Today, in partnership with B Lab, we're excited to officially launch support for Delaware public benefit corporations on Clerky.
Delaware PBCs are increasingly common with founders who want to run their startups not only for the benefit of stockholders, but also the broader public. While regular Delaware corporations are required to maximize stockholder value, Delaware PBCs must balance that interest against one or more specified public benefits, as well as anyone it materially affects. For founders, this means more freedom to use their startup as a force for good, which we are proud to support.
This launch marks the first time PBC startups can do the complete set of formation paperwork that investors and acquirers look for, entirely online. And as with regular startups, PBC startups that form on Clerky can go on to use our complete suite of products for fundraising and hiring as they grow. We're excited to bring to PBC startups our unique focus on doing paperwork correctly, in order to help avoid legal issues down the line.
We are also thrilled to be working with B Lab to help our PBC customers go on to become certified B Corporations. In order to be certified by B Lab, B Corporations are held to rigorous standards of social and environmental performance, accountability, and transparency. Certification as a B Corporation is a great tool for communicating values to potential customers, employees, investors, and partners.
Delaware enacted the legislation enabling PBCs four years ago, at the urging of B Lab. Back then, companies electing for PBC status were large and established, like Method, Kickstarter, and Plum Organics. Increasingly though, founders are incorporating their startups as PBCs from the start. Some startups that have already used Clerky to form as PBCs are:
- Crowdbotics uses machine learning and on-demand software engineers to automate software development. Crowdbotics was founded by Anand Kulkarni, a serial entrepreneur who led his previous startup through Y Combinator to raise over $20 million in venture capital financing.
- FreeWill provides users with a friendly and intuitive way to create high-quality legal wills, completely free. These tools make charitable giving within wills easier than ever, and the company aims to raise $1 trillion globally for nonprofit organizations. FreeWill is funded by Highland Capital Partners and Dorm Room Fund (run by First Round Capital), and was founded by Patrick Schmitt (former Head of Innovation at Change.org, a certified B Corporation), Jennifer Xia, Helen Zou, and Alexander Leishman.
As more founders aim to start PBCs, we're also developing resources to help them along the way. To that end, we've updated our Legal Concepts for Founders handbook to include an article about PBCs and B Corporations, and are happy to announce the addition of Rick Alexander, the Head of Legal Policy at B Lab, to the editorial board. Rick is widely recognized as one of the world's leading experts in Delaware corporate law.
We're excited to make it easier for founders to use their startups as a force for good, and are very much looking forward to seeing the impressive impact they will have.
My cofounder Chris and I were driven to start Clerky after working as startup attorneys in Silicon Valley. At our law firm, we saw our clients doing paperwork without our involvement, in order to avoid legal fees. Inevitably, they would either use an online service not designed for startups, or do the paperwork themselves and miss some obscure detail. In either case, they would ultimately have to pay us even more to clean things up. With our engineering backgrounds, Chris and I knew that we could build software to help startups save money while still getting the legal paperwork done correctly.
We started with company formation, because that's where the most startups needed help. All the existing online services were geared toward regular small businesses (whether internet-based or physical) - but the correct legal paperwork for regular small businesses is very different from the correct legal paperwork for startups, and vice versa. To this day, we are the only major online service to provide startups with the complete set of formation paperwork they need to pass investor due diligence.
We didn't start Clerky just to do company formations though. Startup founders do all sorts of legal paperwork on their own. Our aim has always been to build software that minimizes the total cost of legal paperwork over a startup's entire lifetime.
This is why we're proud to announce that Clerky now has products covering all the standard corporate legal paperwork that startups need prior to a Series A financing. In addition to our flagship Formation product line, we now have product lines for Fundraising, Hiring, Commercial, and Maintenance.
Our Fundraising product line is designed to help startups do seed financings using standard safes or convertible notes. All you have to do is pick whether you want a valuation cap, discount, or both, and then enter the investment terms. The software helps you do things correctly - for example, by having you do a board consent before closing any investors.
Hiring is our product line for hiring employees, consultants, and advisors. It includes onboarding paperwork like offer letters and consulting agreements, as well as equity compensation paperwork so that you can issue stock or stock options out of a stock plan you've adopted on Clerky. We even handle basic paperwork for when people leave the company.
