Quick Specifics on a Newly Formed Startup

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Earlier today I was talking to an entrepreneur that had just started a new business this morning. He’d filed the incorporation papers and wanted to clarify a few items he was thinking about with me. Here are some of his specifics around the details of the business formation without getting into the idea of the actual startup (it’s a SaaS product):

  • Incorporated in Delaware due to industry-standard laws
  • S Corp instead of C Corp or LLC due to desire to not have double taxation but still can relatively easily switch to C Corp if decides to raise money in the future
  • 10,000,000 authorized shares with no stock option pool yet but thinking about a pool representing 10% of equity
  • Single founder (tried to recruit co-founder but the one he wanted needed more financial stability)
  • Capitalizing the business with $10k of his own money and going to loan money to the business as it needs more (initially budgeted $100k and he’s not going to take any salary)
  • Paid a corporate lawyer that specializes in startups a flat fee of $900 to take care of everything (the lawyer charges this low amount as a way to build relationships for more lucrative work in the future)
  • Paid a trademark lawyer $17 plus the cost of filling ($350) to do a search and trademark the name (the lawyer normally charges $1,800 for a trademark filing but does the first one for next to nothing as lead generation since most startups need 3-4 trademarks over time)
  • Bought the domain name off Sedo.com for $200 and paid an extra $350 to register several variations of the name as well as other top level extensions
  • Hired an off-shore development firm out of South America to build the app at a budgeted cost of $30k representing two full-time engineers for $3k/week (so 10 weeks to get it done)

This should provide some more color and specifics to entrepreneurs thinking about starting their own company. It isn’t necessarily the way I’d go about doing things but I find it instructive to understand other approaches.

What else? What other questions about forming a startup do you have? Does this help?

5 thoughts on “Quick Specifics on a Newly Formed Startup

  1. I would have probably done the C-Corp up front rather than the S-Corp. In the first year of operations, the likely hood for the profits to warrant huge concern most of the time is not enough to outweigh the cost of restructuring the company, especially after stocks have been issued.

    Having said that, who is the trademark attorney that would do this for $17?

    1. Thanks Steven. Agreed about the C-Corp as he’s likely going to switch to it in the next two years. Send me an email or DM and I’ll pass on the trademark attorney.

  2. I wouldn’t spend so much money before hacking a prototype, showing it to people and making sure someone actually needs it

    I hope he got it covered.

    1. Agreed. I told him that he’s very likely to develop the product much faster than he’s able to get feedback, especially since he’s starting with a clean slate.

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