The Clerky founders have done what founders at their best will do when launching a venture: they have toiled at length in their field, identified key pain points bedeviling the user, and developed a service that deals with them not only effectively but, one might even say, brilliantly.
The short-term aim of Clerky appears to be to tame the process by which founders take the legal steps to traverse the path from launch to first funding by giving founders and their lawyers the tools to do it all more efficiently and cost-effectively. I would think that is a worthy goal and a worthy market to target. How many founders over the years have given up as much as a percent or two of their equity just to get fee deferrals from law firms that would enable them to get to first funding? And paid sizable fees to boot? Credible founders do not begrudge a lawyer his hire they also do not want the legal part to take more than its fair share of the budget or the equity.
Clerky offers as a first step a standardized Delaware C-corp approach to startup launch, and a skillfully done one at that. Its site suggests that it will targeting as well the remaining steps on the standardized path, right down to ones that will facilitate efficient and low-cost handling of all the important steps leading to first funding. This is not a modest goal - it is huge.
In law, there are strict limits to how far anything "standardized" can go - law is simply too big and complex to be reduced to simple recurring steps in any important area. For this reason, the role of the lawyer (even as to the standardized aspects) will not soon be displaced. Indeed, traps and issues abound for founders in setting up their companies, in funding them, and in dealing with a whole host of legal issues that will crop up. It always has been, and remains, foolhardy for founders to wing it in this area once they get beyond the very early positioning parts of their ventures. The beauty of what Clerky seeks to do, however, lies in providing ways to make it all easier both for founders and for lawyers and thereby setting up ways of doing collaborative relationships by which all concerned will benefit. I am a lawyer. I have done this stuff for years. But I have no stake in wanting to do any of this the clunky way if there is a simple and elegant way at hand. I welcome what Clerky is trying to do and look forward to its benefits as they roll out their services. The fact that founders can save on fees is not a threat but instead an opportunity for me to focus on the parts I do best rather than the repetitive parts.
The beauty of Clerky, as I see it, is that the founders, having worked extensively as superb startup lawyers in their own right, have a keen sense of how all this works and are aiming to develop a service that truly deals with the issues that have burdened clients and lawyers alike. It is a tall challenge but, if anyone can do it, this is the right team, especially working within the innovative framework provided by YC and the startup community. It will be fascinating to see how it all unfolds.
"law is simply too big and complex to be reduced to simple recurring steps in any important area. "
Agree. I'm not a lawyer and I have no relatives that are lawyers, and nothing to gain by raining on the clerky parade at all.
That said I've been in business for a long long long time and I've dealt with lawyers, paid legal fees, seen the good and the bad and have seen mistakes lawyers have made - even good ones.
Seat of the pants, I think it's a mistake for anyone to take an important step and pay a fee to incorporate this way.
The principles running clerky have nice credentials but as anyone will tell you "speak to 10 lawyers/doctors get 10 different opinions".
It's foolish to not even want to have a conversation discussing specifics which is not the same as having to give up significant equity to get legal advice. It is "always Delaware" or "almost always Delaware"?
I wouldn't advise anyone fresh off the boat to go the clerky route although ironically since I know what I am doing I very well might be a customer! That doesn't mean either that clerky wouldn't be good for some startups in some situations but they don't know that.
As an aside the entire concept of someone giving equity to a lawyer in exchange for legal work is to me an example on the face of how little some people know about business. I've seen countless examples (non high tech traditional world) where business people have a lawyer as a partner which to me makes no sense at all. "He/She will do the legal work". Bullshit. This is like someone thinking that they can buy legal insurance and that their lawyer partner will spend 20 hours a week on their business problems at no charge. 20 hours (arbitrary) that they then have to give up in billing their clients. Not going to happen. [1] For the amount of legal work you need just pay for it and factor it into your costs. This is not partnering with a painter on a home rehab or something like that.
[1] The other fallacy that I've seen is someone feeling that if they are dealing with a lawyer that it is easy to get sued because "it doesn't cost the lawyer anything". It does it costs the lawyer his time and a lawyers time is how they make money. And they know that and if they sense a case or action will sap their time they will run for cover.
Many founders feel comfortable doing things themselves on Clerky, but many also loop in their lawyers (for the reasons you describe). It just makes for efficient use of legal fees, since you are paying your attorney for what they do best (advice and review) instead of rote tasks like word processing, printing, scanning, faxing, etc.
I look at Clerky as kind of a stim pack for lawyers (except it doesn't reduce the health of the attorney).
"I look at Clerky as kind of a stim pack for the company-lawyer relationship"
If clerky is good and allows lawyers to focus on charging for the things they are good at while avoiding things that they make little money at then you should attempt to market the service to lawyers so they can refer that business to you that you are good at. Similar to what the "Company Corporation" and others do.
Generally when I quote prices to someone I am eager to offload anything that I can't make money on and have someone pay directly so it reduces the total amount of my bill and my pricing looks more reasonable.
Definitely - we're headed in that direction. It just turns out that attorneys need more features, since they manage a whole bunch of different clients. So we launched with just support for company-side accounts for now :)
I don't mean to be overly critical, but the obvious question seems to be: Do most YC startups use Clerky? If they do, it seems like a huge endorsement, maybe the only one you'll ever need. If they don't, that sounds problematic...
Yup, most do! Check out the customers section on our homepage :) For incorporations, we work together with YC to get everyone set up, so pretty much everyone uses us unless they're already incorporated (then Kirsty and YC's lawyers do whatever cleanup they have to). Most companies end up choosing to use us for their seed round documents too (currently in private beta) - we are by far the most popular option for that.
Perfectly reasonable question - that's what I'd ask myself!
Oh, sounds great! In that case, maybe you should consider saying so explicitly in your homepage. I read about YC so recognized some names, but my takeaway conclusion wasn't as strong as "most YC companies use this, good enough".
