Online services such as Clerky and Stripe Atlas are a good way to form a Delaware corporation and issue standard founder documents. They are not designed to negotiate investment terms or advise on your company’s specific situation. For a single SAFE on the standard Y Combinator form, a service may be enough. Once you have several investors, negotiated terms, or a priced round ahead, most founders need counsel.
What formation services do well
- Incorporate a Delaware C-corporation quickly and at low cost
- Generate standard bylaws, board consents and founder stock purchase agreements
- Produce standard SAFE forms and collect signatures
- Prompt founders to file 83(b) elections
For a solo founder raising a small amount from friends and family on unmodified documents, that is often sufficient.
Where founders run into trouble without counsel
Stacked SAFEs. Each SAFE converts at the next priced round. Founders who raise several SAFEs with different caps and discounts are often surprised by how much of the company they have sold. A lawyer models conversion before you sign the next one.
Negotiated terms. Investors increasingly ask for side letters with pro rata rights, information rights or MFN provisions. Those letters carry obligations into your seed and Series A rounds.
Gaps in the company record. Missed 83(b) elections, unsigned IP assignments from early contributors, or equity promised by email all surface in investor diligence. They can delay a closing or reduce your negotiating position.
Securities compliance. A SAFE is a security. The offering must fit an exemption, and filings such as Form D and state notice filings may follow the first sale.
Operating in New York. A Delaware corporation doing business in New York needs authority to do business here. Formation services may not handle this step for you.
A practical rule of thumb
Use a formation service if you are incorporating, have one or two investors on standard terms, and have no priced round planned in the next year. Bring in a startup lawyer if any of these apply:
- You have more than one co-founder or early contributor with equity
- An investor has asked to change the SAFE or add a side letter
- You have raised, or plan to raise, several SAFEs with different terms
- You expect a priced seed or Series A round
- Your company has international founders or operations
How Cea Legal P.C. helps
We work with founders who started with a formation service and now need counsel before raising. We review what is already in place, fix gaps before diligence, and represent the company through its SAFE, seed or Series A round. Learn more about our startup financing counsel for pre-seed to Series A, or call 212-847-5007.
Attorney Advertising. This article is general information, not legal advice.