Startup Cents: Planning For Your First Year Of Legal Fees
By Kevin Vela
We oftentimes get asked by startups, “How much will I spend in legal my first year?”
Since we represent hundreds of startups here at VW, we’ve got a pretty good idea. We typically tell our clients to expect to spend about $10k – $15k in year one, exclusive of any capital raises. Here’s a reasonable (but not definitive list) of what a startup will need in year one.
Every company is going to need to organize, or file a Certificate of Formation (that’s what it is called in Texas, in Delaware it’s known as a Certificate of Incorporation, and some states call them Articles of Organization or Articles of Incorporation, but they are basically the same thing). This will cost you anywhere from $1,500 – $4,000; it’s a wide range, I know, but there are several variables, including your state of formation, structure, number of founders, and associated docs. In addition to the Certificate of Formation and state filing fee, that $1,500 – $4,000 will typically include bylaws or a Company Agreement, an initial company resolution, and Restricted Stock (or unit if you have an LLC) Purchase Agreements.
Next, all the founders should execute a Confidential Information and Invention Assignment Agreement, or an Intellectual Property Assignment Agreement, with the company to make sure the intellectual property gets out of the founders’ heads and into the company. Your investors down the road will want to be certain that the company owns all associated intellectual property.
Continuing, most companies will need the following in their first year:
- Independent Contractor Agreements
- Commercial Lease Review
- Option Plan
- Corporate Resolutions
Raising capital is a different animal, but we typically quote clients 1%-5% of the total amount raised, with the percentage being inversely proportional to the amount raised.
Of course every situation is different, but hopefully this will provide some guidelines as you forecast your year one legal budget.