Well said grellas. One of the things I have seen happen to most professions - and especially in markets that are not fully familiar with the startup space - is that when industry players, that have been making bank from the 'trivial' tasks, see a startup challenging them, they see it as a full frontal assault.
Rather than seeing it as a way to move themselves up the value-chain, they keep trying to defend the low-hanging fruit. That makes no sense.
The real value and real big bucks are further up the chain. I would think that all lawyers would welcome a service like this, which allows them to focus on M&As and much more complex deals and structures that can't be outsourced.
It just makes for a much better world overall.
I think it comes from an insecurity in them thinking they can't adequately compete for the higher-value-add (which may be true), but we are all better off if those professionals stop practicing anyway.
Well..product cannibalization is different than a professional moving up the value-chain.
A professional is trading hours for dollars, the only way to increase their income is to either arbitrage cheap tasks (i.e. hire low-paid professionals and bill them out at a higher rate), increase the amount of hours they bill, increase their hourly rate.
The best paid in an industry tend to have the highest hourly rate - not necessarily the most amount of hours worked.
So, it would seem to me, that all professionals should be looking to move up the value-chain.
Clerky forces lawyers to make a choice. They can either fight for the 'automatable stuff' or they can move up the value-chain.
If you're not already familiar with him, there's a great professor at Harvard Law School, Ashish Nanda, who writes about exactly that - the choices service providers have to make as to where on the value chain they sit:
The sign-up form says:
"Currently, Clerky is only appropriate for startups that are Delaware C-corporations (or are looking to incorporate as one). Is this you?"
It'd be nice if there was a link to a discussion of the pros and cons of local incorporation versus Delaware incorporation, and of C-corp verses S-corp or LLC.
Thanks for the feedback - we'll add an information page about that! For the timebeing, we're focused on startups that intend to be venture-backed (if they aren't already), which is why we're focused on DE C-corps. Definitely looking into adding more services though - since there are a lot of other types of companies out there!
I suspect it's just that just about 100% of venture-backed companies are DE, so to the extent you're a snob about being venture-backed, you might be a snob about where a company is incorporated too. But personally, I don't see anything wrong with incorporating in other states - plenty of great businesses do so (and plenty of great businesses are not venture-backed). Ultimately, the legal stuff is just a distraction from what's important - building the actual business. That's why we built Clerky, to minimize that distraction!
I agree just do what it takes to get past distraction. Everything can be fixed later, for a price. I read in an earlier post that YC pretty much demands DE incorporation. Seems extremely "un-hackerish" but, maybe there is something I missed.
Probably just lawyers not wanting to actually practice their trade and not have to be familiar with codes of more than one state. (I worked in a lazy lawyer insult into the comment, I should get bonus points!)
Does this mean that all these start-ups can show some sort of transactions in Delaware? We just had a talk with a business lawyer (we are from NY) and we were strongly advised to incorporate in NY to avoid issues in the long run using an LLC structure. I am pretty skeptical that this is the way to go but would like to hear some opinions here from already established startups.
You had to register in NY as an out-of-state LLC, though, right? And maybe also in IL?
I'm a little vague on the requirements for additional registration in a principal's home state or in state(s) with declared office(s) when the LLC was formed elsewhere.
A startup may not want to deal with the additional fees for registering in another state, maintaining registered agents in each...
Since both founders are living in NY we would have to file in both states and it would be much more expensive. Also, we would have to periodically show some transactions being made in DE to justify our existence there.
Did you have to do something similar while you were filing as NY Headquartered S corp established as an LLC in DE?
you generally avoid incorporating in states that you don't transact in initially to avoid additional tax compliance and costs that are significant. But, its a case by case situation that depends on business reasons and personal preferences usually.
Legal entities are like "clothes" that need to be changed as a company grows and changes. Nothing ever stays the same forever, so theres a lot to think over.
As mentioned in other comments, piercing the corporate veil is on thing, but another thing is that if you're doing business in NY and you're not incorporated here, you're going to have to register as a 'foreign agent', which can be costly, esp. for a LLC.
But if you don't reg. as a 'foreign agent' or are incorporated in the state you can't legally do business in NY state.
Hopefully your business lawyer knows their stuff and complained about the NY state LLC publishing law (posting ads in newspapers announcing your LLC). If they didn't, I would be skeptical of them.
NOTE: IANAL and take all of this with a grain of salt, I may be completely wrong.
Yes, he mentioned the costs as well. Clearly there are advantages to go the Delaware route but for cost reasons, we may end up going with an LLC in NY.
Google "piercing the corporate veil" if you'd like an example of what can go wrong.
Generally speaking, you want to incorporate a C-corp or LLC in the state where you do business. Alternatively, you can use a biz-friendly state like DE and register as a "foreign" corporation in the state of your primary location.
None of this matters unless/until you get sued, and then it matters a whole lot.
DE is chosen because you can state in all of your contracts that disputes are resolved in DE which has a special business court that handles corporate actions. There are also some outside tax and compliance benefits.
I'm not sure the "corporate veil" stuff has much to do with company formation --- except to the extent that you incorporate and operate in crazy jurisdictions like Minnesota, where salary obligations attach to company directors. Most of the "piercing the veil" stuff I've read comes from directors intermingling their own finances with those of the company.
Here is one example: someone is listed as an incorporator (or "promoter") that can't legally be one. Or, ineligible parties are on board of directors. You name it, it's been done.
But more generally, forming a corporation means that you have ongoing legal responsibilities to fulfill. Doing that without at least an attorney on call is probably a good way to create the impression that you aren't "keeping up appearances". Minutes, board-meetings, shareholder ledger. Etc.
Anyhow, none of this matters if you use an LLC. Lots less red tape and lots less chance of accidentally tripping up some legal requirement for an arms-length transaction.
I dispute the notion that not having an attorney on retainer and maintaining board meetings and shareholder ledgers is going to result in contacts between your corporation and its vendors binding instead to company directors.
It's easy to wind up personally on the hook for corp expenses: accidentally agree to a contract that puts you on the hook personally. But again, that's not a company formation issue.
