Doing business the hard way

Good news: A US-based site for doing the legal documents for venture capital backed start-ups in the USA. It’s not the first, but it does seem lovely to use, and they have yCombinator’s General Counsel as an advisor.

Bad news: In the USDA you need a website to help you write legal documents.

The trend towards more complex legal documents is one we should fight, but the USA (and Delaware) has such a byzantine set of rules and de facto rules, that they end up with a sea of texts for each deal. That makes it harder to get deals done as everyone has to understand what’s going on, much more expensive as lawyers from each side (and there could be several) get involved, and arguably more prone to squabbling about the details rather than the basics of ownership and board membership.

An early example is the “Standard Post-Incorporation” agreement, coming in at a nice and low $299, includes sevem documents and two optional documents:

Action of Incorporator, Bylaws, Initial Board Consent, Restricted Stock Purchase Agreement for each founder, Notice of Stock Issuance, Pre-filled 83(b) election and filing instructions, Confidential Information and Invention Assignment Agreement (one for each founder) and future options for a Stock plan and indemnification agreements.

That’s after the Certificate of Incorporation is done ($99), which is sent to Delaware, whereupon it takes 2-3 days for the Delaware Secretary of State to respond.

These ten documents are just for starting a company – not for an actual investment round.

For a country that is meant to be the center of business, it sure is hard to do business there. I welcome Clerky, which, like TurboTax in its day, makes the complexity of the US system easy to manage using a form-based approach. But overall it’s a sign that things are out of control, and Government focus should be on making it easier and cheaper to start and run businesses.

In New Zealand we can form a company within an hour, and we do so online. A well-written Constitution and Shareholders Agreement takes care of the rest. But that’s still not simple enough, and I do recommend you see a lawyer, preferably one who is not your family lawyer but a professional.

I’ve even recently been hearing arguments that the shareholders agreements are not really worth it – at least not for investors with a founder-centric, long term horizon. I’ll leave that one for another day.

Published by Lance Wiggs