The Startup Legal Setup Guide – Medium


The Startup Legal Setup Guide

When you start a startup, it’s much more exciting to focus on building a product and a business than the legal details of incorporation and company setup. But these legal and structural details are important, and will have lasting implications for the entire future of your company. Mistakes like forgetting to file an 83(b) election or neglecting to register the business with your state and city could have severe tax penalties.

Even if you are working with a professional lawyer or an automated incorporation service like Clerky, it’s beneficial to have a personal understanding of the different steps in the process, and what options you may have. For instance, your incorporation charter could include a special provision to include Series FF stock, which allows founders to sell off a portion of their shares in a future funding round without increasing the tax burden for other employees (selling normal stock would cause the 409A valuation to increase, thus increasing the effective taxable value of other employees’ stock).

Over the years, a number of friends have asked me for advice about this legal setup process. For the sake of posterity, I’ve created a public Airtable Base containing the legal knowledge I’ve gained throughout the process of co-founding Airtable (and my previous startup, the YC-funded Etacts). Without further ado, here it is! You can create a copy of it (“Copy Base” at the bottom), at which point you can modify it to your own liking. If you have questions or feedback, feel free to drop me a line at [email protected]!

P.S. I recommend clicking “View Larger” below for maximum readability, and reading the long text within the cells by expanding each record or cell.

P.P.S. For a particularly fun example of a legal challenge oft-overlooked by many founders (even those with great legal counsel), take a look at the “File 83(b) Election” item (#17) under the Delaware Corp Checklist tab. Hint: it involves sending a form to the IRS within 30 days of receiving your stock grant, keeping multiple copies of that form in your personal archive, obtaining a timestamped proof of the mailing, possibly (or possibly not) receiving a confirmation letter from the IRS, then remembering to also include a copy of the form with your year-end personal tax filing, which will need to be done by regular mail instead of e-file, and also to include a cover letter. And oh, yes, this is often done by the founders themselves (almost always, in the case of YC companies), not by their company’s legal counsel. And if you don’t do everything right, you might be liable for a huge amount of additional taxes down the road!

While I tried my best to make this guide accurate, I certainly hope readers do not interpret this guide as a 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, both of which founders should pursue.

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).

And of course, no legal setup guide would be complete without a disclaimer from our lawyers : ).

DISCLAIMER: This startup legal guide (“the guide”) has been prepared for general informational purposes only and does not constitute legal advice. By using the startup legal guide, you waive any rights or claims you may have against the publisher of this guide in connection therewith. The information contained in this startup legal guide is provided only as general information and may not reflect the most current market and legal developments and may not address all relevant business or legal issues; accordingly, information in the startup legal guide is not promised or guaranteed to be correct or complete. Further, the publisher of this guide does not necessarily endorse, and is not responsible for, any third-party content that may be accessed through the startup legal guide.

Neither the availability nor use of this startup legal guide is intended to create, or constitutes formation of, an attorney-client relationship or any other special relationship or privilege. You should not rely upon this startup legal guide for any purpose without seeking legal advice from licensed attorneys in the relevant state(s).

You agree to use this startup legal guide in compliance with all applicable laws, including applicable securities laws, and you agree to indemnify and hold its publisher harmless from and against any and all claims, damages, losses or obligations arising from your failure to comply. This startup legal guide is provided on an as-is basis with no representations or warranties, either express or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose and noninfringement. You assume complete responsibility and risk for use of the startup legal guide. Some jurisdictions do not allow the exclusion of implied warranties, so the above exclusion may not apply to you. The publisher expressly disclaims all liability, loss or risk incurred as a direct or indirect consequence of this startup legal guide.

Thanks very much to Justin Hurley, Jude Gomila, Henry Ward, Jason Boehmig, Cai GoGwilt, Vaughn Koch, and especially Julie Picquet (who personally spent dozens of hours helping to put this together).

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