4 ms·

I don't think incorporation was the mistake here, but rather incorporating with no help and without knowing what you're really doing is. I recently incorporated

I don't think incorporation was the mistake here, but rather incorporating with no help and without knowing what you're really doing is. I recently incorporated using harvard business services, for $300 I had everything taken care of for me and had all the paperwork in 2 days, well worth the money.

davidu 16y ago
His entire post is about dissolution, not incorporation. Read the post.
- ryanfitz 16y ago
  I read both this article and his previous of where he created a company with 10,000,000 shares initially. This is why it cost him so much to dissolve the company. If he knew what he was doing he would have created far less shares, like 1500 total.
  - chamza 16y ago
    I've learned that 10,000,000 shares is fine if you have a low par-value per stock. I believe this many stocks are especially good if you're looking for outside investors/board members. But actually, don't listen to me, I'm the one whose in this ridiculous mess.
    - rosenjon 16y ago
      How stupid this was is dependent on the specifics, which we don't really have. Were you on the brink of raising a round of capital? Or did you just incorporate in anticipation of raising a round later? A C-corporation in Delaware is considered the best entity for raising outside investment. The State of Delaware knows this, and charges hefty fees for maintaining a C-Corporation, and apparently for dissolving one. So it makes very little sense to incorporate in Delaware unless you will be raising an outside round of capital, because the costs of maintaining the C-Corporation itself are very high for a start-up with no money. Recognize that a "do-it-yourself attitude" is awesome for developing start-ups. It is perhaps one of the worst attitudes to take in terms of corporate entity formation and maintenance. Documents on file with a law firm with appropriate date and timestamps are virtually bulletproof in court. This is one of the many reasons law firms exist. Documents pulled out of your filing cabinet, to which only you have been privy until the time they end up in court, are a bad, bad idea. Bootstrapping your legal documents or anything else having to do with your corporate entity is a flat out terrible idea, unless you basically do this for a living (in some cases, there are startups who create LLC's daily, in which case you presumably know all of this already).
rosenjon 16y ago
Totally agree. It would be unfortunate if anyone takes away from this that incorporating is a bad idea. What is a bad idea is incorporating with no idea of what you're doing. I disagree that this is a story of dissolution. It is a story of having incorporated with no understanding of the consequences, and finding out too late that he should have sought legal advice to begin with. There is a lot of talk online about Delaware being the best state for incorporation. This is true if you are seeking outside financing, and most angels/VC's want to see a Delaware C Corp prior to investing. However, if you are going to raise investment, you need to have a lawyer anyway. So at the point you take investment, your lawyer can handle doing an incorporation in Delaware. No one should be filing for C-corporation status by themselves, with no background in the legal requirements. In the meantime, if you are a startup who wants to put out a product for public use, or need to bring aboard paying customers of any kind, you should probably have an LLC. These are relatively cheap to create (and dissolve) and you can generally find law firms who will do pro bono work for startups in filing the appropriate paperwork (I have found several). Even LLCs require operating agreements and other paperwork before they are considered true legal entities. Any decent law firm does this all the time, and has the appropriate documents on file. Doing this yourself is again asking for trouble. For example, if you do business on behalf of your LLC as the "CEO", "President", or "General Manager", and have not specified that title in an operating agreement, you may be at risk of having the veil pierced (http://en.wikipedia.org/wiki/Piercing_the_corporate_veil http://en.wikipedia.org/wiki/Piercing_the_corporate_veil), because you are transacting business on behalf of the company in a role that does not legally exist. In most states, if you have an owner run LLC, your official title is "Member". However, most people don't want to represent their company as "Member", as this sounds weird, and is not a commonly used term. So in practice, you call yourself something else, like General Manager. If your operating agreement says that you can run the company under the title of "General Manager", or anything else you want to call yourself, then you are totally cool. If not, then you will be in trouble if a customer ever takes you to court.
- theoj 16y ago
  Can you post some cases or background regarding piercing the corporate veil for an LLC based on "transacting business on behalf of the company in a role that does not legally exist"? Who is to say what does or doesn't exit? Based on this logic, a large LLC or LLP would be required to have its whole hierarchy listed in the operating agreement.