I generally agree with you that LLCs are the right first step.
Probably not your core market, but I love the platform aspect of this. The notion of a stim pack for the lawyer-client relationship can work in a lot of other areas.
Thanks! We're super excited about that aspect too - it's amazing how many different types of lawyers have said they need a Clerky in their practice area. Unfortunately there's quite a few more features we need before we can really serve that market well. We'll get there though! Feel free to shoot us an email and we'll put you on our list of lawyers to reach out to when we're ready!
This might be slightly off topic but this situation has always seemed strange to me.
As someone outside the US could someone explain why it appears to be so complex to start a company in the US?
I live in the UK and it is very simple if you want to register a private limited company (i.e a private company where shareholder liability is limited by the value of your shares). You can even do it online directly with Companies House (agency of the UK government where all companies are registered) for £15 and does not require any specialist legal services or for you to have any expert knowledge. This fee also includes the assignment of initial shares. See:
Just looking at the pricing on Clerky I'd be looking at $680 + $99 annually to accomplish a similar thing in the US so obviously this seems very strange to me.
Perhaps I'm missing something here but as I see it there just appears to be excessive red tape when it comes to company incorporation in the US and might even deter me if was considering setting up business in the US.
It is easy to incorporate in the U.S, I've done it myself several times and I'm no lawyer. Clerky is looking beyond just offering help on incorporation though. Their site lists help with legal stuff regarding employees, advisors, consultants, seed financing, and NDAs. Personally I'd be more interested in those services than with help on incorporating.
Part of it has to do with federalism -- the federal government has very little to do with setting up a corporation, but then has quite a bit to do with selling shares. So you have to deal with at least a state government and the federal government, and often more than one state government.
I remember thinking that Clerky was perhaps the most remarkably disruptive service in our YC class.
As the person responsible for handling most of our early-stage paperwork and financing documents, I can't tell you how much easier it made our lives to have Clerky around. There was no need for a lawyer; we could just forget about this part of things, trust Chris and Darby to get it right, and get on with the business.
Somebody needs to do the same thing for filing taxes. Figuring out an 1102 form is a daunting task for a pre-revenue startup that just wants to work on the business.
Having dealt a little with company structure legal (we sold our LLC but I wasn't point person on the deal mechanics) and a lot with LLC principal tax issues, I'd be much more comfortable with online legal than with online taxes. There's an advantage to doing your company structure in a cookie-cutter way, so that you look like every other company YC sees. There's no similar advantage for doing taxes that way.
If there's money flowing through your company, get a good accountant. You can either do it now, or in a mad scramble when the IRS puts a lien on your bank account.
I absolutely agree it's worth getting a good accountant if there's money flowing through your company. But for many early-stage startups, there might not be any money flowing yet, in which case hiring an accountant is a little difficult and almost seems unnecessary, considering there's no money to account for. I imagine a tax form for a startup with 0 revenue and low costs should be pretty cookie-cutter.
Of courses, there's not much money to be made serving startups that have no money.
Last time I went C-corp because I was certain my company will be a great success, ended up switching directions a couple of times, then ran out of money and took a job. Thinking about another go, but this time thinking I might start off as an S-Corp to make taxes simpler and filing less costly. Perhaps a LLC might not be a bad choice either, but I'd really like is to find a good accountant to help me choose the right entity.
Doing the tax equivalent of clerky.com is a "schlep" in PG parlance.
It is EXCEEDINGLY difficult but it can be done. The number of people who can do this well is probably very small -- take a few million words of ever-changing law, regulations, case law, etc. and convert it into code.
Yet it has been done. Just look at tax return preparation software. It's out there. And it is, for the most part, shit.
I offer that judgment as a tax lawyer whose office prepares tax returns. And who cleans up messes created by people using the software out there in the world.
Tax software alone is not the end to shoot for, however. You need to bolt together a bank plus accounting software plus the tax software. If you have a fashion-forward bank that will host a better Quickbooks (not just "oh, yeah, my bank talks to your software" -- make it F-ing work), then have that accounting data speak directly to the tax software -- this is a winner. For extra added bonus points, this system collects all of the documentation required by the IRS on audit.
For the bulk of people out there, tax and accounting is a schlep problem and not a brain damaging intellectual exercise. And if you solve 80% of the problems leaving 20% for the owner/accountant to solve, you've saved a ton of time and money.
I have been cobbling together a system for nonresident consulting types to do business in the USA: a corporation, how to sign the contracts with consulting clients, how to allocate the income to taxable in the USA vs. not taxable in the USA, how to pay the employees/consultants properly in the USA, what paperwork to file, etc. etc. But it has humans where software would be useful. That's because of one key constraint.
The biggest problem is that people don't want to do the schlep work -- not even download data from the credit card or bank sites into their software. And if they download, they don't want to look at it. They'd rather allow magic to occur.
Someone should write magic software. :-) It's either magic software or intelligent and expensive humans.
One suggestion: for the majority of startups (based in California) that will use your service, it might be easier to register as a California C Corp.
I can't imagine any VC denying you funding because you are not a DE corp. Plus, you save ~$400 per year in Delaware Franchise Fees. Even if you are a DE corp, you'd need to file paperwork to qualify to operate in CA. You also need to pay taxes in CA, even if you are a DE corp.
C2119530 09/04/1998 MERGED OUT GOOGLE TECHNOLOGY INC. DAVID C DRUMMOND
Once you get your series A/B and get big... I'm sure it's relatively easy to convert your corp to a DE corp.
Since you are charging $100 / $300, you probably want to target as wide a customer base as possible. By concentrating only on DE C Corps, you are limiting yourselves to the Dropbox/AirBnB style startups. What about all the potential S-Corps / LLCs that could benefit from your service?
I run an S-Corp, and would have easily paid you $500 to get all the paperwork (correctly) filed for me in CA.
