[HN Gopher] Startup Incorporation for Founders: A new handbook
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Startup Incorporation for Founders: A new handbook
Author : swampthing
Score : 158 points
Date : 2023-06-07 16:52 UTC (1 days ago)
(HTM) web link (handbooks.clerky.com)
(TXT) w3m dump (handbooks.clerky.com)
| satvikpendem wrote:
| For those with experience with the two, how does Clerky compare
| with Stripe Atlas?
| gkoberger wrote:
| Nothing to add, other than that Darby and the team have been
| wonderful for the past decade or so and I really appreciate them
| and the product! If you're thinking of incorporating, I haven't
| had a single issue with Clerky yet. It's incredibly boring, in
| the best way possible.
| swampthing wrote:
| Thanks so much for the kind words Greg!
| barbariangrunge wrote:
| All the guides I've ever found are for American companies. Does
| anybody know of a good resource for Canadian startups?
| moltar wrote:
| Would love to see some info on minority protections.
|
| E.g. establishing a business with two other founders, who were
| previously in another business relationship and have a greater
| bond.
| swampthing wrote:
| Good idea -- this sounds like a good topic for us to cover in a
| future handbook, perhaps about the post-incorporation setup
| process, where you're setting up the board, issuing stock, etc.
| JimtheCoder wrote:
| "establishing a business with two other founders, who were
| previously in another business relationship and have a greater
| bond."
|
| Especially if this is your first startup and you actually care
| about the business, just don't...
|
| No handbook needed...
| neilv wrote:
| There's a question about whether one would be the third wheel
| or marginalized, and near-term you wouldn't be able to answer
| that with 100% confidence, but you might get sufficient
| confidence.
|
| Early good signs include (if pre-seed) all three of you
| getting the same equity deal.
|
| Then I'd consider things like how candid, honest, and
| thoughtful they are.
|
| But if the startup's premise or initial execution looks
| ethically questionable, run away.
|
| (For example, I wouldn't trust a situation where the other
| two might as well say "We're exploiting users or gig workers
| to their disadvantage, ignoring regulations, self-dealing,
| doing pretty much anything in cryptocurrency/blockchain,
| and/or building an investment scam house of cards that we'll
| cash out of before anyone realizes... but the two of us
| _totally_ wouldn 't collude to screw you, even though we'd
| have similar incentive to also do that.")
| jameslk wrote:
| This is a great resource I wish I had before. As a bootstrapped
| founder, I would love to see more information on how to handle
| common scenarios bootstrappers face.
|
| For example, one big issue I'm facing is how to handle the legal
| and tax issue of continuously depositing more and more cash into
| a business as it comes in from another income stream. This
| becomes really complicated not just from the perspective of how
| this affects other equity holders, but also the question of
| deducting the loss from my income while the company is not yet
| profitable.
|
| LLCs and S-Corps are touched upon in the handbook but the issues
| around stock basis seems to really complicate the situation fast
| without providing much benefit for the deduction part.
|
| I would think this would be a common issue since many founders
| aren't going to raise money beyond angel/f&f initially and will
| need to self-fund until they do or until they break even but I
| have yet to find good compliance resources for bootstrapping.
| pc86 wrote:
| I'll be honest these all sound like very situation-specific tax
| questions for an accountant (or even tax attorney), and not
| something any founder should be wasting their time learning.
| jameslk wrote:
| What makes you feel this example is a very situation-specific
| question rather than a common issue a bootstrapped founder
| might face?
| pc86 wrote:
| The "right move" if there even is one will likely depending
| on 1) where that other income stream comes from - W2 wages,
| investments, wholly-owned business profits, partnership
| profits, etc; 2) separately from 1, whether you have other
| forms of income coming in; 3) are you married and are they
| part owners? explicitly or via marital property? 4) is
| anything securing the bootstrapped business that might be
| affected by paper losses? And I'm sure half a dozen things
| I'm not thinking of because I'm not an attorney or
| accountant.
