Startup Legal Setup Guide

https://medium.com/@howietl/the-startup-legal-setup-guide-439b63bf68e8#.wlo6x4wpp

by howsta • 10 years ago

91 24 10 years ago

This seems like it's more intended to promote Airtable than actually provide information. I've never heard of Airtable but it doesn't seem to be a good format for long blocks of text.

officialchicken• 10 years ago

The Airtable <embed> [0] containing the legal documents do not seem to comply with EU privacy laws; you will not even have the chance to learn that unless you have DNT enabled in your browser.

This is for US residents and visa-holders creating a US-based corporation doing business primarily in the US. If the majority of your income is generated outside the US (even Canada or Mexico) this probably won't help you too much.

Nothing within the article applies or helps EU or Asia-based startups.

[0] https://airtable.com/shrOQ3Gf4Hs3Gvvvc/tblbXrHGAKizU1U4P/viw...

nihonde5• 10 years ago

Speaking of which, a spreadsheet widget is the worst possible delivery format for the long-form text in this article.

howsta4• 10 years ago

You can expand the long text cells by clicking the expansion arrows that appear in the top right corner of the cell. I would also highly recommend using the full-screen version rather than embed (by clicking "View Larger Version"): https://airtable.com/shrOQ3Gf4Hs3Gvvvc

I would also add that, while I'm certainly biased, there is benefit to making this a "cloneable" database that you can then use as a personal checklist, add notes, further attachments, etc which you wouldn't be able to do with a simple blog post, for instance.

jatenate• 10 years ago

We used (an earlier version of) this guide for our incorporation, and found it extremely helpful. Airtable as the medium worked well - there are other longform posts out there about the process, but having an actionable checklist of steps, with descriptions for each, was far more helpful for us.

nihonde5• 10 years ago

(IAAL.) While the author is very likely coming from the right place, I find this kind of "legal" advice totally useless——hence the fact that half of this "article" is a disclaimer that you shouldn't bother relying on it. If I were one of the lawyers whose name is attached to this advertorial, I would hasten to get my name removed from it.

Bluestrike2• 10 years ago

I think the most important thing for anyone to understand about any sort of legal startup guide or sample agreements is that they don't replace the need for an actual attorney. If you think they're a quick and cheap alternative, it'll probably blow up in your face at some point. If you're aware of their limitations, then they can become a tool that can at least help you understand the process and the need for agreements and actions that might not seem obvious at first glance. They're references, no more and no less.

Anyhow, it looks like most of the sample documents attached to that spreadsheet are from Orrick's tech group:

https://www.orrick.com/Practices/Emerging-Companies/Pages/St...

howsta4• 10 years ago

I've amended the guide to more strongly recommend the reader consult with a startup attorney, even if they plan on filing the paperwork themselves to reduce costs. FWIW, I actually had stronger wording in an earlier draft of my guide, but somehow it got lost in subsequent revisions :(.

Under the section for "When should I use a lawyer", I added the below (I also introduced "Finding a lawyer" as the first step of the Delaware corp checklist tab): Though the formation documents are sometimes similar, mistakes can be made easily and are often costly (or impossible) to later remedy. I strongly recommend consulting with a startup attorney to provide guidance throughout the process and review important documents before you finalize them, even if you wish to file most of the incorporation paperwork yourself to reduce legal costs. Many startup lawyers will even do the basic incorporation for free of labor charge (passing through only the filing fees directly to you) in the interest of gaining your business as a long-term client down the road. Other lawyers will also/alternatively allow you to defer payment for legal work (up to a certain maximum, sometimes as high as the $10k range) until you've raised funding.

See here for a horror story involving DIY incorporation: http://bit.ly/incorporatinghorrorstory And the corresponding HN thread from 5 years ago: https://news.ycombinator.com/item?id=2399139 (I had to use a bit.ly link=>web archive because it seems the original link is now dead).

howsta4• 10 years ago

Author here, for the sake of constructive criticism, would love to hear why you don't find it useful?

The disclaimer is there because, while I tried my best to make sure all info in the guide is accurate, I don't think it's fair or necessary for me to take on legal liability if someone makes (or claims to make) a mistake by using this (free) guide. I certainly hope readers do not interpret this guide as a definitive and comprehensive substitute for proper legal counsel and research of their own--rather, it contains information which is designed to act as a supplement to those things.

In other words, it will hopefully help folks avoid false negatives in legal steps (i.e. forgot to file an 83b within 30 days or register with their city's business department), expose them to lesser-known alternatives that their own lawyers may not have told them about (using FF preferred stock to provide a small measure of founder liquidity down the road without skewing 409A valuations), and understand why it's necessary to do certain things (like adopt bylaws, file a Form D, etc).

The scope of the guide is strongly biased towards U.S. startups incorporating as a Delaware corp (a common approach, even for companies not based in Delaware itself).

nihonde5• 10 years ago

Why don't I find it useful? "Find legal counsel" and "Comply with State-Specific Regulations" are actual line items on your checklist. Your checklist can be reduced to one line item: hire someone who knows what they're doing.

It wouldn't bother me if you were simply sharing your experience in setting up a company, but this article is presented as advice wrapped in a thinly-veiled promotion of your product (and some lawyers/law firms).

oliviajune• 10 years ago

Great post!

patio11• 10 years ago

Some day I'm going to write about the boring backoffice mechanics for folks who are doing business on the Internet but do not expect to ride the startup trajectory.

