Comment by alex1 | Hacker News Reader

Comment by alex1 | Hacker News Reader

How do I get a company registered? How much does it cost? I have used Legalzoom once and Harvard Business Review once, to start two companies. They’re both in Delaware (it’s the new hotness or something). It cost me <$400 each time.

Don't do this. I don't see a reason in having a corporate entity for making apps, let alone more than one. Get a DBA (sometimes called Fictitious Business Name or FBN; in California, this would be ~$80 one time vs $800/year if you incorporated and had to pay the franchise tax, which is owed regardless of state of incorporation or net income). If circumstances require you to establish a corporation (like a very rapidly growing service), establish a C-Corp and not an LLC. And go through a lawyer, not LegalZoom.

Never ever establish it through a service like LegalZoom. Pay an attorney $2k-$3k and do it the proper way. Any Silicon Valley lawyer (and investor) will tell you the same thing. Before any investor invests in whatever it is you're doing, they will require you to restructure the entity and issue shares all over again. Intellectual property belonging to the corporation may become another issue (I've heard some horror stories about this; make sure you transfer all IP to the corporation). This will end up costing more than if you had done it the right way in the beginning. I've even heard stories about people incorporating through LegalZoom and never actually issuing stock to anyone.

Also, there is a reason for incorporating in Delaware. Delaware's General Corporation Law is very flexible and is the most favored by businesses. The court also works better for businesses since your fate is decided by a judge rather than a jury. Other advantages include some tax advantages, a cheap filing fee, and privacy laws for executives and directors.

Most people don't have $2-3k to just blow whenever they start a new company.

Also, if you already have previous documentation from a previous company you started, it's easy to reuse it, given that you change the specificities and you're not involved in a legally contentious arena (such as music licensing). So that pretty much obviates the need for an attorney.

If you find yourself making thousands of dollars a month, then it may make sense to make a C-Corp and transfer ownership of the LLC you have over to that. In any other situation, especially for a 1-day old startup, it's overkill.

Edit: I realize I didn't mention what I think of DBAs. I think they're a great idea if you're the only owner. If you're getting involved with someone else, an LLC established through a registered agent is a good (and I dare say necessary) legal safeguard for the price.

Do you have any concrete evidence why using a service like LegalZoom is so bad? It seem like all they do is fill out some standard forms for you and issue boilerplate paperwork.

What value would an attorney offer beyond this?

I've started a profitable business like this and never had any trouble.

If you ever want to take VC/angel money, you will most probably need to spend more to restructure and re-incorporate. The boilerplate that services like LegalZoom are not made for startups. They may be fine for other types of businesses, but not for startups. If you're one or two people running a small business, you should be fine.

Even YC advises against incorporating using generic paperwork (I would imagine the YC paperwork is pretty similar to what other Silicon Valley startup attorneys would use):

"Don't incorporate, though, if you can avoid it. It's easier to start with our paperwork than to transfer an existing LLC or S-Corp to a C-Corp."[1]

[1] http://ycombinator.com/faq.html

You can create a C Corp with legalzoom. That said, at my last company we incorporated in delaware with the Company Corporation and had to spend about $10k when we raised our series a on restructuring all that and documenting things.

"Don't incorporate, though, if you can avoid it. It's easier to start with [YC's] paperwork than to transfer an existing LLC or S-Corp to a C-Corp."

YC uses Goodwin Procter for their startup formations [1]. Goodwin Procter not only makes their startup formation documents freely available, they give you an automated service for customizing their boilerplate: http://www.goodwinfoundersworkbench.com/document-driver/

It generates:

* Certificate of Incorporation

* Consent of Sole Incorporator

* Subscription Letters

* Founder Stock Restriction Agreement

* Contribution and Assignment Agreement

* Bylaws

* Consent of Board of Directors

* Common Stock Certificates

* 83(b) Election Form

[1] http://hackerne.ws/item?id=16470

LegalZoom's forms are almost always just the Secretary of State's forms with LZ's logos plastered on them. This means you can save yourself the cost of LZ and just go straight to your SoS's website and download the forms yourself.

The value of an attorney:

- Structuring your business entity to best handle your management preferences and to minimize investor concerns (i.e. VCs).

- Pitfalls to avoid, and how to avoid them

- What to do, and when, and why.

Basically, an attorney will draft customized documents that fit your situation rather than just the limited subset of situations that the LZ/SoS forms can handle.

I agree about registering as a DBA, but not with the advice on the C-Corp. Unless you plan on taking VC money, the C-Corp is the worst business form you can choose, from a money/taxes point of view. The LLC provides all the same advantages of the C-Corp but avoids the nasty double-taxation nonsense. Furthermore, in California, the LLC tax rates are significantly lower than similar corporate rates.

Don't use LegalZoom. Using LegalZoom to incorporate your company is like using "See Spot Run" as the foundation for writing the next great American novel. There are lawyers out there who make lucrative careers fixing LegalZoom problems.

As for Delaware: don't register in Delaware unless you live in Delaware or enjoy out-of-state litigation. You're not a megacorp, you don't need the "protections" that the Delaware chancery courts provide. Delaware is friendly to management; not to business. A shareholder in Delaware's chancery courts has as much chance as a snowball in the fiery pits of Hell.

Registering as a Delaware corporation also means that you don't qualify as a domestic corporation in your state of residence. This means you lose out on any tax breaks, tax credits, or other incentives that your state offers to new/small businesses. Right now, most states offer these incentives.

Reply on news.ycombinator.com