|
| Even if you can generalize a lot of these, this seems like
| exactly the sort of thing that should be outsourced to
| professionals who do it every day rather than wasting
| cycles becoming an expert in the minutia of state and
| federal tax laws.
| jameslk wrote:
| I agree that there's many factors that could affect the
| "right move" and those should likely be handled by
| someone qualified.
|
| That said, I think the situation of someone bootstrapping
| from a job or from another business income (freelancing,
| agency, etc) would be common and similar enough for some
| general options and traps to avoid.
|
| I myself have had to learn some very hard lessons on what
| to do and what not to do. Not because I didn't consult
| attorneys, tax attorneys, and tax advisors (I did), but
| the cost of their services have far exceeded the value I
| could have learned from some online resources. There's
| also a level of trust you have to put into the
| specialists to give you the right advice, and that too
| has been an expensive minefield at times.
|
| Perhaps I'll be the one to write about my experiences
| here once I'm done going through them ;)
| jll29 wrote:
| Thanks for the very useful information.
|
| I agree with the sentiment already expressed that PDF format
| would be desirable (for me: to use the document in teaching
| entrepreneurship).
|
| In general, could I suggest working on a flow-chart that
| embodies incorporation best practices regarding the typical
| order of things, a sort of "playbook"? Also, it would be
| fantastic to hear from successful startups which order to
| things they followed, and where they diverted from orthodoxy
| (e.g. Google skipped some steps in its IPO process, angering
| investment banks in the process but coming out of it fine).
| When you don't know what you are doing and you cannot buy top
| dollar advice, it's probably best to follow the well-trodden
| path, but most won't know what that looks like.
|
| Another comment: It would be superb if someone collected
| similar information for other jurisdictions (London, Paris,
| Berlin, Talinn, Singapore).
| swampthing wrote:
| Thanks! I'm very glad that the topic of PDFs came up here
| because we had thought about them and thought that most
| people would probably be happier with eBook formats. But
| given the conversation here, we will definitely be putting
| out PDFs as well!
|
| And thanks for the great suggestions. You're right, the issue
| is completely that for someone new to all of this, it's not
| obvious what the well-trodden path is. We don't go up to the
| point of IPO, but at least for formation, we have the process
| covered in our first handbook (the one we posted today is our
| second one) here: https://handbooks.clerky.com/legal-
| concepts/formation#proces.... I agree a flow chart would be
| helpful!
|
| Also, I completely agree about other jurisdictions. The
| issue, I think, is really scale. Something like this
| handbook, and Clerky in general, is only possible because
| there is this critical mass around Delaware and startups. As
| it is today, that critical mass is somewhat unique from what
| I can tell. My hope is that technology will help reduce the
| level of critical mass that is necessary, so that things like
| Clerky and this handbook can exist for more situations.
| swampthing wrote:
| Thanks! You're right, this would be a good topic for us to
| cover in a subsequent handbook -- in the meantime, if it's
| helpful, I think the way I've seen it done is pretty casual,
| where founders will cover expenses and then later have the
| company reimburse them when it has more funds. But that's more
| for the scenario where the bootstrapping phase is a relatively
| short and temporary (or at least the part of bootstrapping
| where you have to fund from other sources is).
|
| If you think you might be funding from other sources for quite
| a while (sounds like that might be your situation), then yea,
| the tax considerations become more relevant and important.
| Another common approach is to put the money in on a safe or
| convertible note, though that doesn't help with pass-through
| taxation.
| [deleted]
| ninepoints wrote:
| Such an excellent resource. Makes me wish there was an equivalent
| geared toward small business as opposed to startup operation
| swampthing wrote:
| Thank you! Yes, I've always felt it would be great if all types
| of businesses had the same resources that startups have. We get
| into this a bit in the handbook, but the lack of that is
| primarily because regular small businesses are a lot more
| varied in how they operate. My hope is that all types of
| businesses will trend toward the type of standardization that's
| in the startup world, because it really does reduce a lot of
| friction!
