How Much Does It Cost to Incorporate a Startup?

In its earliest stages, a startup requires primarily the following:

1. Incorporation
2. Founder Shares
3. Equity Plan
4. Equity Plan Grants 
5. Electronic Stock Certificates
6. SEC Registered Stock Transfer Agent 
7. Advisor Agreements
8. Consulting Agreements
9. Employment Agreements
10. Qualifications to Do Business
11. Securities Filings
12. Fundraising Ready Files

It used to be that only major law firms were able to comprehensively service + maintain all of these moving parts.  That has finally changed.  

There are legal on-demand services that you can find and verify on Linkedin, which provide more control to the entrepreneur + save significant legal costs.

In-the-cloud applications like Y Combinator backed filing service Clerky.com (Legal Paperwork for Startups), and Union Square Ventures backed eSharesInc.com (Modern Equity Management) are fantastic tools when used by someone who knows how to use them.  Just today, Stripe backed Atlas was the top upvoted entrepreneur tool on Product Hunt.

Stripe expects Atlas to be most beneficial for entrepreneurs who have a global customer base, plan to raise money from global investors, or who plan to build an operational presence in the U.S.

The result is that corporate filings and stock registration no longer require major law firm overhead to administer.

An entrepreneur no longer is forced to choose a high priced law firm from a startup's very first moments of existence.

How much does it cost to incorporate?

Incorporating through Clerky or Atlas for example costs less than $600. There are cheaper methods, though in that case you will need more help. These are designed so that anyone can set up a corporation.

Still, for a founder to learn all of the details needed, think about the next steps, and get it right without some experienced guidance would be some stroke of good luck.

Plus, there are a lot of useful tips throughout this process that save time energy, money, and hassle later on. Like anything else, knowing the details and being prepared will make a valuable difference.  

When Should You Incorporate?

I am asked this a lot, and I advise to incorporate when it's time for your company (not the individual) to sign something -- for example when it is time to finalize terms with an advisor or consultant, endorse or sign a check.

Incorporate your startup when it's time to sign something.

Nearly everyone in Silicon Valley knows the legend of Google and Andy Bechtolsheim's $100,000 check that could not be cashed for some time because Google was not yet incorporated and so had no way to accept it.  That does happen occasionally.

It also often happens when it is time to agree in writing on details for founders, advisors, consultants, or when paying for web hosting services, domain names, and accounting.  Often, founders are putting startup expenses on personal credit cards, which does not make any sense, and is asking for problems.  All startup costs should be in the name of the startup not the founders as soon as possible*. 

To set up bank accounts and credit cards in the startup's name, you need to be incorporated.

* In a fast moving startup, you really don't want to have to look back however many months to figure out how to reconcile reimbursements and taxes with your and your startup's accountants.  In fact startup costs will have to be accounted for anyway, so consider whether incorporating through Clerky, and setting up your startup bank accounts and credit cards, is cheaper than trying to fix things later.  

This is just one of the ways to hack the startup setup process to save time (not have to re-do things, use the best applications) and money (discounted legal fees + Silicon Valley best practices); ask me about others.  

How Much of Your Own Capital Will You Need?

It's also important to know how much of your own capital will be needed for the initial startup legal costs in the first year.  I have seen this enough to know that while some months will be more than others, the overall cost can be first-year budgeted.

What's Needed to Get Startup Functional and Fundraising Ready?

Getting steps 2-12 above done efficiently and intelligently suited to your startup is where you will need some help.  

An entrepreneur's role is to identify and leverage resources.  

That includes finding the best way to incorporate and legally grow a startup.

Today, that includes an alternative to law firms that is cost and control efficient.

Specifically, all of the steps above can be properly and efficiently administered without a law firm.

What Do You Call This Approach?

I call it the "on-demand legal" or "legal on-demand" startup approach.  

When founders are incorporating, nearly everything is nimble and on-demand.

What Are the Major Advantages?

As the slide deck below shows, the major advantages are (1) transparent cost-savings and (2) more corporate control for the entrepreneurs.  At time of fundraising, you want to be able to tell your angel investors and any VC: 

• You have a pristine cap table backed by an SEC registered transfer agent (eShares, great tool for startups).  
• All of your corporate governance files and company agreements are Silicon Valley familiar forms and templates + ready for diligence.
• You made some really good decisions + saved money too.  

There are plenty of hacks, best practices + practical advice that are hard to replicate unless your lawyer has also been a startup founder and gone through the process themselves.

So, what will it take to do all of steps 2-12 above?

The process is predictable, budgetable, and can be a very good rehash on corporate governance and legal requirements for a startup founder. Smart founders want to know the details and alternatives. Having on-demand legal counsel at an affordable rate enables founders to be knowledgable and well prepared.

When is a Good Time to Choose a Major Law Firm?

A good time to choose a major law firm like Cooley, Wilson Sonsini, Gunderson Detmer, Hanson Bridgett, Latham Watkins, DLA Piper and others is at the time of funding by a VC investor.  The company will have fundable traction, there will be more understanding of needs, and plenty of people can provide great law firm intros over time.  Waiting to choose a big firm, while using legal on-demand provides optionality.  It also saves on legal costs at the startup stage.  

There are different "legal priorities" at the Startup Seed vs. VC Growth Stages.

Transparent Costs and Entrepreneur Control:

About Me: For 15+ years, I have helped startups get incorporated, close funding rounds and business deals.  I advise startups in every stage of growth, all while using modern technologies to reduce legal costs.   

• VC Growth Startups: I help technology growth startup teams close business development & revenue deals once they get to the contract stage. Because I see so many deals in varied industries, I typically have some crafty + super efficient solutions for redlines, custom partnership agreements, and industry specific terms. 
• Founders + Seed Startups: I help founders & seed startups get funded and grow as lawyer.  I use modern technologies, provide discounted fee structures, and look to work with experienced entrepreneurs. 

Startup + Funding Questions:

For startup + financing questions, check out the SVC site at: SiliconValleyCounsel.com or connect with me via Linkedin Profile so I know who you are, and send me a message.  

More SVC Linkedin Posts:

• Must Know New Tax Law -- How to GROW Your Startup Stock Gains by 15% to 28% With This One Tax Loophole 
• Advisor Agreements -- What Makes Startup Advisor Agreements TRICKY? 
• Starting a Startup -- How Much Does It COST to Incorporate?
• SEC Fundraising Rules -- Avoid This MISTAKE
• Allocating Founder Equity -- Tools That HELP
• Advisor Equity -- What's NORMAL in Silicon Valley? 
• Capitalization -- Four Tools to Build PERFECT Startup Cap Tables (Over 2500 Views and 250 Likes)
• Growth -- 11 Proven GROWTH Metrics for SaaS Startups

Have a Startup Question?  Send me a message via Linkedin.