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Ask HN: Why not LegalZoom?
2 points by polymathist on Nov 4, 2012 | hide | past | web | favorite | 4 comments
A lot of tech entrepreneurs are saying that you shouldn't use legalzoom to incorporate. What are the reasons for this? Is there room in the market for an alternative that can make both founders and investors happy? Or is this a problem that is inherent to any online incorporation service?

The simple answer is incorporation is not a commodity; every company has different needs depending on their founder/investor structure - therefore it's not something you can (or would want) to automate easily.

The more drawn out answer is the older legal mistakes get, the more expensive, frustrating and dangerous they become to fix. A simple mistake in your articles of incorporation can cause serious pain down the road, even potentially derailing your company all together.

Therefore for most "serious" entrepreneurs, it's much cheaper in the long term to just get incorporation done right from the get go. So is it really worth it to take that risk to save $1000?

All that being said - I'm not a lawyer - but I've been told by my lawyer that if you're a sole entrepreneur without any partners or investors, the legal side of incorporation is pretty straightforward, and you could probably get away with using a discount automated service provider. Things get complex once you have partners, shareholder agreements, employee options, investors, and so fourth.

Thats interesting. I've heard that pg has recommended using the YC legal documents. That statement would seem to contradict what you've said, no?

The YC legal documents are drafted by YC-approved attorneys specifically for allowing them to structure the companies in the way that YC prefers.

This means that their boilerplate is geared for having seed investors with an easy ability to add on larger investors later on.

In short, their boilerplate documents fit the way that they do business, and as such, is probably not a horrible way to go if you're going to do business with YC. If you're not going to do business with YC, then there are a million other things you have to account for. Even if you ARE going to do business with YC, you still might want to change the documents in play to fit your environment best. As I understand it, there's enough experience there to be able to guide you as to whether or not their boilerplate fits your exact needs.

Startups are generally better structured as C-corps rather than S-corps due to the likelihood of of pursuing outside investors and retaining earnings to fuel growth.

Therefore, they tend to have radically different needs than the type of small business Legal Zoom targets with its services

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