| swampthing wrote:
| Hello HN! I'm one of the founders of Clerky :) For the
| uninitiated, we're one of the most popular ways for startups to
| incorporate (and get all sorts of other legal paperwork done).
|
| We've written a handbook about startup incorporation and I wanted
| to share it with all of you :)
|
| There is, of course, a lot of content about startup incorporation
| out there already. Why did we decide to add to the pile?
| Honestly, I often wince when I read what's out there, because so
| much of it is misguided or just plain wrong. A lot of it is
| people with no legal expertise regurgitating the same (often
| misguided / wrong) information they've read/heard elsewhere.
| Basically, the setup for the Gell-Mann amnesia effect, except the
| culprits are content marketers instead of the media.
|
| We also felt there was a need to have something comprehensive.
| While there's a lot of bad information out there, there is also a
| lot of great, accurate information. It's just usually spread
| across various blogs from startup attorneys, which makes it
| difficult to get a comprehensive view. With this handbook, our
| goal was to provide a central resource covering everything you
| need to know about startup incorporation.
|
| A few content-related notes:
|
| * We mention this in the handbook, but this is all written with
| US-based startups in mind. We fully recognize a lot of founders
| are elsewhere, but there's just too much to cover if we were to
| expand the scope to beyond the US. Sorry about that!
|
| * The word "startup" means different things to different people.
| We use the word in pretty much the way PG uses it here:
| http://www.paulgraham.com/growth.html
|
| * As the name implies, this handbook is narrowly focused on
| startup incorporation. A lot of people don't know this, but
| there's a lot more to forming a startup than just incorporation,
| like setting up a board, issuing stock to founders, etc. We
| previously published a handbook called Legal Concepts for
| Founders, which touches on those topics:
| https://handbooks.clerky.com/legal-concepts
|
| On more of a UI-related note, some personal pain points that we
| tried to address with our handbook design:
|
| * It's easy to jump down to a footnote and jump back up to where
| you came from (just click on the footnote number).
|
| * Every subheading is link-able, as are any callouts that you
| might want to link to.
|
| * We've been very generous with linking to glossary terms so that
| readers can quickly learn what they need to know in order to
| understand what they're reading. The challenge was that regular
| link styling would leave the copy way too busy. To solve for
| this, we made each link look super close to regular text so that
| the linking isn't distracting. That way readers that are puzzled
| by a term, who might be looking at it more closely anyways, will
| be able to click through and learn more, and other readers won't
| be distracted by the link styling.
|
| I'd love to hear any thoughts or questions about either the
| content or the UI! I'll be here all day to respond. Also happy to
| answer random questions related to startup law.
|
| Thanks :)
| jedberg wrote:
| > As the name implies, this handbook is narrowly focused on
| startup incorporation. A lot of people don't know this, but
| there's a lot more to forming a startup than just incorporation
|
| A product suggestion for you. Something like turbotax for
| founding a company. Ask a series of relevant questions, then
| create the formation paperwork, set up the board, issue the
| stock, automatically sign them up with an insurance partner,
| payroll partner, etc.
|
| The target audience would be a couple of people who have a
| really great idea and just want to get down to coding and
| talking to customers and building, and not dealing with all of
| the boring muck of legal stuff.
|
| When I was starting companies I really wished there was
| something like this. Your guides are a good start, but I still
| have to do a lot of legwork just to get the company going!
|
| And then once you have that, a second product -- the same thing
| for shutting down.
|
| Shutting down a company is even more difficult than starting
| one, and there doesn't seem to be a lot of products focusing on
| that, even though there are almost as many shutdowns as there
| are startups!
|
| Edit to add: I would gladly pay a few hundred dollars for this
| service, on top of the normal Clerky fees, as it would save me
| a ton of time. Also you could probably work out deals with the
| preferred partners to get some sort of referral fee.
