Options for (legally) forming an Austin Startup

When exploring options for forming a startup, it’s very important to understand the distinction between “startup” and “small business.” Small business refers to a plumbing company, a pizza shop, cafe, or similar kind of business. Any kind of business that tends to grow slowly, have a limited number of owners, and is unlikely to raise substantial outside investment.

“Startups” (as the term is commonly used) start small, but their intent is not to stay small. They grow much faster, have a much larger number of key employees doing high-stakes work, and involve complex equity compensation structures with various components (like vesting schedules) that future investors will expect to see in their diligence. The contracts that startups should use are much more complex than those used by small businesses.

For this reason, common “small business” automated legal document websites like LegalZoom, ZenBusiness, and Rocket Lawyer are not appropriate for tech startups. They’re not designed for that kind of business.

That being said, if you’re in the market for a low-cost legal automation tool, there are a few that we’ve seen startups use successfully. Clerky, Stripe Atlas, and FirstBase are the ones we’re most commonly seeing. Just make sure you’ve done your homework to ensure they really fit the context you’re using them for.

Most “startups” still rely on legal counsel for formations. Most specialized “emerging companies” (startup) law practices have standardized “fixed fee” packages that they offer to promising startup clients. Prices typically range from $3,000 to $5,000+. These fixed fee formations can be a nice middle ground between a fully customized “bespoke” legal formation (probably overkill, over-priced and unnecessary) and a completely automated tool (inflexible, zero customization). They offer some customization and hands-on help, but within templatized documentation.

Keep in mind that these formation packages are “loss leaders” for elite lawyers, and you can expect them to “vet” you before they let you utilize the fixed fee offer. Top law firms always have more interested clients than they can take on, and much like investors, they have to be selective with whom they work with.

For more on this topic, see: Startup Legal Fee Cost Containment (Safely)

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