5 ms·
Ask HN: Should I form a Delaware C-Corp before getting into YC?
Next year I am going to apply to YC for the first time ever and I am currently working on my MVP and following the great videos/articles available at startupschool.
As far as I can see, VC strongly wants you to have a Delaware C-Corp and the guys at YC strongly suggest that too for the same reason.
What concerns me is that they don't really tell you when this is going to be required, and what are the consequences of filing that legal paper (probably because it is well known and written in the state's legal papers).
As you might imagine I'm a fresh MSc graduate in computer science that wants to dive in this startup world but don't have a lot of money to spend. My question therefore is: what if I don't get accepted into YC? Should I really sign a piece of paper that could get me in trouble [1] (in particular this comment [2]) before even getting a solid investment?
I get their point, they encourage to do it as soon as possible not just for the legal part but also because, in that way, you establish yourself as a startup with legal HQ in Delaware and secure every possible transaction/source code of MVP and other legal stuff that you are going to need even without investments but I want to be prepared for every possible outcome and get a (almost) clean exit if the startup doesn't take off as expected.
So my final question is: should I create a Delaware C-Corp before getting accepted into YC?
[1] https://news.ycombinator.com/item?id=28076871
[2] https://news.ycombinator.com/item?id=28093279
- rogerkirkness 5y agoYC is only one kind of material event. Revenue is another one. IP creation is another one. If you book revenue before having an entity, you're comingling. You can assign IP, but if anyone else contributes before you're incorporated, unwinding that can be a significant risk. Stripe Atlas is $500 to do. Arguably your time as an MS in CS today must approach that per day. So it's like saying is one day of risk worth it - almost certainly yes it's worth having it if you intend to spend any serious amount of time doing business.
- rajacombinator 5y agoNo. It’s a waste of money and time.
- brudgers 5y agoYou need a Delaware C Corp when you need it. Typically that’s when there’s an actual investment on the table that requires it. Yes, YC companies are Delaware C corps. Because YC’s investment actually requires it. And because YC’s investment requires it, YC helps YC companies set one up. A Delaware C Corp is not do it yourself. It is something that your lawyers and accountants set up on your behalf. Not having lawyers and accountants is a good indication that a Delaware C corp is inappropriate right now. It is not like an LLC, where $100 and three pages of boiler plate can be enough.
- pedalpete 5y agoI'd say it depends on two things 1) where are you based? 2) will you be incorporating anyway? First off, if you're not in the US, it's a pain to get setup in the states. Yes Stripe Atlas goes some way to helping, but setting up accounts in the US is not easy, so if you're not in the US, you're probably better off registering in your home country first. You can always spin up to a Delaware company. Do you need to incorporate at all at this stage? Leave this off as long as you can. Not because it's challenging, but if you don't need it, you don't need it. Focus on what needs to be done to push your project forward. Then when you absolutely need to incorporate, do it.
- mattrighetti 5y agoYes I imagined that no 1. could be a problem, I am indeed based in Italy. no 2. Yes, I mean if I get accepted in YC I will take their advice and form a C-Corp to get investments (which is what usually happens when you get into YC, after demo day) and I would have to do it because VC will ask me, most likely, to incorporate into one. I don’t need at all to incorporate at the moment, I’m a software engineer so I’m not an expert in this field and I also want to delay this as much as possible because I would feel much more safe without spending any money on this legal stuff
- pedalpete 5y agoYup, I'm a software engineer too. So just to be clear, you don't need to get a Delaware C Corp until after you're accepted to YC. You can get an interview without it with the expectation that you move to a Delaware if accepted.