Yea, I haven't seen any VC deny funding based on that - though they almost always make you convert into a DE C-corp (which introduces some delay and thus deal risk into the process).
But we totally agree with your general point - we're definitely going to be looking into how we can serve other types of companies! (it's in our FAQ but not apparent from the homepage)
It's a long discussion, but the basics are that if you ever go public / get major VC funding you will have to switch to a Delaware C-corp because that's where all the major corporate litigation takes place and thus the law that big corporate lawyers are familiar with.
In the meanwhile though it can be considerably cheaper to file locally. It will cost more to change later, but you are going to have a lot more resources if you are in the situation of needing to convert.
So if you are looking to get funding right away your best bet is Delaware C-corp, if you are going the "lean" route then you should probably do whatever is quickest and cheapest (usually, but not always, a local LLC).
We found getting a DE LLC to be pretty much trivial; on the other hand, getting a local LLC (for us: NYC) appeared a lot less trivial, and involved things like running an ad in a newspaper. I'm still not clear on what the advantage is to getting an LLC anywhere but DE. I'm sure there are venues that are cheaper, but DE is so cheap that unless you're incorporating a whole bunch of companies at once it's hard to see why it would matter.
Did you have to register as a foreign corporation in NY after you created your DE corp?
IANAL, but for North Carolina if you have an employee in the state you must register as a foreign corporation and pay whatever fees are associated with it. It also seemed like you had to do double the paperwork each year once for DE and once for NC.
There is a trick to the advertising requirement. Since advertising in NYC is so expensive, you register in Albany and then 6 months later move the registration to NYC.
I agree though that NY LLC is not the easiest process in the world, but then again neither is NY foreign corporation registration.
Does foreign corp registration (a) not apply to LLCs, (b) normally just get handled by your accountants, or (c) actually turn out to be a detail that is trivially handled in 15 minutes? Because I don't remember this being a particularly dramatic problem for us.
Not sure how important it is for others, but I was surprised by the lengthy wait time to form an LLC in California. I filed for formation at the beginning of February and it still has not gone through. If you take a look at http://www.sos.ca.gov/business/be/processing-times.htm you'll see there is an almost two month wait time for new formations. This prevents me from opening up a business bank account and cashing checks, amongst other things.
Quick note of terminology: LLC is a limited liability "company", but not a corporation. "Incorporation" implies forming a C or S corp, etc. Corporations can issue shares, be taxed as their own entities etc. Quite a bit more paperwork and expense required, but this is what you'd want for venture funding. (IANAL, but this is from my experience).
If you are a small team (e.g., 1-2 people) already based in CA, it's less hassle (and slightly cheaper) in the first several years.
Once you have gained traction and secured VC backing, it is possible that they will ask you to convert to a DE corp. So basically, you are just delaying the hassle of dealing with DE (admittedly, it is only a small hassle).
If you end up bootstrapping and becoming a lifestyle business where you can fund your small team without ever getting VC funding, there is no great reason to be a DE corp (if your team is based in CA).
I'm not 100% sure, but my lawyers told be that if you're in CA and you have DE corp - you have to pay state taxes in BOTH CA and DE. Again, not 100%. I ended up with CA S-corp.
As a lawyer, I know, and I know the founders understand, that you hire a lawyer not for rote form-filling. You hire them for the consultation and advice as to which forms to fill and what to include in them, along with broader strategic planning.
Form filling is nice and does empower clients a bit, but I would advise users to pay a lawyer for an hour or two of their time, and then fill out forms and get documents generated, whether through this service or somewhere else. That approach is cost effective and combines the strengths of both. You don't want to pay your $500/hr lawyer to generate documents for you. You do want to pay them $500/hr for their advice and to pick their brain.
I know this is not likely within Clerky's remit - because they seem focused on the legal aspect of getting started, but I would LOVE for them to also do bank account setup. That would allow a company to go from nothing to a complete entity ready to get a Stripe account, in no time.
We'd love to do that too! It gets a little complicated though because banks have their own set of regulations and depending on their model, can be picky about who they take on as a client (a lot of banks lose money on early-stage startups and only take them on to get their foot in the door for the future). It's something we're working on though :)
This is awesome. The pages are clear, the process fairly transparent, and the whole thing seems relatively hassle-free.
I wish this had been around when we did our incorporation, because I think our use of a heavy-duty lawyer was unnecessary.
Hi - one of the cofounders of Clerky here. Three main differences:
1. Other services tend to focus on main street, traditional small businesses. So their forms are missing provisions and documents that are important to startups.
2. Our software lets you do everything completely online. LegalZoom lets you do some stuff online, but then snail mails you a bunch of stuff to sign.
3. Not sure about other services, but LegalZoom takes 20-35 business days to return your filed certificate of incorporation. you can pay extra to expedite this to 7-10 business days. Clerky does it in 1-3 business days.
Are there plans to expand to other types of corp....or, more importantly to my own heart, nonprofits? (especially with YC starting some work w/nonprofit startups)
I tend to find most nonprofit information (especially on Legalzoom and maybe nolo) to be shaky at best, most everything appears to be written by for-profit corp lawyers that quickly read nonprofit statutes and modified a few for-profit corp templates/forms.
One example—unemployment & worker's comp regulations seem to be very, very different (YMMV, depending on state) for nonprofits, which led me (on a lawyer's advice) on a weeklong snipe hunt trying to procure insurance and trying to pay taxes that I didn't need.
Yes, definitely! I've wanted to do nonprofits for a while too, from a personal perspective (my mother runs one). There's a lot of work we need to do just to fully serve startups, but we are definitely looking forward to the day when we can help nonprofits too!
This looks great and I'd consider using it in the near future. However, with a service like this that drastically simplifies a legal process, I can't help but feel a bit wary. Are there any disadvantages to using Clerky over filing these forms through the conventional route of sitting down with a lawyer and going through it step-by-step? Highlighting your disadvantages may not be in any startup's best interests, especially immediately after launch, but it matters when it comes to legalese.
