If you're incorporating a new startup before the end of the year, you might be able to save around $400. How? By avoiding the 2022 Delaware franchise tax.
Delaware franchise taxes aren't pro-rated, which means that a Delaware corporation incorporating on December 31, 2022 will have to pay the same franchise tax for 2022 as one that incorporated on January 1, 2022. If you have investors ready to wire funds, this probably isn’t a big deal. But if you're not in a rush, it could be a waste of money.
To avoid this, you can take advantage of a little-known feature of Delaware law that allows you to specify the effective date of an incorporation. If you specify January 1, 2023, your corporation won't exist until then, which means it won't need to pay the 2022 franchise tax.
Of course, you won't be able to do other legal paperwork or open bank accounts until the incorporation is effective. Why might a January 1 effective date still make sense for you? Two reasons:
You want to make sure no one else takes your startup's name.
It can feel like a minor miracle to find a name you like that isn't already taken. By filing your incorporation paperwork, you can secure the name you want when the filing is accepted, even if the incorporation won’t be effective until later. You could reserve the name instead, but that adds unnecessary expense and complexity to the process.
You want to hit the ground running in 2023.
Maybe you’ve decided to wait until after the end-of-year holidays to focus on your new startup. Filing your incorporation paperwork before you ring in the new year can help save you some time in 2023.
In addition, the start of a new year can be busy for the Delaware Division of Corporations, which can lead to delays in processing new incorporations. Filing ahead of time can help you beat the crowds and avoid those delays.
We've quietly made January 1 effective date incorporations available to startup founders for many years, and are excited to bring them back again. From now until the end of the year, you'll be able to have your incorporation take effect on January 1, 2023 when you incorporate a new startup on Clerky.
Of course, if you prefer, you can still choose to have it take effect immediately when the Delaware Division of Corporation files it.
To get started, sign up for Clerky now. Questions? Feel free to reach out!
We’re excited to announce a new add-on — managed 83(b) elections!
What is an 83(b) election? </br>Many startup founders and employees make 83(b) elections with the IRS to minimize and simplify taxes on shares they receive. Our handbook article on 83(b) elections is a great resource if you’re interested in learning more.
With our managed 83(b) election add-on, you can file an 83(b) election without touching a single piece of paper, going to the post office, or filling out USPS forms. We’ll handle all of that for you.
More importantly, our process is designed to minimize the chance of problems in legal due diligence for financings and acquisitions. This goes well beyond the basic steps for making an 83(b) election.
Specifically, we’ve designed our process to optimize for evidence showing you made the 83(b) election:
- We don’t just mail the 83(b) election with Certified Mail service, we’ll use Priority Mail class and make sure the Certified Mail receipt is physically postmarked by the USPS.
- We’ll request a physical return receipt from the IRS. If we don't receive it, we'll submit a PS Form 3811-A to get delivery information for the return receipt from the USPS.
- We'll ask the IRS to send a file-stamped copy of your 83(b) election back and include a self-addressed Priority Mail envelope with Certified Mail tracking.
Once evidence of the election comes back, we’ll scan and upload it to your account. If you want, we’ll store the physical evidence in secure file storage so you don’t need to worry about where to put it. And if you ever need the physical evidence, we’ll mail it to you via your choice of Registered Mail (the most secure service the USPS offers) or Priority Mail (faster than Registered Mail).
This all goes beyond the bare minimum necessary to file a valid 83(b) election. But making a valid 83(b) election is different from being able to prove it. And being able to prove you made a valid 83(b) election to a court is different from being able to quickly convince people in legal due diligence that you did. Given how much could be at stake, we think it makes sense to take these extra steps to minimize the chance of a problem.
Starting today, if you’re a startup founder, you’ll be able to leverage all the thinking and expertise we've put into 83(b) elections. Our managed 83(b) election add-on will be available when you form a new startup or add a new co-founder through Clerky. Your employees can use it too, when you issue them restricted stock using our equity compensation products. And if you're a startup attorney, you can rest a little easier knowing your clients on Clerky can file their 83(b) elections the way you would.
While many founders use Clerky on their own, many use it with their attorneys. Startup attorneys are able to use our software to review, comment on, and correct the information founders enter. They can stay in the loop on everything their clients do, and even change the underlying form language used to generate documents. Hundreds of startup attorneys are already using these features to work with their clients on Clerky today.
Today, we're excited to announce a new account type built just for startup attorneys helping founders on Clerky: Attorney accounts.
With Attorney accounts, startup attorneys get access to a private workspace for their firm or practice. Workspaces come with tools to help startup attorneys keep everything they're doing with clients organized, as well as collaborate with other attorneys or paralegals at their firm.
Attorney accounts get access to the same products regular accounts do, plus an advanced set of attorney-only products. These products are not available to regular accounts, because they are more difficult to use correctly without an attorney. Startup attorneys will be able to invite clients to use any product they have access to, or use them directly if they prefer.
We’re particularly excited about the remedial products now available to help attorneys fix issues with companies formed through other online services. These issues were a huge motivation for starting Clerky. We started Clerky to help founders avoid those issues in the first place, and are proud to now be able to help fix some of those issues as well.
Attorney accounts are completely free (it still costs money to use the products, of course). If you’re a founder, share this blog post with your startup attorney and tell them to sign up! If you are a startup attorney, you can sign up for an account here.
We hope Attorney accounts will be useful for startup attorneys, and ultimately benefit startups by reducing the cost of getting legal paperwork done. We have a lot more features planned around this, so stay tuned!
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!