swampthing

Great to hear! We'll definitely take a look at how we can improve this!

Hey, I'm one of the co-founders of Clerky :) Under Delaware law, directors are subject to fiduciary duties. E.g. duty of loyalty and duty of care. You can read more here: https://corpgov.law.harvard.edu/2020/03/10/directors-fiducia... In part because of this, it's not standard for directors to enter into agreements for their service on the board.

But if your situation requires something beyond those fiduciary duties — e.g. if you want them to be obligated to spend a certain amount of time on the company, want to memorialize compensation terms, etc., then an agreement could make sense. If you need a referral to an attorney to help with that, feel free to reach out to our support team!

Is that accurate though? Standing on a street and yelling at people actually requires effort, and arguably some risk.

It seems more likely that a lot of these people actually do want to help others but simply didn’t consider the possibility that what seemed helpful to them wouldn’t be. You can want to help someone without being good at it.

Probably not from us, unfortunately. I hope more resources like this can be put out there by others for other jurisdictions though!

Oh, sorry, I didn't mean to imply you were an activist — only attempting to explain why you might see some people complain about Delaware courts.

This handbook actually contains a lengthy discussion of why startups choose to incorporate in Delaware: https://handbooks.clerky.com/startup-incorporation/where :)

Yea, we try to make that clear with a notice at the top of every page. Sorry for the disappointment there. I sympathize — there are a lot of great startups and founders outside of the U.S. Unfortunately, the U.S. is the only place that has enough critical mass in terms of a startup ecosystem for the kind of standardization and resources you see here.

And yes, you are completely correct that taxation is a concern. Our advice to founders from outside of the U.S. is always to consult an attorney. I understand why that's not what people want to hear, but the reality is that's just what it takes to do it correctly. Anything else is just wishful thinking. Kudos to you for realizing what a lot of others don't!

Didn’t realize Cheese Board was a co-op! I’m not surprised though :) And I agree, we all owe a lot to IETF!

Ask and ye shall receive: https://handbooks.clerky.com/startup-incorporation/where

:)

Same name here, re "sole proprietorship" :) I imagine it's from our shared common law background.

I don't know anything about New Zealand law, but incorporating is also not a complex process in the U.S. Hopefully our handbook didn't make it sound like it was! It's more that there are various decisions to make in doing it, and different types of businesses might make different decisions. Perhaps in other countries, there is less variability around that though.

It is completely U.S. focused — we tried to be very clear about that :)

Thanks for sharing this information about how it works in Germany! There definitely needs to be more content out there about how things work in other countries. I have to say I feel bad for startup founders forming a German entity. It sounds kind of painful...

Doubtful — in general, company and investor-side counsel alike view Delaware courts as reasonable and fair. From what I've seen, the people that have a gripe with Delaware courts are usually activists of some sort.

The framing of VCs / board versus founders / shareholders doesn't make sense to me because so many startups have founders controlling the board. And VCs are shareholders too, of course.

I think what you may be referring to is that the Delaware courts generally give the company management broad discretion over business decisions. So it's difficult for a random shareholder to successfully sue the company over some bad decision they made. But as a founder, that's what you want, so you can run your startup without having to worry about backseat drivers.

Yea, I have the same preferences as you :) We’ll try and do both!

Thanks!

Yikes, sorry to hear that! Things like that are frustrating to hear, because something is clearly broken with the system, but there’s no simple quick fix for it even though it feels like there ought to be one. Hopefully we’ll have a solution for it one day...

Yup! For startups of the type we’re talking about, definitely Delaware :) We go into the reasons behind that here: https://handbooks.clerky.com/startup-incorporation/where

If you’re building more of a small business, I could see more of a rationale for Wyoming, but that’s getting outside of my area of expertise.

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.

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

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!

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.

Wow, good to hear from you! We were sad to leave — are you all still there, or did you move?

Just to clarify, are you referring to a specific situation you're in, or are you referring to lawyers / messes in general?

Thanks, makes complete sense :) We'll work on that!

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).

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!

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.

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!

Noted!

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.

Thanks so much for the kind words Greg!

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.