WhoBuilt

Startup Legal Mechanics

Aug 29, 2018· 58 min· 84K views·Watch on YouTube

Speakers

YC startup lawyer Carolynn Levy recaps startup legal mechanics and answers founder questions with Jon Levy and Jason Kwon at a Y Combinator Startup School session.

Form the company and establish basics

Levy recommends forming a separate legal entity early, typically a Delaware corporation, and using startup-focused services such as Clerky or Stripe Atlas. After incorporation, founders should complete post-incorporation steps, including buying their shares, appointing directors and officers, adopting bylaws, and opening a company bank account.

Set founder ownership and protect company work

Levy advises teams to allocate founder stock with future work and execution in mind, and says founder shares should generally vest over four years. Founders and employees should sign confidentiality and invention assignment agreements so the company owns work created for it. She also stresses keeping a cap table, handling payroll when possible, and filing required tax returns.

Avoid common legal and operational mistakes

Levy recommends incorporating sooner rather than later to protect founders, hold company intellectual property, and make fundraising and contracting practical. She warns against skipping vesting, signing documents without understanding them, paying employees only in stock, and delaying action on founder breakups. Keep company and personal finances separate, preserve signed documents, and consider expert advice for employment, immigration, or other specialized issues.

Meet key deadlines and get help when needed

Jason Kwon explains that founders generally have 30 calendar days from purchasing restricted stock to file an 83(b) election, and Levy urges founders to keep dated copies. The panel recommends legal counsel for significant fundraising and employee stock grants, and specialist advice for immigration, foreign employment, and complex privacy or patent questions. Jon Levy and Kwon also counsel founders to keep company structures simple and choose an entity based on their business and market.

Answer founder questions on equity and team decisions

The panel says employee equity pools often fall around 10 to 20 percent, though the right amount depends on hiring plans. Kwon advises against unpaid interns in most cases, while Levy cautions that contractor classification and stock compensation require care. On co-founder conflict, the panel recommends addressing a failing working relationship promptly rather than letting it harm the company and friendship.

Takeaways

  • Complete post-incorporation work, including founder stock purchases, instead of stopping at the filing.
  • Set founder vesting and document who owns company intellectual property.
  • File an 83(b) election within 30 calendar days of buying restricted stock, and retain a copy.
  • Keep company funds, receipts, tax filings, and signed legal documents organized and separate.
  • Bring in qualified legal help for fundraising, equity grants, immigration, and jurisdiction-specific issues.

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    ChatGPT Atlas: Provides startup incorporation and post-incorporation documents.
    “They also have post-incorporation documents.”
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  • feature
    Clerky: Provides startup incorporation and post-incorporation documents.
    “They also have post-incorporation documents.”
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    Unverified1 source· Talk
  • feature
    Clerky: Can create a stock option pool at formation.
    “Clerky for sure lets you create a stock option pool at formation”
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    Unverified1 source· Talk

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