I've formed a business using Clerky, and I've formed one without using Clerky. The Clerky process went much smoother, and I didn't feel like I missed out on anything.
Without clerky, I went through several lawyers who charged me hundreds or thousands of dollars to produce fairly boilerplate documents that were often riddled with all kinds of errors -- typographical, grammatical, logical, legal, you name it, I saw it. I soon realized that even if I had one lawyer draft the paperwork, I'd need an independent set of eyes to review it. And every error we found meant more time down the drain.
With Clerky, I got well-written docs that were correctly pre-filled with our information. I reviewed them with a lawyer, found one minor issue which was easily fixed (and presumably was also fixed for everyone who used those docs after me), and then electronically signed everything and got electronic signatures from my cofounders.
I suppose there's the risk that Clerky makes things so easy that people don't feel the need to read what they're signing or to run it by a lawyer. But if reading contracts and getting legal advice are important to you, it certainly won't hinder the process.
Totally understand the concern. We designed Clerky so that you can easily loop in your lawyer to review everything. So if you don't feel comfortable doing everything yourself, you can still have a lawyer review and save yourself time and money by having software take care of all the paperworky aspects (word processing, printing, scanning, collating, etc.). So you get the best of both worlds!
The number of lawyers who will review a corporate formation package you bought online is laughably small.
Asymptotically zero in fact.
A better idea would be to provide the option to connect with the lawyers who drafted these specific documents and have them tailored to meet your requirements.
Having legal work done is not like getting a Wordpress theme. If you screw up, it costs real dollars and huge headaches in lost opportunities, liability, and lawsuits.
For the love of god, if you are planning on taking a partner or outside investors, please use reputable counsel and get things done right. Once you signed the documents, filed the papers, and taken the money, it's WAY TOO LATE.
Otherwise, you might find yourself in a nasty lawsuit arguing about the meaning of some obscure term of art that is only exposed by some recent case law generated by a finding having nothing to do with your industry. And for the privilege, you could find yourself paying not only your own legal fees but the other sides too.
This is a great way to spend $15,000 in your first year to end up in exactly the same place as a team that bought the one-click DE C-corp package off the first AdWord ad on the first "incorporate" SERP.
Number of horror stories I've heard about people spending shitloads of money to get incorporation done badly by some random attorney: many.
Number of horror stories I've heard about people putting off incorporation because they believed they needed to do it "right" expensively and having that decision later bite them in the ass: many.
Number of horror stories I've heard about people going out of business because they started out with some cheap default incorporation plan: zero.
There is an advantage to running with a simple, cookie-cutter corporate structure. That advantage is compounded when it's the structure that happens to be used by a whole bunch of YC companies, since YC has a lot of experience pounding corporations into a shape that is acceptable for next funding rounds. There is no advantage I know of to spinning a roulette wheel, picking the lawyer it lands on, and having them draft a bespoke operating agreement.
Incidentally (having just read a bunch of your earlier comments): there are definitely LLCs that elect to file as S-Corporations. We're one of them. Filing as an S allows the principals to take W2 wages instead of distributions; the entirety of your distribution is, as I understand it, subject to self-employment tax, while an S-Corp W2 is FICA-taxed the same way a normal employee's is. We didn't freelance this decision; quite a lot of money flows through our company and we have good accountants.
"That advantage is compounded when it's the structure that happens to be used by a whole bunch of YC companies, since YC has a lot of experience pounding corporations into a shape that is acceptable for next funding rounds."
There is nothing on clerky website that seems to indicate this "good for YC" so the issue I see is that they are selling the same package to anyone (YC company and a guy in Alabama wanting to do a startup who may or may not get funded or get funded differently).
As an aside I'm not seeing on the "about" page at Clerky exactly how long the 2 principles worked at Orrick either just that they were startup attorney's there.
Lastly I question how "in to the law" [1] someone who worked as a lawyer and then decided they would rather do a startup "clerky" is. I like to deal with people who really like what they do and are devoted to it (practically) 24/7 and don't have their mind elsewhere. I'm guessing you spend quite a bit of your time on security because you enjoy it any and all hours, right? That's why you are good at it.
[1] I'm reminded of a few Doctors that I know that work hard during the day but never pick up a journal and pick medical conferences based on the nice location they are held in. On the other hand I've met academic physicians who live and breathe what they do and are up on all the latest happenings.
My guess is that the practice of corp law is littered with processes that could be automated and extracted from bespoke billable practice. Company formation seems like a great first candidate. Most of what lawyers do is thoroughly routine.
Nobody is arguing that startups like Clerky are going to put lawyers out of business. They're just taking something you don't need bespoke counsel for and making it simple to do.
The fact is, you're likely to end up in a better state having used Clerky than you are if you try to find your own lawyers and get them to do something customized. A huge number of lawyers suck at this. Different people specialize in different things, and the ones who specialize in company formation are just as likely to be expert in e.g. capitalizing and running a local restaurant as they are in setting up vesting schedules for a tech startup.
You are missing my point: if you think you need a lawyer to review a document you obtained elsewhere, you're gonna have a bad time.
I have no problem with using a standard structure and replicating that across many many companies. That's smart. I be surprised if it wasn't done already.
BUT: once you stray from the One True Path to C-Corp, you're asking for trouble if you don't really dig in with a knowledgeable attorney who knows your industry, your goals, and how to keep you out of court. The Law is not something you can really hack.
IMHO, most people are better served by a simple LLC to get started. I'd agree that using a C-corp is a good idea if you're building a company specifically to seek investment from VCs, but if you're looking to just insulate yourself from the downside aspects of starting a business, it's hard to beat a LLC for simplicity.
First, as a partner in a business that has Fortune 500 company paper reviewed approximately once a week (a typical MSA is ~10-15 pages long and includes insurance requirements, liability, indemnification, and IP ownership), I'm not sure I understand this idea that lawyers aren't good at reviewing other lawyers documents. In my experience, reviewing other lawyers documents is 99% of the job of a lawyer.
