Properly forming a company and managing co-founder relationships are essential to successful startups.
There is much to do in the early days of a startup. Founders need to decide if they want to form a corporation or a limited liability company. They need to discuss and document expectations and obligations, not just between themselves but also with early service providers. They need to ensure that their IP is properly protected. They need to set-up and maintain a capitalization table to track ownership, which will facilitate taking on outside investment.
It is tempting, especially in the early stages of a business, to “do-it-yourself.” Before finding a trusted, experienced legal advisor, one may receive incomplete or incorrect advice online or from others. Early missteps can create problems that may be compounded as the business grows and only be revealed when the founders seek outside funding. These problems will most likely be more expensive to clean up down the road (if they can be cleaned up at all) than if the “legal side of the house” had been properly attended to from the outset.
As the above suggests, we prefer that clients come to us earlier in the process before problems in documentation arise, but we do not always have that luxury. We have, by necessity, mastered forensic-like “clean-up work”: reviewing the documentation, figuring out the existing landscape, diagnosing the issues, and offering practical solutions. We often do this type of work as a separate onboarding project when a client decides to subscribe to our Counsel-as-a-Service (CaaS) program.
What services are included in company formations and subsequent organizational matters?
goodcounsel can help one or more founders form an entity through which to operate their business. This entails discussing the founders’ objectives to ensure that the correct entity is selected and filing the appropriate organizational documents with the secretary of state of the selected jurisdiction. Beyond these early administrative tasks, we assist with many vital matters, including advising founders about how to structure the company to achieve their goals, drafting the company’s governance and equity documents, and setting up the cap table. As a law firm that has represented scores of startups over the last decade, we can also refer you to resources for business services you may need.
Why do founders need an attorney at this early stage in a company’s life?
Attorneys can help founders understand the legal consequence of their decisions. Founders can reduce their legal risks by paying for a good corporate attorney early in their company’s life rather than paying for expensive litigation later. Most importantly, operating through a properly established legal entity can provide significant protection against personal liability.
Why should I choose goodcounsel’s assistance for company organization instead of an automated platform?
Many automated formation platforms and other attorneys offer boilerplate company formation engagements that include:
- Filing organizational documentation with state authorities.
- Providing standard bylaws (for corporations).
- Drafting the necessary organizational consents.
With goodcounsel you get all of the above, plus legal guidance and information. We will also assess the needs of your business and offer the following customized documents and services, as applicable:
- operating agreement (for LLCs)
- stockholder agreements (for corporations)
- founder agreements
- tax election forms
- a capitalization table (with optional onboarding to a discounted/free online cap table management platform
- advice about the founders’ ongoing legal obligations
- referrals to other trusted professionals and service providers
How much will this cost?
We understand the importance of predictability and value. We are pleased to provide our clients with fixed-fee proposals for most company organizational engagements. However, if a company has already been formed and the founders want a review of the company’s formation documents, we would be happy to address these issues on a fixed-fee basis if possible or otherwise as part of an hourly engagement.
How long will this take?
The normal turnaround time for a complete formation matter once work commences for a single-founder company is one week and for a multi-founder company is a few weeks. An accurate estimate of the timing depends on a variety of factors, particularly the number of founders, the complexity of the relationships between the founders, and the future goals of the founders. The timing for other company organizational matters varies based on scope.
Where can I learn more about entities, formations, and founders?
goodcounsel’s goodthinking! blog contains a variety of information relevant to early-stage companies, including posts about determining each founder’s equity, the possible pitfalls of different founder equity splits, and more.
Can I just form and organize my company myself?
You could, but you will not have the added value of our expertise, which is particularly beneficial in situations like this where there are issues you may not have even known to consider. The goodcounsel approach emphasizes reasonable, predictable fees coupled with greater value than is often provided by self-service platforms. The modest savings from using do-it-yourself legal services may not be worth the deficiencies of or outright mistakes in the documents. We suggest that you carefully consider the downsides of going it alone.