Filing a Charter Is Not a Startup Incorporation

I’ve noticed a lot of recent articles promoting that a startup can “skip the lawyer” and incorporate via an online service. These sites typically list about 20 incorporation tasks they’ll do for your startup for around $250 plus the applicable state filing fees.

Sounds like a great deal, but there is more to a proper startup incorporation than simply filing the articles of incorporation with the Secretary of State. The 19 other “tasks” they list? Little or no value.

Want to vest your founders’ shares? Can’t do that through an incorporation service. In fact, typical incorporation services do not even offer a stock purchase agreement. And you can definitely forget about a technology transfer agreement or anything else IP-related. Documents like these are the critical components of a proper startup incorporation.

When you use an online incorporation service to incorporate your startup, you aren’t getting a deal on incorporation. Instead, you are overpaying for 1/10th of a proper startup incorporation.

If all you want to do is file a charter, you can “skip the lawyer.” And you can skip the incorporation service as well.

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Incorporation,

8 thoughts on “Filing a Charter Is Not a Startup Incorporation

  1. Then what’s a good alternative for a one or two-man startup on a shoestring budget? How many hours of a lawyers time, and what cost will it take to do the job right?

  2. Kind of on a shoestring budget just like Pablo, but I really think there is no better option for my company in short or the long run than incorporating (btw mine is also a one person company at the moment). Any recommendations for starups like us?

  3. Agreed that ‘incorporator’ services are limited…but that doesn’t mean there aren’t any efficient ways to get various Agreements drafted… IP assignments and Vesting Schedules, etc are pretty formulaic….firms like Orrick and Goodwin Proctor have most all of the startup documents as templates (that anyone can find & revise and show to their lawyer for counsel & revisions).

  4. Ed — I’m not sure that makes it more efficient overall. If I have to review a set of documents produced by another lawyer, service, website, etc. it usually ends up costing the same as if I had drafted the documents. I still think either you hire a lawyer or you do it completely yourself.

  5. We were set up as an LLC (having been told this is the best for a small company like ours) but now are finding that a lot of lawyers don’t like working with LLC’s
    Should we go over to a C-Corp? We are not immediately looking for VC funds but rather relying on a friends and family first round. Also, in terms of a first rounds friends and family do the same lender restrictions apply? Or can anybody invest as long as the right documents are signed?

  6. So what is the best alternative if you are bootstrapping and just want to setup a bank account and get in the air?

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