|
| ps. This guide is great, thank you for putting it together!
| swampthing wrote:
| Thank you for the kind words and excellent suggestion!
| Definitely helpful to know you'd pay for it :P
|
| I touched on this in another comment here, but dissolution,
| counterintuitively, is actually a very different ballgame.
| There is a lot more variability in how it should be done,
| depending on the specific circumstances of the company being
| shut down. That's one of a few reasons why you don't see many
| products out there for this. But I completely agree it's a
| pain point for us to solve!
| jedberg wrote:
| > Definitely helpful to know you'd pay for it :P
|
| As a founder myself, I know it's easy for people to throw
| random ideas at you with absolutely no intention to pay for
| it, so I know how helpful it is to have a price anchor. :)
| swampthing wrote:
| Haha, that's why we love having founders as customers! :)
|
| FWIW we have at least the banking portion of what you
| described worked out. The idea is that you can pre-fill
| your applications with banks with the information that
| you entered for your legal paperwork. It's not quite a
| one-click process due to how the best banks for startups
| work, but it's as easy as it gets!
| LrnByTeach wrote:
| I think the following service may match what you are asking
| for , it is priced at $500 and from a reputable company.
|
| https://www.angellist.com/incorporation
|
| Included with Incorporation
|
| Entity formation in Delaware
|
| State filing fees
|
| IRS Employer Identification Number (EIN tax ID)
|
| Founder stock issuance, custom equity pool and 83(b) filings
|
| Legal templates and founder discounts
|
| 1 free year of Delaware registered agent, $100 per year
| thereafter. Renews automatically
|
| 1 free year subscription to Base plan
| hedgehog wrote:
| Don't undersell that you have the perspective that comes from
| doing this for over a decade (YC S11?).
| swampthing wrote:
| Excellent point! We are prone to forgetting about things like
| that :)
| 0ct4via wrote:
| Have you consider making the "handbook" available as a single
| file, i.e. a PDF containing the site contents?
|
| Some folk find it easier to scroll through that way (it can
| still support header links, etc.), rather than having to click
| through sections of the site as required :)
| swampthing wrote:
| That is on our list of TODO items! We were thinking more
| along the lines of ebook formats though, like Kindle and
| ePub. Would you prefer a PDF instead?
| nazzacodes wrote:
| yeah I think pdf should be the priority given the audience.
| swampthing wrote:
| Noted!
| 0ct4via wrote:
| Bit weird for you to answer a question that wasn't aimed
| at you... could've easily replied to my comment, or given
| me time to answer the question that was directed at me...
| -\\_(tsu)_/-
| 0ct4via wrote:
| As the parent you were asking, yes, I'd prefer a PDF - it's
| accessible, easy to generate and distribute, and ebook
| readers can handle them fine without you having to deal
| with typesetting for multiple formats.
| swampthing wrote:
| Thanks, makes complete sense :) We'll work on that!
| peterhadlaw wrote:
| Hello from your old Burlingame neighbor :) (Tesorio)
| swampthing wrote:
| Wow, good to hear from you! We were sad to leave -- are you
| all still there, or did you move?
| wcerfgba wrote:
| Have you thought about adding a section on different ownership
| and control models, such as co-operative models?
| swampthing wrote:
| Ooh, that's a good idea. I'm a huge fan of co-ops (not for
| any principled reason, I just think they're cool). They
| aren't common for startups of the type we're writing about,
| but I think it does make sense to discuss that topic. Thank
| you for the suggestion!
| JumpCrisscross wrote:
| > _aren 't common for startups of the type we're writing
| about_
|
| You may have a greenfield market in the trades.
| swampthing wrote:
| Indeed! The main difficulty is that while we are experts
| on startup law, we're not in other things, such as co-
| ops. But we are working on a way to allow others to
| combine their expertise with our software to serve other
| markets :)
| talkingtab wrote:
| Upvote. Even just a review of alternative models and some
| basic implications would be extremely helpful. It seems like
| worker owned software companies could be very effective.
