Ask HN: What agreements and legal structures should you have in place for a startup?

[stuartk]

I've just got involved in a new startup and been offered a founder's stake. There are only 2 of us, she is based in the US, I'm in the UK.

Just wondering whether to form a company straight away, or wait until some point before launch. I guess the 2 most important things are to protect ip, and ensure I get my stake in the future.

Any advice on this?

[pg]

The main things you have to do are incorporate the company, appoint a board (presumably you two), issue stock, and each sign agreements with the company saying that your work becomes the company's IP.

You should probably vest some or all of the founders' stock (the usual time is 4 years) as a way of deciding in advance what happens if you split. It is a huge distraction to negotiate that later.

Don't incorporate as an LLC unless you don't plan to either take investment or sell the company.

You should postpone incorporating only if (a) you're still not 100% sure you want to start the company, (b) you're not sure yet what the stock allocation should be, or (c) you want to get funding soon from YC or some other investor who would prefer to start with a clean slate.

Use a lawyer. And if this is a startup, get one who works with startups, because the issues with startups are different from ordinary businesses.

[ivankirigin]

I don't really understand why people shouldn't incorporate or even take investments before YC. Can't you just take the stock as advisory shares and buy convertible debt (if they even want cash)? Neither really affect or are affected by the valuation or current amount of investment.

[stuartk]

From what I understand, a non-resident alien (i.e. me) can't be a member of a corp in the US, but can be a member of an LLC. What other options are there for a UK resident?

[alabut]

From the Ycombinator FAQ:

"Don't incorporate, though, if you can avoid it. Especially as an LLC. It's much more complicated for us to deal with existing paperwork than to start from scratch."

And as a personal note, I've found the same logistically - tinker together with friends on a project, see how you gel together, then worry about forming a company later.

There's also a contract that might help if one of you originally came up with the idea and recruited the other - you can create one that says basically that all the ideas and work belong to one person, the idea originator, but that they all transfer to whatever company you guys form if you actually get around to forming one.

I have zero legal experience, so take it for what it's worth, this isn't advice either way.

[davidw]

That FAQ is for people who want to apply to YC! I don't see that in the guy's message, above.

[stuartk]

Davidw is right, I'm not going for YC.

I guess we will 'tinker' until the point of release.

Thanks

[sharpn]

If you have no presence in the US, you'll need to fill in W8BEN forms (available online) to avoid being taxed by both UK & US. There are other considerations too, as you mention, but I'm not familiar enough with them to advise. Hope that helps.

[stuartk]

Thanks for that, I'll check it out.

[imp]

It's probably best to talk to a lawyer. There will be paperwork at some point, but at least consult with one now so that you know exactly what you'll need to do and when. It could also be complicated because of your different countries. Only a lawyer will know all of the important details.