Incorporation Services
There are certain questions that I get over and over again. One of them is “Why shouldn’t I just use one of the many internet services to incorporate? It’s cheap; it’s easy…” Well, it turns out that there is a reason. First, let me note that you can get a perfectly effective incorporation over the internet. If you use one of the many services, you will actually have a company and you can get the benefits of incorporation. For many purposes it will serve just fine. Having said that, in each case where I have had occasion to review one of these incorporations, there has been an issue of one form or another. One example of an issue that seems to arise with some frequency is that the certificate of incorporation does not contain certain optional provisions (indemnification and exculpation of officers and directors) that under some circumstances can have real value. (For the sake of clarity (a phrase after which you know something completely opaque is about to be written), under Delaware law you can include in your certificate of incorporation provisions permitting the indemnification of officers and directors and limiting their liability to the company – under some circumstances. Sophisticated investor will insist on the inclusion of these provisions.) Another issue that sometimes arises is around the creation of preferred stock. Sometimes I see a class of preferred stock but no terms and no provision allowing the board of directors to set the terms. Never having used one of these services, I can’t tell if these problems arise because of the limitations of the service or because the users don’t really know what to do. Are these issues fatal? Probably not. Also when you finally do go to sophisticated counsel or get a sophisticated investor, they will note these issues and they will be changed/fixed. But, on the one hand, I think (and I am curious what anyone out there thinks) the real problem is that having these kinds of glaring issues in so basic a document makes you look amateurish. On the other hand, sophisticated investors are going to be able to evaluate your level of sophistication whether or not you incorporate on line. The result is that you pay the online people and then later you pay someone to fix the issues. (All in it will be more expensive, but you can put off some of the cost to a later date.)
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