Why Legal Stuff Can't Wait
Most founders put legal tasks at the bottom of their to-do list. That's understandable. You'd rather build product, talk to customers, or do literally anything else. But ignoring legal basics early creates problems that are expensive to fix later.
The good news: you don't need a lawyer for most of it. Online tools and templates can handle 90% of what an early stage startup needs. The key is knowing which things you can DIY and which ones genuinely require professional help.
This guide covers the legal foundations every startup should have in place before you start taking money from customers or investors.
Choosing Your Business Entity
Your entity type affects taxes, liability, fundraising, and how much paperwork you deal with. Here are the three most common options:
Sole Proprietorship. The default if you do nothing. Zero paperwork to set up, but you're personally liable for everything. If someone sues your startup, they're suing you. Your personal assets are on the line. Fine for a weekend side project, risky for anything beyond that.
LLC (Limited Liability Company). The go-to for bootstrapped startups. It separates your personal assets from business liabilities, has flexible tax treatment, and requires minimal ongoing paperwork. Most states charge $50 to $500 to form one. If you're bootstrapping and don't plan to raise venture capital, an LLC is usually the right call.
C-Corporation. Required if you want to raise venture capital. VCs invest in C-Corps because of the stock structure (preferred shares, common shares, option pools). Delaware C-Corps are the standard. If you're planning to raise money at any point, start as a C-Corp to avoid the hassle of converting later.
The short version: bootstrapping with no plans to raise? LLC. Planning to raise from angels or VCs? Delaware C-Corp.
Where to Incorporate
For LLCs, your home state is usually the simplest and cheapest option. You'll avoid having to register as a "foreign entity" in your own state, which adds fees and paperwork.
For C-Corps, Delaware is the default. About 65% of Fortune 500 companies and the vast majority of VC-backed startups are incorporated there. The reasons: Delaware has well established business law, a specialized court system (the Court of Chancery) that handles corporate disputes efficiently, and every investor and lawyer already knows Delaware corporate law. This makes fundraising smoother because investors don't need to learn a different state's rules.
You'll still need to register as a foreign entity in whatever state you actually operate in, but the Delaware incorporation itself is straightforward.
Online Incorporation Services
You don't need a lawyer to incorporate. These services handle it for $0 to $500:
Stripe Atlas ($500). The most popular choice for tech startups. They set up your Delaware C-Corp, get your EIN, open a bank account with Mercury or SVB, and give you template legal docs (bylaws, IP assignment, stock purchase agreements). Worth it if you want everything done in one place.
Clerky (starts at $799 for the full package). Built specifically for startups planning to raise VC. Their documents are the same ones Silicon Valley law firms use. More expensive upfront, but the legal docs are top-notch and designed to make future fundraising seamless.
Firstbase ($399+). Good option for international founders who need US incorporation. Includes registered agent, EIN, and a US business address.
LegalZoom ($0+ for LLC, $149+ for Corp). The budget option. Gets the job done for basic incorporation, though the upsells can be aggressive. Fine for LLCs, but for C-Corps you'll likely want more startup-specific documents than LegalZoom provides.
For most founders building a tech startup, Stripe Atlas is the sweet spot of price, convenience, and quality.
Terms of Service and Privacy Policy
Every website and app needs these two documents. They protect you legally and are required by law in many jurisdictions (especially for privacy policies).
The reality: almost nobody reads them, but not having them exposes you to legal risk and looks unprofessional.
For early stage startups, generators are good enough to start:
Termly offers free and paid privacy policy and terms of service generators. Answer questions about your product, and it creates customized documents. The free tier covers basics.
Iubenda generates GDPR and CCPA compliant privacy policies. Starts free, with paid tiers for more features.
GetTerms.io creates simple, clean legal pages. Good for straightforward SaaS products.
Avodocs provides free legal document templates specifically for startups.
Place your terms of service and privacy policy in your website footer. Link to them during signup. Update them whenever you make significant changes to how you collect or use data.
One important note: if your product handles sensitive data (health, financial, children's data), a generated policy probably isn't enough. Get a lawyer to review it.
Founder Agreements
If you have a co-founder, a written agreement is essential. Seriously. Even if your co-founder is your best friend. Especially if your co-founder is your best friend.
The co-founder agreement should cover:
Equity split. Who owns what percentage. Don't default to 50/50 unless you've genuinely thought it through. Consider each person's contribution, commitment level, and what they're giving up.
Vesting schedule. Standard is 4 years with a 1 year cliff. This means if someone leaves after 3 months, they don't walk away with 25% of the company. The cliff protects both founders. Even if you trust each other completely, put vesting in place. VCs will require it later, and adding it retroactively is painful.
IP assignment. All intellectual property created for the startup belongs to the startup, not to individual founders. This seems obvious, but without a written assignment, things get complicated if someone leaves.
Roles and responsibilities. Who handles what. This prevents "I thought you were doing that" situations.
What happens if someone leaves. How is their equity handled? Can the company buy it back? At what price? You need to define this before it happens.
Clerky, Stripe Atlas, and Y Combinator's free template library all offer co-founder agreement templates. Use one. Customize it to your situation. And both founders should actually read and discuss every section before signing.
Trademark Basics
Your startup name is your brand. Trademarking it protects you from someone else using the same name in your space.
Here's when to think about trademarks:
Before you launch: Do a basic search to make sure nobody else is using your name. Check the USPTO's Trademark Electronic Search System (TESS) for registered trademarks. Also Google the name, check domain availability, and search social media handles.