Of course, startups also need to protect themselves when they partner with other companies. That's where our Commercial product line comes in, with software for standard NDAs.
Finally, our Maintenance product line helps you make changes to your corporate structure. No matter how thoughtfully you set things up at formation, things change. From changing the company name, to authorizing more shares, to changing the board of directors, we've got you covered.
With the release of these new product lines, startups can now use Clerky to do the full range of standard corporate legal paperwork they need prior to a Series A financing. There is no better way for startups to do their paperwork. And we're not finished! We are hard at work building new features to make it even easier for startups to do paperwork safely. Stay tuned for more!
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Today, we're extremely pleased to make a world-class set of stock plan forms available to startups completely free of charge:
This set of stock plan forms was developed over the past 3 years through Clerky's close collaboration with Y Combinator and Orrick, as part of an initiative to streamline startup legal documents. When portfolio companies decide to adopt a stock plan, Y Combinator recommends they do so on Clerky using these forms.
There are many reasons why we believe this is one of the strongest set of stock plan forms available – but one is that they allow for easy customization of stock option exercise terms. This is particularly important in light of the recent market trend toward longer post-termination exercise windows.
We strongly suggest that you use these forms with the assistance of an attorney or through Clerky's software (a paid service). Stock plans present a surprisingly large number of ways to make very expensive mistakes!
We've put a tremendous amount of effort into this set of forms, so we're very excited to be making them available to the startup community. We hope you find them useful!
Why should I trust these forms?
We can't tell you if these forms are suitable for your company – you need to talk to a lawyer for that. The forms are designed for Delaware C-corporations, but a good startup attorney can easily modify them for use by startups incorporated elsewhere. We know tons of great startup attorneys – email us if you need a referral!
With that said:
- Hundreds of startups have used these forms over the past couple of years with no issue.
- When portfolio companies decide to adopt a stock plan, Y Combinator recommends they do so on Clerky using these forms.
- These forms benefit from improvements and proof-reading that took nearly $1 million of attorney time.
Where did these forms come from?
The development of these forms goes all the way back to the fall of 2012. Carolynn Levy, partner and general counsel of Y Combinator, commented on the pesky problems faced by startups in dealing with stock certificates – problems that we were well familiar with. In response to this, we worked with Carolynn and our former colleagues at Orrick to develop company formation forms using uncertificated stock.
With the company formation forms complete, we turned our attention to doing the same thing with stock plans. In January 2013, one of our customers completed the first stock plan adoption on Clerky, using forms provided to them by their lawyers (which we helped them modify to use uncertificated stock).1 As we started doing this for more and more customers, we began to look at ways we could provide stock plans under a more scalable approach.
In September 2013, my co-founder Chris began the process of creating this set of stock plan forms, starting off of various forms gathered by Y Combinator and Clerky. For much of the next 4 months, he would be in what I affectionately called "stock plan land". Entire days would pass where I never spoke to Chris, even though we were both in the office. He was just that focused, and I didn't want to interrupt.
A lot of it was collaborating with Y Combinator and Orrick. A lot of it was resolving non-substantive inconsistencies that wouldn't bother any lawyer, but that we knew would cause confusion for our more eagle-eyed customers. And a lot of it was Chris being ultra-rigorous about convincing himself that all the language worked, so that we could be confident in offering them to startups.
We finished developing the stock plan forms in early 2014. In April 2014, the startup ecosystem was abuzz with talk about an emerging trend toward longer post-termination exercise periods – so we worked with Orrick to build in support for that.2 Finally, we put this set of forms into use on Clerky in May 2014.
Since then, we've continued to invest in updating and improving these forms both through our ongoing collaboration with Y Combinator and Orrick, and through the valuable feedback we get from the hundreds of startups already using these forms. If you have any feedback on these forms, please feel free to get in touch!
Notes
[1] As far as we know, this was the first fully automated stock plan adoption in history.
[2] This actually worked out really well, because Orrick had previously helped develop similar language for companies that were pioneering this trend.