Second, we are commenting on a startup that purports to have taken the ideal DE C corp structure from Y Combinator and put a web interface on applying it to new companies. That strikes me as remarkably close to the "one true path" you refer to. They're lawyers. They did YC. What else are you asking for? I'm 1000x more likely to want to use them than a random BigFirm lawyer who will --- again --- charge me $15,000 to get a worse structure.
Everything you said is 100% correct. It all makes complete sense. But I'll repeat my initial point just so we're clear about what my problem here is:
A website is not going to ask you questions about the special nature of your desired business structure. If you need something special, you're better off asking a lawyer to help you with that. A good one. Maybe the ones who did this.
That's my point. I was commenting on someone who was ready to have his lawyer "review" the document; which in my experience is one step away from "I'll make some adjustments myself and see what my lawyer says" which is one step away from "I'll make some adjustments myself" and FILE.
And once you've locked in a structure, it's way more troublesome and expensive to fix it after the fact. That's my point.
Respectfully, I think this "special nature of your business" stuff is handwaving. Most tech startups are fundamentally the same company. I'm prepared to simply agree to disagree with you on this, though.
>You are missing my point: if you think you need a lawyer to review a document you obtained elsewhere, you're gonna have a bad time.
I'm not sure why you keep saying this. I had my new lawyer review the botched up work done by the previous lawyer to determine what part to fix and what to throw away (part of the paperwork was already filed, so it had to be reviewed), and it wasn't a big deal at all. Sure it would be cheaper to use the paperwork from the new lawyer - he wouldn't have to read it, but your point of it being hard to do is not supported by my experience.
Clerky has advantage of scale - if everyone knows them except for your lawyer, you will pay your lawyer more to get acquainted with Clerky terms, but your partners/investors will end up moving quicker because they already know what it is. Time==money. Eventually, you will be able to shop for lawyer who already knows Clerky package, that's when it will be an even bigger win.
"you're asking for trouble if you don't really dig in with a knowledgeable attorney who knows your industry, your goals, and how to keep you out of court."
You sound like an expensive lawyer - or somebody who pays a lot of money to one. This simply isn't true for most people. However I grant you a lot of people feel the same way - and I'm sure their expensive lawyers love it.
IANAL. And you should apologize for calling me one.
But I have paid good money to lawyers and it was worth every cent.
Ask anyone who has ever had to fight a lawsuit (and won) if they thought they overpaid for legal advice. If you think the worst thing that can happen to you is you lose all of your money, BOY do I have news for you.
I fought a lawsuit with a paid lawyer and it was a huge waste of money. The process took years and ended as these things inevitably do when both sides aren't crazy litigious nutbags: with a settlement we could have worked out from the jump.
What I've learned about lawyers in the past 15 years is that about 49% of them are terrible. So processes that begin with "find a good lawyer" are a lot scarier to me than process that begin with "adopt this proven set of documents".
Not the person you were asking the question of, but if I can jump in...
These documents were created by a collaboration of attorneys from Orrick, YC, and a few other places. They are as proven as any forms you're going to get from any reputable startup lawyer.
Completely understand - it's actually something that I've thought a lot about as an attorney.
Any specific form is extremely unlikely to have been tested in court. Especially with startups and VCs. Law suits are incredibly rare because people like to fix things quietly. There have been a few though - and every good startup lawyer makes sure their forms account for those outcomes. But if you define "proven" to mean tested in court - there are probably no current forms out there that meet this definition (although on occasion, specific provisions may have been tested as part of a predecessor form that made it to litigation). The lawsuits are so far and few in between that it's hard to imagine there'd be a form out there that has not been updated since it was litigated.
I guess what I was trying to say is that the forms on our system are as proven as any forms you'd find elsewhere. And we're constantly getting feedback from lawyers to ensure that we always have the current best practices and market-standard terms in the forms.
And I mentioned Eduardo earlier in the thread only to highlight a point: for most orgs, these forms will be fine. There won't ever be enough money on the table to make an expensive lawsuit worthwhile. But once there is real money at stake, you had better be sure that you have everything buttoned up in your formation documents or someone will find an enterprising attorney to point out your mistake.
Zuckerberg had great attorneys. Maybe the best. He still had to settle with two different parties who felt they had a case.
Yes, it's an unfortunate state of affairs that even if there is nothing wrong with your documents, you may still get sued and it may still be in your best interest to settle (not saying that's the case with FB, but just speaking generally).
And I completely agree that if you need something custom or need advice, you should definitely talk with an experienced startup attorney. We refer customers to attorneys all the time!
Just to be clear though - it's definitely not an either-or proposition. A lot of our customers will go to their attorney, explain their situation, and ask "so, are the standard forms YC uses ok for us?" And because these documents are very standard (plain vanilla, as we lawyers like to say), startup attorneys are often either already familiar with them (especially so if they already represent YC companies) or it takes them very little time to review. Best of both worlds :)
You're trying to convince yourself, as buyers of all expensive things do, that you didn't waste your money. I'm sorry to inform you, you probably did. I've done it too. However, it's best to learn from our mistakes, not try to convince others to repeat them.
If you are a large and respected firm that handles plea bargains with a cookie cutter template for 90% cheaper than the cost of a private attorney, sure, we have a deal.
I was going on the assumption that I was guilty ;)
Being falsely accused of a crime and incorporating are not analogous. I agree that for some things paying an expensive lawyer is worth it. Incorporating is not one of them.
So maybe not all tangles with the law are equivalent in their need for specialized outside expertise, eh? Maybe it makes sense to think about it and maybe discuss with an actual attorney before you leap, eh? Maybe more than a few.
You know what every lawyer in the history of the World ever said to the question 'do I need the services of an attorney to help me with this?'
'Yes' usually followed by the amount of the retainer they'll need.
