything you have before that will likely get thrown away anyways. It'd be very unusual to start off with preferred stock at formation.


What's the advantage of using Clerky versus one of the suggested free tools on this repository? For example, here's one of the suggestions:

http://www.foundersworkbench.com/document-driver/

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?


If you use any of the free document generators out there, you are left to your own to figure out what to do with the generated documents. It's not rocket science - you can definitely figure it out, with enough research. But it will take you a long time and it's cumbersome - consequently, you are highly likely to mess it up in some way or another.

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.


I think the reliably messing up isn't so much the lack of attention to detail, but the second point: not knowing what the standard is, why it's the standard, and why something should be done in particular way.

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.


I have a single member LLC in CA, and planning to incorporate in DE and have the LLC 100% ownership in the new corporate.

Can clerky do that for me?


We just created some new templates for these kinds of scenarios, but it really depends... could you email us at support@clerky.com so we can learn more about your situation? Just mention this thread :) Thanks!




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