After you launch (when you have traction): File a trademark application. You can do this yourself through the USPTO for $250 to $350 per class of goods/services. The process takes 8 to 12 months.
When to hire a trademark attorney: If your search reveals similar names in related industries, or if your application gets an "office action" (objection from the trademark examiner). A trademark attorney costs $500 to $1,500 for a straightforward filing and can save you from expensive mistakes.
Don't spend $2,000 on trademark protection before you've validated that anyone wants your product. But once you have customers and a brand people recognize, protecting that name becomes important.
Privacy Compliance: GDPR, CCPA, and Beyond
If your product collects any user data (and it does), you need to think about privacy regulations. The two big ones:
GDPR (General Data Protection Regulation). Applies if you have any users in the EU. Requires explicit consent for data collection, the right for users to request their data or deletion, and clear privacy policies. Fines for violations can be massive, but enforcement against small startups is rare. Still, compliance is smart and not that hard.
CCPA (California Consumer Privacy Act). Applies if you have California users and meet certain thresholds (over $25M revenue, or data on 100,000+ consumers). Even if you're below those thresholds, following CCPA principles is good practice.
The practical minimum for an early startup:
1.Have a privacy policy that explains what data you collect and why.
2.Get consent before collecting data (cookie banners, signup checkboxes).
3.Honor deletion requests. If a user asks you to delete their data, do it.
4.Don't sell user data. Just don't. It's not worth the legal and reputational risk.
5.Use secure practices. HTTPS, encrypted passwords, access controls on your database.
Tools like Cookiebot or Osano can handle cookie consent banners. Most analytics tools (PostHog, Plausible) offer privacy-friendly configurations that make compliance easier.
Contractor Agreements
If you're working with freelancers or contractors (and most early startups do), you need written agreements. A simple contractor agreement protects both parties and, critically, ensures that the work they create belongs to your company.
Every contractor agreement should include:
Scope of work. What exactly they're building or doing.
Payment terms. Amount, schedule, and method.
IP assignment clause. Everything they create for your project belongs to your company. Without this clause, the contractor may legally own the code, designs, or content they created. This is the most important clause in the entire agreement.
Confidentiality/NDA. They won't share your proprietary information.
Termination terms. How either party can end the relationship and what happens to in-progress work.
You can find solid contractor agreement templates on Clerky, Bonsai, or Docracy. Customize the scope and payment sections for each engagement, but keep the IP and confidentiality sections standard.
When You Actually Need a Real Lawyer
DIY legal works for the basics, but certain situations genuinely require professional help:
Raising a funding round. Even a small angel round involves legal documents (SAFEs, convertible notes, or priced rounds) that should be reviewed by a startup attorney. Budget $2,000 to $5,000 for a simple SAFE round, $10,000+ for a priced round.
Complex partnership deals. Revenue sharing agreements, licensing deals, or white-label arrangements have enough nuance that a template won't cut it.
Employment law questions. Hiring employees (not contractors) triggers a web of regulations around benefits, payroll taxes, worker classification, and termination rules. Misclassifying an employee as a contractor can result in back taxes and penalties.
Someone threatens legal action. If you get a cease and desist letter or a lawsuit threat, talk to a lawyer before responding.
You're handling regulated data. Health data (HIPAA), financial data, or children's data (COPPA) all have specific compliance requirements that go beyond what generators can handle.
When you do need a lawyer, look for one who specializes in startups. They'll understand your constraints and won't over-engineer solutions. Ask other founders in your network for referrals. Y Combinator's list of recommended lawyers is also a good starting point.
Free and Cheap Legal Resources
You don't have to figure this out alone. These resources exist specifically to help early founders:
Y Combinator's Standard Documents. Free SAFE templates, sales agreements, and other legal docs used by thousands of startups. Available at ycombinator.com/documents.
Clerky's Document Library. Startup-specific legal templates designed by Silicon Valley lawyers.
SCORE Mentorship. Free mentoring from experienced business professionals, including help with legal and business structure decisions. They operate through the SBA and have local chapters across the US.
Law school clinics. Many law schools run free or low cost startup legal clinics. Check universities in your area. You get free legal advice, and law students get practical experience.
Stripe Atlas Resources. Even if you don't use Atlas for incorporation, their guides on legal basics, taxes, and equity are excellent and free to read.
LawTrades and UpCounsel. Marketplace platforms where you can find startup lawyers at lower rates than traditional firms. Good for one-off questions or document reviews.
A smart approach: handle the basics yourself using templates and generators, then invest in a lawyer for the high-stakes moments (fundraising, major contracts, regulatory compliance). Most startups can get through their first year spending under $1,000 on legal, sometimes nothing at all.
A Simple Legal Checklist
If you want a quick reference, here's the order to tackle things:
1.Incorporate (LLC or C-Corp depending on your plans)
2.Get an EIN from the IRS (free, takes 5 minutes online)
3.Open a business bank account (keep personal and business finances separate from day one)
4.Set up a privacy policy and terms of service on your website
5.Sign a co-founder agreement if you have a co-founder
6.Use contractor agreements for any freelance work
7.File a trademark once you have traction and want to protect your brand
You can get through items 1 through 6 in a single afternoon. Don't let legal tasks sit on your to-do list for months. Block out a few hours, power through them, and get back to building. The peace of mind is worth it.
Submit your startup to directories like PostYourStartup.co once your legal basics are in place. Having proper terms, a privacy policy, and a real business entity makes your startup look more legitimate to both users and directory editors.
Timothy Bramlett