I have been asked a bunch of questions lately by young entrepreneurs that have made the phrases “please get a good startup lawyer” or “please get a good startup accountant” leap out of my mouth. A good startup lawyer or accountant needs to be a real person. It really cannot be an online filing service. Said another way, it is not possible to have a meaningful conversation with a computer. Also, you need to have a lawyer or accountant familiar with startups.
To illustrate, here is an exchange from last night (names changed to protect the innocent!):
“Hi Mr. Shulman, I hope you are having a great summer. I successfully filed XYZ Corp as a C corp back in June and am waiting for the Articles to arrive in the mail. I had a chance to speak with an accountant regarding what to do with the 83b tax election and was wondering if you happened to know the answer to my question: The accountant told me I have to submit it within 30 days after I purchase the stock (or the “Award Date”). Do you know if I need to submit a Stock Purchase Agreement and when I need to do it? Technically I started the company, so wouldn’t I have started with all the shares to begin with? I changed my incorporation form (on LegalZoom) to say that I contributed $0 (where it says $3,000). Thanks so much for your time and advice.”
My response: “Joe, you need to consult with your lawyer or accountant. If your stock is not vesting then you would not need to file a 83b.”
Joe’s response: “Ok. Yes, my stock will be vesting.”
My response: “Are you the only stockholder? Is your stock actually vesting NOW?”
Joe’s response: “Nope I am not the only stockholder. My partner and I have not signed any formal agreements. There is no written statement that says when my stock will begin vesting.”
My response: “You have 30 days from the date vesting starts. The 83b election is a form. Talk to your accountant and don’t mess it up.”
Joe’s response: “Ok thanks.”
This exchange illustrates my point. I was a little tired and writing from my phone so my responses were short and direct. First, LegalZoom is not a person so it is really hard to ask it follow on questions (add dose of sarcasm here). LegalZoom is fine for getting your entity set up (though I have no clue why it would take so long for Joe to get a copy of his filing!) or filing a trademark (though I always recommend a live human being instead). But you need a good human resource for legal and accounting questions. AKA: a startup lawyer and accountant. Joe’s question on the 83b election is critical. If he messes up the filing it could have dramatic and adverse tax consequences if his company is successful. I wish the accountant that the spoke with gave him more concrete accurate advice. He needs to file within 30 days of vesting being imposed. Note that I think it is great that Joe and his partner have agreed to have their shares vest. See my earlier post on that topic here. When they put that vesting in place, they better timely file the 83b election.
Summary: paying for good advice from a lawyer or accountant that is a human being is worth the cost! Gets you peace of mind, gets you efficiency and lets you focus more on your business.
Here is a good post on 83(b) elections:
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