Your lawyer seems to have done great work selling you and I admire that. And you've now done a wonderful job of destroying your credibility, so others are unlikely to take your opinion seriously. My work here is done. Have a nice day!
Hmm - well, let's just say that our experience differs from yours. A pretty significant number of our customers cc their attorneys and have them sign off everything before finalizing the documents. If your attorney won't do this, feel free to contact us and we'll send you to someone who will. Your lawyer should work for you, after all, not the other way around.
I agree that a lot of online forms out there aren't great - it's why we built Clerky, to fill that need. Our forms are very well-vetted by some of the best startup attorneys in the industry (you can look at our About Us page to see our advisors).
I'm willing to bet that attorneys on the west coast (I mean CA) are more liberal about this sort of thing.
And I'm positive that your documents are great. No problems there.
BUT, as I stated above, once you get into making adjustments, it's better to have the original attorney or one who is intimately familiar with the industry consulted early in the process or there could be trouble if someone feels like they got the shaft.
If your lawyers refuse to review something you send them, you should really consider getting a different one. That's just unreasonable, no matter where your attorney is located.
But yes, to your point - if you are doing anything custom, need tweaks to the forms, or anything else like that - by all means, get an attorney.
Finding a good lawyer can be hard, but a good lawyer won't object to reviewing docs you got online. Lawyers review contracts written by other people all the time. If your lawyer won't review a well-written document because of its origin, replace the lawyer, not the documents.
This isn't the same as a lawyer saying, "I've read through it, and we can go line-by-line to find all the issues, but you're better off starting from scratch," but based on what I've seen, the Clerky docs are a lot better than that.
I don't know why incorporating is such a big deal. When I started my beloved small business consulting thing, I thought that as a founder I should know what I am getting into it, so I spend a little time learning about what I am doing (two days all in all) and discovered that LLC is right form for me and my partner and we did everything ourselves, including bringing certified check to city hall.
I know exactly why I did everything I did and have trouble understanding need for something like this. I am developer, so I assume I am smart enough to understand basic things, I don't want to do law or accounting, but there are things you need to understand when you make decisions and be aware of consequences.
I wish I am as perfect as previous paragraphs describe, but I slip here and there, at least I know what and should be done.
Anyhow, this is my attitude and belief, I wish more people would believe in themselves and at least try to do things themselves.
One advantage I've noticed: our angel investors seem to like the standardization and quickness of Clerky. They know exactly what they're signing and there's less back and forth.
I could see clerky going far beyond corporate formation; this seems like just the first step. We used it at first to raise our first seed round, but we continue to add new investors and follow-ons through clerky, since the documents are the same. There are plenty of other flows they can help standardize.
Obscure mistakes in law are like mistakes in memory management - easy to make, easy to miss, can turn out very costly later on, or may not turn up at all.
For example, if you do not set up any vesting schedule and things turn sour with your cofounder, you will be in for a rude surprise when it's time t divvy up the business. But if you do set up vesting schedule and yet miss out on 83(b) rule you will be in for an even more rude surprise when the IRS demands the tax on money you don't have.
We totally get that people need to know what's going on - after you enter in your information on Clerky, you can actually view the generated documents for yourself before you go any further. Although you can't change anything in the form language right now, we're working on adding support for that (something you'd probably really want an attorney for). You won't be able to bring the check to city hall any more though :)
On a slightly unrelated point, how do you guys deal with liability issues? If someone inputs data correctly, and then for some reason, your system fails to correctly provide the data to the relevant registry, then I imagine a client might be a little upset, when obviously your terms and conditions limit liability to fees paid.
If I had arranged for a firm to do it, I could take action against them with the knowledge that they have a hefty insurance policy.
I appreciate that in the above scenario is highly likely to arise but wondered if you had given any thought to it? Perhaps the whole process is completely automated so forms are populated using user info (actually I suspect this is highly likely!).
I'm not intending to take anything away from this type of service by the way! On the contrary, I think it's great to bring disruption to traditional firms who charge large amounts for relatively simple documentation.
Your suspicion is correct - pretty much the whole process is automated. Errors are frankly much less likely to occur than if you had a human do it.
But to your point, we deal with liability through self-interest and also regulation. In the unlikely event that something went wrong, it'd be just about as harmful to us as it would be to our customer. So we are strongly incentivized to make things right. But if you don't want to rely on that, we have a bond up with San Mateo county for our document preparation license (which I think you can go after). :)
I'm curious - I believe that in many states you need to register in the state you live, even if you are also registering in DE.
Does Clerky guide you though this process as well?
I believe that DE also requires an agent on-site? Do you provide this the registered agent forwarding, etc?
We have an optional template that will get you registered as a foreign corporation in California, if you need that (and if you need another state, just let us know). I should note that the California Secretary of State does not accept electronic signatures though, so there is some manual process there.
For DE, we do partner with a registered agent service (all that is handled by us so it doesn't add any extra steps for you).
Who's the registered agent? CT or someone else? I ask because I just want to make sure that I have full portability if needed down the road. If it's CT, I imagine that handover process is easy enough; if not, might be a bit harder.
We use Incorp - one of the top 3 registered agent services in the US (the other two are CSC and CT) (by volume). Portability is very easy - you just file an amended charter with the new registered agent.
Can anyone point me in the right direction regarding the tax implications of forming a DE C-corp while being based in a foreign country (Canada)? Does it make sense for a small consulting business to form a US-based corp, particularly if most clients are in the US.
My memory on this from law school is extremely vague, but IIRC, the tax implications often depend on what country you're in (since the US has tax treaties with some). Are you interested in Canada too, or a different country? I don't know that we can put anything up immediately, but just trying to get a sense for what we might work on in the future. Thanks!
We just put "incorporate" in the title for simplicity's sake - we actually take care of the full set of paperwork you need to set up a startup (founder stock issuances and all that good stuff). So we do quite a bit more.