| swampthing wrote:
| Yea, it's a topic of interest for me personally, even if
| they aren't common with the types of startups we serve. Do
| you know of any successful worker-owned software companies?
| The co-ops I'm familiar with are mostly REI and grocery
| store types (both of which I enjoy a lot as a customer).
| betimsl wrote:
| These lawyers are literally killing us with the mess they
| invented; making us pay for maintenance of the same.
|
| I know this is a topic in itself. But why are we paying them?
| swampthing wrote:
| Just to clarify, are you referring to a specific situation
| you're in, or are you referring to lawyers / messes in general?
| betimsl wrote:
| I mean in general. If one takes a look at the operating
| system of, let's say the US; what would one see? A large part
| of it, is the mess I'm talking about.
|
| Or maybe I'm wrong, because at the end of the day, someone
| has to pay the salaries: money circulation yade-yada, but on
| the other hand, big lawyers are filthy rich; what do we make
| out of that?
| swampthing wrote:
| Hmm, I think there are probably areas where something like
| what you describe is true, but I don't think something like
| that is going on re startups in the US. From an attorney's
| perspective, most of the legal aspects to startups are
| pretty smooth and ironed out. Startup law is probably one
| of the more pleasant areas of law to deal with. And some
| startup lawyers do pretty well, but aside from the ability
| to invest in your clients (or join them as a GC), it's not
| known for being particularly lucrative. I.e. if you were a
| lawyer and your sole concern was making money from your
| practice, startup law is not the most obvious choice. But
| there is inherent complexity just because the system has to
| be able handle all the different types of scenarios that
| might come up.
|
| That said, I have no doubt that there may be other areas of
| law or life that are the way they are due to factors like
| what you describe!
| betimsl wrote:
| Thank you for understanding what I was on about.
|
| > From an attorney's perspective, most of the legal
| aspects to startups are pretty smooth and ironed out.
|
| This is where the system is doing some balancing; it's
| giving something now to gain much more later so it
| remains relevant.
| wslh wrote:
| It's me or it misses the SHA (Shareholder's Agreement) topic? [1]
|
| [1] https://en.wikipedia.org/wiki/Shareholders%27_agreement
| swampthing wrote:
| It's not you -- this handbook is purely about incorporation,
| and doesn't go into what happens after incorporation. We go
| into that a bit in a handbook we wrote previously, here:
| handbooks.clerky.com/legal-concepts/formation#shareholder-
| agreements
| DtNZNkLN wrote:
| I learned the hard way: Incorporation seems easy but man can it
| be a huge pain when done poorly. Before I do it again, I'm
| reading this guide.
|
| One recommendation: Add a section on winding down a corporation.
| This is difficult and easy to get wrong and can be quite costly
| when things do go wrong :)
| swampthing wrote:
| Thanks for bookmarking :) It sounds like the last section in
| particular, the one about the types of information that go into
| a certificate of incorporation, may be particularly of interest
| in that case.
|
| And yes, you're exactly right about dissolution -- it is easy
| to get wrong! Incorporation lends itself much more to
| standardization because everyone is starting off from the same
| place, which is nothing. By contrast, dissolution depends
| heavily on the current state of the corporation, which of
| course differs widely. Hopefully we'll be able to add some
| content to cover the simplest scenarios at some point though.
| andromeduck wrote:
| How does this compare to capbse?
| swampthing wrote:
| I can't speak to Capbase in particular, but in general, Clerky
| is pretty unique in that we're run by startup attorneys.
| Partially as a result of that, we have a much stronger focus on
| helping people get paperwork done in a way that will survive
| legal due diligence (basically, review by investor and acquirer
| counsel). Also, our software in general is more focused on
| helping people get legal paperwork done, as opposed to any of
| the many other aspects of running a startup.
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