davidu 16y ago

His entire post is about dissolution, not incorporation. Read the post.

ryanfitz 16y ago
I read both this article and his previous of where he created a company with 10,000,000 shares initially. This is why it cost him so much to dissolve the company. If he knew what he was doing he would have created far less shares, like 1500 total.
- chamza 16y ago
  I've learned that 10,000,000 shares is fine if you have a low par-value per stock. I believe this many stocks are especially good if you're looking for outside investors/board members. But actually, don't listen to me, I'm the one whose in this ridiculous mess.
  - rosenjon 16y ago
    How stupid this was is dependent on the specifics, which we don't really have. Were you on the brink of raising a round of capital? Or did you just incorporate in anticipation of raising a round later? A C-corporation in Delaware is considered the best entity for raising outside investment. The State of Delaware knows this, and charges hefty fees for maintaining a C-Corporation, and apparently for dissolving one. So it makes very little sense to incorporate in Delaware unless you will be raising an outside round of capital, because the costs of maintaining the C-Corporation itself are very high for a start-up with no money. Recognize that a "do-it-yourself attitude" is awesome for developing start-ups. It is perhaps one of the worst attitudes to take in terms of corporate entity formation and maintenance. Documents on file with a law firm with appropriate date and timestamps are virtually bulletproof in court. This is one of the many reasons law firms exist. Documents pulled out of your filing cabinet, to which only you have been privy until the time they end up in court, are a bad, bad idea. Bootstrapping your legal documents or anything else having to do with your corporate entity is a flat out terrible idea, unless you basically do this for a living (in some cases, there are startups who create LLC's daily, in which case you presumably know all of this already).

rosenjon 16y ago

Totally agree. It would be unfortunate if anyone takes away from this that incorporating is a bad idea. What is a bad idea is incorporating with no idea of what you're doing. I disagree that this is a story of dissolution. It is a story of having incorporated with no understanding of the consequences, and finding out too late that he should have sought legal advice to begin with. There is a lot of talk online about Delaware being the best state for incorporation. This is true if you are seeking outside financing, and most angels/VC's want to see a Delaware C Corp prior to investing. However, if you are going to raise investment, you need to have a lawyer anyway. So at the point you take investment, your lawyer can handle doing an incorporation in Delaware. No one should be filing for C-corporation status by themselves, with no background in the legal requirements. In the meantime, if you are a startup who wants to put out a product for public use, or need to bring aboard paying customers of any kind, you should probably have an LLC. These are relatively cheap to create (and dissolve) and you can generally find law firms who will do pro bono work for startups in filing the appropriate paperwork (I have found several). Even LLCs require operating agreements and other paperwork before they are considered true legal entities. Any decent law firm does this all the time, and has the appropriate documents on file. Doing this yourself is again asking for trouble. For example, if you do business on behalf of your LLC as the "CEO", "President", or "General Manager", and have not specified that title in an operating agreement, you may be at risk of having the veil pierced (http://en.wikipedia.org/wiki/Piercing_the_corporate_veil http://en.wikipedia.org/wiki/Piercing_the_corporate_veil), because you are transacting business on behalf of the company in a role that does not legally exist. In most states, if you have an owner run LLC, your official title is "Member". However, most people don't want to represent their company as "Member", as this sounds weird, and is not a commonly used term. So in practice, you call yourself something else, like General Manager. If your operating agreement says that you can run the company under the title of "General Manager", or anything else you want to call yourself, then you are totally cool. If not, then you will be in trouble if a customer ever takes you to court.

theoj 16y ago
Can you post some cases or background regarding piercing the corporate veil for an LLC based on "transacting business on behalf of the company in a role that does not legally exist"? Who is to say what does or doesn't exit? Based on this logic, a large LLC or LLP would be required to have its whole hierarchy listed in the operating agreement.