Just curious, let's say I've incorporated an LLC (assume) with you guys and I need to consult you regarding tax processing for the current year, how to efficiently organize our legal structure - about what stuff we can outsource, etc. etc. Do you guys do that too, because, it is important that everyone realizes BEFORE incorporating their company that this legal stuff will most of the times cost MORE than the cost of the company's incorporation. So do you guys help us out with that too? Even if we haven't incorporated with you?? (for a fee, ofcourse)
If you need any legal advice, you should definitely talk with an attorney. But if you're fine with standard paperwork, please consider using us to take care of all that! It'll free up your legal spend so that you can talk with your attorney about all those important issues.
Looking at the expanded description for incorporation and post-incorporation I could have used this a year ago. It seems to cover everything we needed, except at $400 instead of 1,xxx.
We used Clerky for several agreements while they were in beta. Not only does it make the legal agreements painless, the founders are really good lawyers AND are really helpful.
Clerky is absolutely fantastic! Can't even imagine what people did before it :) -- glad to see you guys finally went public. Been raving on you guys for months.
This is more complicated (and perhaps already on your maybe-someday radar), but it'd be nice if you had a package of docs/services that's usually adequate to convert another corporation (non-C-corp or non-Delaware) to the VC-and-finance-preferred Delaware C-Corp. And in preparation for that, perhaps some tips on what not to do if you ever think you'll want to become a Delaware C-Corp
Totally - we will probably have DE LLC -> DE C-corp the soonest since that's the simplest case, but will of course work on other types of conversions as well.
I seem to be in an invite queue so I can't check for myself -- how do signatures work? I see from the FAQ that "We're fully compliant with the ESIGN Act, UETA, and 1999/93/EC, which govern the use of electronic signatures in the U.S. and E.U.", but how do you achieve this?
There's a lot of little details, but in general...
We send you a unique URL that takes you to the page where you sign documents (and record your IP address). From there, you create a unique electronic signature, which you apply to all the documents (much easier than it might sound). We keep track of your IP address and store a checksum of the signed PDF.
They use server side encryption to store documents on Amazon S3. This doesn't do much because the data is transparently decrypted when it's accessed (note: yes, it does require their aws account access keys).
Super cool! Can someone who has been through the process themselves comment on how it compares to doing it on your own? It doesn't seem super expensive but I am genuinely curious.
We are planning on making it optional in the future - you should be warned though, that non-expedited results could result in a wait-time of a few weeks. We don't make any money off the filing fees - we just chose to start off with expedited because it seemed popular.
The $99 annual fee is to pay for the services of someone who acts as the company's registered agent in Delaware, as required by Delaware law.
Delaware and nearly every other state require that a company designate a person or company resident in that state to receive certain correspondence from the state and to receive service of process if the company is sued. This person is usually called a "registered agent", "statutory agent" or "agent for service of process".
Definitely! You'll have to look into any potential tax consequences and any paperwork you need to do for the country you're in, but there is nothing on the Delaware side that would prohibit you from incorporating. Let us know if you have any questions!
We are seeing more and more Canadian companies these days, due to the tax incentives and whatever they're putting in the water in Waterloo. We'll definitely look into what we can do there!
The first comments in here sound fake. I couldn't stand that the site has the default theme from Twitter Bootstrap. Please take an effort to make it a little different.
We made some subtle modifications to the theme (some button corners are less rounded, for example), but left a lot of the defaults in as (1) I actually like (most of) the defaults, and (2) we were more focused on making something functional (figured we can always refine the visual design later).
That may be what your intention is but to me it screams scam. If it weren't for HN comments and recognizing a few of your customers on your 'clients' logos, I'd be off that page so fast.
Default twitter boostrap instantly is a red flag to me that they haven't invested in creating a good image for themselves (read: trust), and that's really important if you hope to have customers, especially with something related to legal.
Exactly! Seriously I do not care what theme is used, it could look like Craigslist for all I care, as long as it scratches an itch I have I will use it.
The short-term aim of Clerky appears to be to tame the process by which founders take the legal steps to traverse the path from launch to first funding by giving founders and their lawyers the tools to do it all more efficiently and cost-effectively. I would think that is a worthy goal and a worthy market to target. How many founders over the years have given up as much as a percent or two of their equity just to get fee deferrals from law firms that would enable them to get to first funding? And paid sizable fees to boot? Credible founders do not begrudge a lawyer his hire they also do not want the legal part to take more than its fair share of the budget or the equity.
Clerky offers as a first step a standardized Delaware C-corp approach to startup launch, and a skillfully done one at that. Its site suggests that it will targeting as well the remaining steps on the standardized path, right down to ones that will facilitate efficient and low-cost handling of all the important steps leading to first funding. This is not a modest goal - it is huge.
In law, there are strict limits to how far anything "standardized" can go - law is simply too big and complex to be reduced to simple recurring steps in any important area. For this reason, the role of the lawyer (even as to the standardized aspects) will not soon be displaced. Indeed, traps and issues abound for founders in setting up their companies, in funding them, and in dealing with a whole host of legal issues that will crop up. It always has been, and remains, foolhardy for founders to wing it in this area once they get beyond the very early positioning parts of their ventures. The beauty of what Clerky seeks to do, however, lies in providing ways to make it all easier both for founders and for lawyers and thereby setting up ways of doing collaborative relationships by which all concerned will benefit. I am a lawyer. I have done this stuff for years. But I have no stake in wanting to do any of this the clunky way if there is a simple and elegant way at hand. I welcome what Clerky is trying to do and look forward to its benefits as they roll out their services. The fact that founders can save on fees is not a threat but instead an opportunity for me to focus on the parts I do best rather than the repetitive parts.
The beauty of Clerky, as I see it, is that the founders, having worked extensively as superb startup lawyers in their own right, have a keen sense of how all this works and are aiming to develop a service that truly deals with the issues that have burdened clients and lawyers alike. It is a tall challenge but, if anyone can do it, this is the right team, especially working within the innovative framework provided by YC and the startup community. It will be fascinating to see how it all unfolds.