Use a Low-Cost Filing Service Instead of Me? Sure, Why Not?

September 30th, 2009

I talk to a lot of people about forming new corporations.  Some of them ask me “why do you charge $2,500 – $3,000 to form a new corporation when I can have it done by ABC filing service for $375?  The answer is that you get different things when you use a filing service versus me and there may be good reasons to use both.  Here is my rundown of what you get from a filing service, what you get from me and how to think about using your time and money most wisely.

Filing Service.  The service should provide you with the following:

* Articles/Certificate of Incorporation, plain vanilla version, signed and filed with the Secretary of State of your choice
* Statement of Incorporator naming the initial Board of Directors.  Be sure to get this!  It is a one-pager that causes big problems if inadvertently missed
* Bylaws, probably not the best form ever, but probably good enough 99% of the time
* Initial consent of Board of Directors, plain vanilla form finalizing incorporation and issuing shares to founder(s)
* Form of stock certificate to issue founder shares

Me.  Here is what I provide:

* Discussion of which state is the best in which to incorporate.  Delaware? California? Other?
* Plan for capitalization of the company, including founder equity, possible stock option plan, roadmap to potential equity financing, vesting terms for founder & early contributor shares
* Complete documentation of founder contributions to the company via founder stock purchase agreements so that there is no question that the company acquired ___ assets or that $XYZ were paid for founder stock
* Detailed Board action that reflects all the same information so that future generations of lawyers can check off all the right boxes in due diligence review
* Securities filings to document that stock was sold legally

You can see that the filing service focuses on a bare set of very generic documents, while I spend time working with clients to make sure the documents fit the plan we develop together.

I know a lot of people (of whom one was a partial inspiration for this post) who believe that services like corporate formation are going to become totally free in the future and that the model forms provided by Orrick, Cooley and probably every other firm as soon as they can get the documents published are the vanguard of this movement.  I am not totally convinced on that- lawyers have a duty of care to clients that seems hard to meet if we don’t put some effort into working through the planning items I mentioned above- but I see the point.  The forms are out there and the services are straightforward.  Costs will probably trend downward, so it is really just a question of how close to $0 they get.

While we wait for that discussion to evolve, here is how I recommend you think about how to best spend their time and money.

1)  Talk to me.  I will give anyone a (free) hour of my time to discuss plans, figure out what will work and what is going to take you down the wrong path.  I don’t try to hold back the “key steps” so that people are forced to hire me.  You should walk away thinking you could incorporate on your own if you so choose.

2) Research the costs.  Once we develop the roadmap, figure out how much it will cost to have the filing service handle your documents.  Some clients do this and decide to have a service file for them (I have sent people to getincnow.com); for others it is easier to have me handle everything.  I am fine with it either way.

3) If you decide to use the service, tell me.  I won’t be upset or offended.  I will give you the summary of information you need to do it properly the first time: how many shares to authorize, what state to file in, etc.

My job to help clients incorporate their businesses efficiently and properly.  It honestly is not a big money-making part of my law practice, but I enjoy it and get a lot of satisfaction seeing clients launch their businesses.  The important thing for me is getting it all right the first time, not whether clients use my forms or someone else’s.

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