Forming a legal entity (part 5): Filing incorporation papers

CAVEAT: I am not a lawyer, and I got legal advice before making any of the choices described in this post. If you are making similar choices, you should definitely should do the same.

Filing incorporation papers was a big moment.  It was when all the dreaming, planning, and preparations became for real.  It also involved a lot of reading, learning, and making decisions which would be with me for a while, and could be expensive to unravel if done badly.  However, before it could happen, there were a few questions I had to answer.

The most immediate was what kind of legal entity to create.  While there are a ton of options, the ones which were on the table for me were: a C-corp (a traditional corporation), an S-Corp (essentially, a C-corp which jointly files taxes with the owner/s), an LLC (a roll-your-own legal entity for small business), or a Sole Proprietorship (a formality with little or no legal protection for your assets).

In my case, I knew that I didn’t plan to hire employees soon, nor did I expect to raise money soon.  Therefore, the tax benefits of an S-Corp made it more attractive than a C-Corp.  There was also the fact that I could “upgrade” from an S-Corp to a C-Corp by filing a simple, single form in case something changed with made a C-Corp more desirable.

I didn’t choose an LLC because, according to my lawyer, their open-ended nature makes them more complicated for investors/acquirers, and there weren’t any substantial benefits for me over an S-Corp.  I also didn’t choose a Sole Proprietorship because I wanted more legal separation between my assets and the company’s assets than that offers.

I also needed to decide which state to incorporate in.  Surprisingly, there’s really nothing preventing you from incorporating in whatever state you want.  The reasons to choose one or the other basically come down to how expensive it is, and, most importantly, what laws that state has regulating businesses.  The most popular state for tech-startups, because of its business-friendly laws, is Delaware.  However, incorporating out of state has a number of extra costs associated with it, and it’s always possible to re-incorporate in another state should be it become necessary (e.g., if an acquirer doesn’t like something about how your company is set up).

So, I decided to just stick with California (where I lived at the time) to avoid the extra expenses.  Since I’d be primarily operating in CA, I’d have to file for a business license there anyway, and, for what I expected from my business, it didn’t make enough difference to warrant the extra expense of officially incorporating out of state.

There were a bunch of other little things, and perhaps I’ll write about them in the future, but they were all incidental and easily resolved once those two big questions were settled.

Forming a legal entity (part 4): Registering a domain name

Fortunately, I’ve worked as a sys-admin at several past jobs, and so have gotten pretty familiar with setting up domain names and such. In any case, it’s very easy. Go to your favorite domain registrar (I use Hover, and type your desired name into the big search box. They’ll tell you whether you can have that domain.

Unfortunately, chances are, unless you have chosen a deliberately mis-spelled name for your company (cough tumblr cough), you’ll find that your first choice is probably taken. In fact, I was in exactly this situation. My company was named “Redwood Labs”, and I found I faced a few different choices:

  1. Rename the company to something available (
  2. Use a common abbreviation (
  3. Use a hyphen between words (
  4. Choose a different top-level-domain (

Of these, I choose #3, In my case, I knew my product name would be something else, and that I was going to register a different domain name for that. Therefore, it was less important to get a short, simple, easy-to-pronounce domain name. As I’ll talk about later, it was much more involved to find a domain name for the product itself.

Forming a legal entity (part 3): Choosing your company name

Before I could get started with the lawyers in forming my company, I needed to know what name to put on the form. Following the example of several startups I’ve previously been in, I decided to choose a different name for the company and the product. This is very convenient for several reasons:

  1. The product name is really important for marketing, while the company name doesn’t have to be.
  2. If the first product idea washes out, I may want to change the product name.
  3. There are lots of good company names which would suck as product names, so making them different gives me more options to choose from.

I wanted the company name to reflect that it was a technology company, but also reflect the personality I brought to it. In particular, I wanted it to reflect the passion I have for the craft of making software, and my own low-key, quiet nature. It turned out to be really easy. Sitting in my office (i.e., lab) at home, I looked out the window into the beautiful redwood forest which surrounds it. Redwood Labs. Done.

Forming a legal entity (part 2): Finding a lawyer

The first step I took in founding a startup was to find a lawyer. There’s a ton of very picky specific legal decisions to make, and I knew that I wasn’t remotely qualified to do it on my own. In fact, I didn’t even know where to start.

I began my search with a few recommendations from friends who are in startups, but, ultimately, I found someone through my accountant. Unfortunately, I don’t know enough about law (nor, really, about startups) to judge professional competence, but there were a few other things I looked for:

  • they’ve worked with founding tech. startups before
  • they were interested in my particular business
  • I felt there was a good personality fit
  • the rates weren’t too outrageous ($300 to $500 / hour)

After talking with a few different options on the phone, I wound up going with Doty, Barlow, Britt & Thieman and have been very happy with them.

One extra lesson I learned the hard way… lawyers bill for absolutely everything (all of them: not just mine). Every minute on the phone, every email answered, every letter they have to respond to will cost you. I’ve had to become very conscious about dropping the polite small talk on the phone, and keeping the email questions down to those I absolutely need an answer to. Every time before I call, I remind myself: it costs you $1 to say “Hello, how are you?”

Forming a legal entity (part 1)

A while back, I founded a startup. I’ve since closed it and moved on to first one company, and then to another.  However, I learned a lot in the process I thought would be worth sharing.

One of the first things I had to learn when starting my company was how to actually start a company. There are a lot of choices which all have to be made before you can incorporate, and there’s a definite order in which you need to get things done. Here’s the sequence I followed:

  1. Find a lawyer who knows startups
  2. Choose a name for the company (but not the product)
  3. Purchase the company’s domain name
  4. File incorporation papers
  5. Open a business checking account
  6. Sign up for email / calendar services
  7. Sign up for other technical services (e.g., source control, hosting)
  8. Print business cards
  9. Get to work!

All in all, there was more waiting for things to happen than actual work, and a lot more reading about legal entity types, researching banks, and that sort of thing than I’d expected. I’ll write more about each step in separate posts.