Incorporating your startup can be like mounting an 80” TV. You can buy the cheap wall mount that comes with instructions in a foreign language or you can choose the 5-star wall mount with easy to understand instructions.
Cheap Wall Mounts
Most online incorporation services are like the cheap wall mount. They will get your TV on the wall, but leave you wondering what to do with the extra 8 screws in the box. Good luck adjusting the viewing angle. Did you hear something cracking? Are you sure it can support all that weight?
If you choose the cheap wall mount option for your startup, you will need to do extensive research on your own to get things right. Inadvertent mistakes can create costly hurdles to closing outside investment or selling your company. When you finally decide to hire a lawyer, they may need to clean up or bolster your initial work, quickly eroding any original cost savings.
5-Star Wall Mounts
Premium online incorporation offerings, Clerky for example, are like the 5-star wall mount. With clear instructions and specially designed parts, they guide you through the steps necessary to set up a standard Silicon Valley-style Delaware corporation that is ready to take venture capital investments. If you diligently follow instructions, these services are a cost-effective way to incorporate and initially set up your company. That said, plenty of founders pay for these services but fail to complete all of the steps properly. Even with good instructions, success with these services still depends on how you execute. Still, when you take your handiwork from these premium self-service offerings to a lawyer, they will usually find that you have avoided dropping anything too heavy on your foot.
Why Hire a Lawyer to Incorporate?
Full disclosure: If it wasn’t already clear, I am a startup lawyer.
When it comes to Silicon Valley technology startups, most issues relating to incorporation have been standardized away. If you can easily purchase a 5-star wall mount and set things up yourself, why might you consider going the full-service route?
Unless you’ve formed and run a company a few times, and even then, without help, setting up and maintaining your company correctly will require enormous amounts of your own time and effort. Like forgetting to attach your wall mounted TV to a stud, mistakes may not be apparent when you make them, but can spring up when you least expect and result in costly fixes. If you would rather spend your time building your business (or safely watching TV), you can always hire an expert to handle things for you. Although the initial costs may be higher than if you DIY, there are several reasons to consider hiring a startup lawyer to do your incorporation.
First, many lawyers at startup-centric law firms can offer attractive incorporation packages to ensure that founders get top-tier legal services without worrying about initial setup costs. These packages may include free or discounted incorporations, fee deferrals, or limited scope subscription legal services. To be eligible for these packages, there is usually a risk assessment of whether your company will eventually be investable and able to pay for the law firm’s legal services. Common ways to be eligible for these deals are through warm referrals to the lawyer, or your company’s acceptance into a reputable startup accelerator or incubator.
Second, incorporating your company with an experienced startup lawyer can help you efficiently navigate critical startup issues and give you peace of mind. Why waste your own time researching the nuances of corporate law? As a founder, your time is best spent building your business. Even the premium online incorporation services can only take you so far. For example, you can adopt a basic equity incentive plan through an online incorporation service, but that service won’t tell you how to grant options in compliance with corporate, tax, and securities laws. Often, companies will need to tweak or replace the incentive plan to scale or make grants more efficiently, but you wouldn’t know that without the help of an experienced startup lawyer.
Third, eventually, you will want to hire a startup lawyer, particularly if you plan to fundraise. Finding a competent startup lawyer who you trust and enjoy working with is not always the quickest or easiest thing to do. For the best legal experience for yourself and your eventual lawyer, you don’t want to be in the middle of a transaction, scrambling, stressed out, and desperate to find legal help. Why not use the incorporation process to test the waters while the stakes are lower?
Ultimately, you need to do what makes sense for your business. If that means saving on initial costs, please be diligent, as mistakes can quickly erase any cost savings. If that means hiring a startup lawyer, be sure to find a competent one and avoid basing your decision predominately on headline billable rates. You could hire the random stranger for $20 to mount your new TV and need to pay $300 a few months later for a contractor to fix the hole in your wall, or you could opt for the $99 white-glove service that delivers your TV, installs it, and removes all the trash and leaves you enjoying your movie nights for years. The right startup lawyer can help manage overall legal spending, guide you to the right solutions, and reduce stress.