In the meanwhile: LLC incorporation. You'll almost certainly pick an LLC as a solo founder because the costs are lower, the protections are roughly equivalent, and the pass-through nature of the business makes your tax planning easier. You'll make your LLC in your choice of Wyoming or Nevada. Wyoming is institutionally more privacy conscious than Nevada is, which may matter to some of you. ("Do you want your home address trivially available on the Internet?" is a question which gives some entrepreneurs pause. Not wanting that is a totally legitimate reason to incorporate in Wyoming.) Nevada is fairly cheap, has no state income tax and no prospect of attempting to retroactively impose one later on your income, and has a fairly nice portal where you can do the one thing a year they'll require you to do. (Robosign your "annual list" and then pay a few hundred bucks for the privilege of limited liability for another year.)

You do not need to have any connection to the state you incorporate in whatsoever. Full faith and credit clause of the US constitution for the win: all states can create legal entities for anyone which all other states must treat like their own legal entities and, accordingly, states compete with each other to get corporate formations (as a source of revenue and for knock-on economic purposes). Delaware has planted the flag in "We are a very predictable jurisdiction for litigating complex court matters if it comes to that; we're going to charge you for this." Wyoming picked privacy/"low fees low services." Nevada picked "We're cheap and reliably funded by sin taxes."

You will pay taxes anywhere your business has an economic nexus. For almost all of you, this will be "where you do the work that earns the money." Importantly, this is not not not not not where your customers are, where the people paying you money are, where the money actually changes hands, where your corporation is registered, or where your bank account is. If you sell $10,000 of software on the US App Store from a Nevada LLC with a bank account in London but you physically coded the app in Croatia, your sole economic nexus is Croatia. (Run this by an accountant or lawyer if you doubt me, but if they doubt me, I'll offer them 100:1 odds that I'm right.)

Not too much changes about your life after incorporating. You'll want to get a business checking account in the name of the LLC, primarily to start segregating funds for bookkeeping purposes and secondarily for maintaining the corporate veil. You'll register for accounts/leases/etc in the name of the LLC rather than in your personal capacity. You will almost invariably be asked for a personal guarantee for any debt/lease/etc until your business has millions in revenue -- this sucks, but you'll do it. You should get a credit card (doesn't have to be a "business" card) which you use exclusively for business purposes, because this assists in you doing your most important bit of tax planning, which is keeping very, very accurate books regarding business expenses.

You will almost certainly be amazed at the variety of expenses which are legitimate business expenses. There are fairly few bright lines, and navigating the gray area is one of the reasons you will hire an accountant. They will, almost certainly, categorize thousands of dollars of things you thought were personal as business expenses; this is one of their primary functions when working for small businesses. (Examples: 100% of your WSJ subscription; 40~60% of your Internet fees; 100% of your coworking space rent; some percentage of depreciation on your laptop; etc etc.)

In the US, you'll typically file a Schedule C attached to your 1040, showing the revenue of the business, expenses, and net profits. You'll pay taxes on the net profits, and also pay self-employment taxes on them (Schedule SE). Your accountant will identify a variety of tax-saving strategies for you; the most important (after "keep good books!") for most small businesses on HN will be "establish and generously fund a retirement account."

yaur• 10 years ago

In the meanwhile: LLC incorporation. You'll almost certainly pick an LLC as a solo founder because the costs are lower

In New York this isn't true

hundt2• 10 years ago

You will pay taxes anywhere your business has an economic nexus. For almost all of you, this will be "where you do the work that earns the money." Importantly, this is not not not not not where your customers are [...]

This seems to be a common belief among entrepreneurs, but all the evidence I have found (and my accountant) point to it not being true, at least not in all states. For example, here is a page from California's FTB web site:

https://www.ftb.ca.gov/businesses/Sales_Factor.shtml

Jill, a nonresident of California, owns a web design business that she holds as a sole proprietorship. She works from her home out of state but has customers in various states including California. For the 2013 taxable year, Jill's sales receipts from California customers are $300,000 out of the total sales receipts everywhere of $1,000,000. Does Jill have a filing requirement in California?
Yes, nonresident individuals are taxed on all California source income. Jill's sole proprietorship is carrying on a business in and out of California and will be required to apportion its income to California using UDITPA rules. Under market assignment, sales of services are assigned to California if the purchaser of the service received the benefit of the service in California. Accordingly, $300,000 will be assigned to the California sales factor numerator for Jill's sole proprietorship and Jill would apportion 30% ($300,000 CA sales/$1,000,000 total sales) of its business income from her sole proprietorship to California.

I would love it if you had some evidence you could share that the popular view (you only pay taxes where you do the work) is correct so that I could stop paying taxes in California :)

kchoudhu• 10 years ago

If you're registered in Nevada or Wyoming, does UDITPA apply? Those states haven't enacted the rule.

http://www.uniformlaws.org/Act.aspx?title=Division%20of%20In...

greenspot• 10 years ago

Ok, this thing is just Marketing to push Airtable. Once you liked the provided info you click on "Copy Base" and voila, Airtable gets a new user.

But I do think that Airtable looks nice. And I appreciate any new approaches to spreadsheets. This space lacks a bit of innovation and the advice seems to be not that bad.

Upvoted.

Startup Legal Setup Guide

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