You’ve got an idea, you’ve found some partners and now you’re ready to get serious and do things right. So you want to incorporate. But what should you do, and how?
Your rich uncle Steve, who is going to stake you to $50,000 dollars just to get going, wants you to form a LLC (limited liability company) or maybe a Subchapter S corporation. He knows you are going to lose money, at least in your first year or two, and if you form one of these entities he will get a nice tax deduction. Should you do that?
Well, maybe. But forming an LLC or subchapter S corporation will have its own costs, later down the line. Here is a video from Jason Calacanis that walks through some of the issues.
So, if you take Jason’s advice and form a Subchapter C corporation under Delaware law, here are some thoughts.
You can form a new company cheaply on Rocket Lawyer or Legal Zoom. However, these companies service a wide range of companies and most of my technology clients have not had good experience with those so far. Instead, I would recommend that you use documents from a law firm with a strong base of startup clients. Orrick Harrington’s forms for incorporation are found here, and the Cooley forms are found here.
The Orrick forms are shorter and easier to understand. However, the Cooley forms are better adapted to companies located in California or for companies (wherever located) whose investors are primarily located in California. Both of these sets of forms are free.