Company in a Box:

What Does It Cost to Run a Barebones Company?

So you want to get your startup going formally and are ready to incorporate, but also want to keep the costs as low possible as you prove out the concept and build the business. What’s it going to cost you to get it up and running and then keep it afloat?

Let’s divide this into five groups of company obligations:

1. Incorporation
2. Annual Compliance
3. Hiring People
4. Legal Additions
5. Other Stuff

We’ll go through the items and give typical price ranges. Note that you can always upgrade to premium packages and increase price. I’m going to assume that you are not taking in any money and wouldn’t be tackling issues like sales and income tax. Let’s also assume that you are not a regulated business (e.g., banking, insurance, pharma, etc.).

That said, there’s no way we can be exhaustive here. It’s like asking, “Tell me every law that applies to me.” To some degree, you just have to poke around on the local, state and federal government websites for the handbooks that tell you what you need to do, ask similarly based companies and go to professional advisors.

1. Incorporation:

Incorporating a company has become increasingly easy, ranging from DIY solutions (as low as a few hundred dollars) to high-touch packages (a few thousand dollars) provided by service providers. It’s often most efficient to coordinate a few other matters during incorporation as well: get certified copies of documents (typically needed when setting up a bank account), order good standings (needed when qualifying to do business in a state) and pay the state’s expedited fees to move the process along more quickly.

• Incorporation — in Delaware, $89 to a few hundred dollars
• State Qualification — typically a few hundred dollars to $1000
• Publication — in places like New York, limited liability companies (LLCs) must complete one-time publication of their existence in selected journals; typically $1000-$2000
• Founder Exemptions / U-2s — typically less than $100 per state and in some cases not required
• Registered agent fees — from $50 to $300 per state, per year

2. Annual Compliance:

What do you mean I have to pay that every year? Yup, it turns out having a company is not free. You will have a bunch of time-consuming reporting to keep up with. You will also have to keep records, pay state taxes (franchise and business taxes, etc.), file tax returns and pay your registered agent. And, you’ll need a professional to help you.

• Annual Franchise Tax — in Delaware from $300 to $180,000 (!). Most companies use an extremely small par value and issue most of the authorized shares, to keep the annual franchise tax in the range of $400 to $1200 while the company is still small.
• Federal and State Tax Returns — tax preparation software for professionals starts around $200 (though may not handle all issues relevant to technology companies), and qualified tax return preparers with expertise in corporate tax and the technology industry may start around $2000 to $3500
• Bookkeeping and accounting — software typically as low as $10 to $30 per month, services as low as a few hundred dollars a month and established professional bookkeepers for $50 to $65 per hour. Consider that DIY software solutions work very nicely to record data but don’t provide judgment or catch accounting mistakes that may be costly to fix later. For companies needing advice on controller/CFO functions, usually needed in order to raise funds and prepare board presentations, can expect to pay at a rate ranging from $95 to $300/hour.
• Registered agent fees — see Incorporation

3. Hiring People:

What do you mean I have to pay people? Companies hire employees, interns and consultants, usually for cash, but sometimes for equity. This is a tricky area — the most straightforward approach is to hire everybody as an employee and pay at least minimum wage. The ability to do something less than this is limited by law, and in many cases, not available. Many companies pushing the limits on classification of employees versus independent contractors have ended up having to pay stiff penalties. This is an area where you can save costs by doing the legwork, but should get oversight from legal and accounting advisors.

• Hiring interns and employees — pay at least minimum wage; need payroll provider from $30 to a few hundred dollars per month (based on number of employees)
• Offer letters and intellectual property assignment — can find DIY forms, or work with law firm for tailored package (legal spend)
• Workers Comp and Disability Insurance — as low as a few hundred dollars a year per state, but scales with number of employees and wage levels
• Benefits — perhaps none at first, and then as low as a few hundred dollars per month per person from automated solutions such as Justworks, depending on package (healthcare, vision, dental, short- and long-term disability); benefits package may save costs on recruiting and retention
• Grant restricted stock / options — typically not cheap, and usually administered by high-touch service providers. Need to adopt a stock and option plan (legal spend), qualify the option plan in each state where options are granted (from a $100 to a few thousand dollars per state), obtain an annual (or more frequent) valuation of the company’s common stock (typically a few thousand dollars to obtain the valuation), hold formal Board meetings with written resolutions approving the options and preparing the option paperwork (legal spend), and keep a record of grants and vesting schedules (a capitalization table). Some companies promise options (e.g., in offer letters) in advance of formally adopting an option plan, though this is strongly discouraged because of the many ways this can go wrong.
• Other employee reporting — W-4s, I-9s, etc., and state and federal monthly, quarterly and annual filings (through payroll/benefit providers or professional spend)

4. Legal Additions:

My legal fees are how much? While some corporate transactions are becoming standardized, others are modularized to such an extent that only a professional can complete. This is an area where spend can become large very quickly, depending on the extent of the negotiation, customization and unique circumstances. We won’t attempt to put values on this, categorizing from one dollar sign (think a few hundred to low thousands) to three dollar signs (think tens of thousands to hundred of thousands).

• Hire people — $-$$
• Bring in co-founders — $-$$
• Bring in an advisor — $-$$
• Raise financing through debt or equity — $$-$$$
• Dissolve — $-$$$
• Website Privacy Policy and Terms and Conditions — $-$$
• Patents — $$-$$$
• Trademarks — $-$$
• Visas — $$
• Convert the company to another type (e.g., LLC to corporation) — $$- $$$
• Industry certifications (e.g., B-corp) — $-$$$
• Enter into a commercial agreement with another business — $-$$$
• Change the name — $
• Sell the company — $$$

5. Other Stuff:

What else am I going to have to pay for? Companies usually depend on other stuff that costs money. At the very earliest stages, these costs may not be apparent, as the founders may be relying on their existing resources (e.g., they already have a laptop and are just working out of their college campus).

• Office space — use a co-working space or other shared space; in NY and SF, an open desk may be as low as a few hundred dollars per month, and private offices starting around $750 a month
• Laptops — $1000-$2500 each
• Servers — can be free through a startup program, then $100 to thousands of dollars per month depending on storage and traffic
• Domain names — $10-$50 per year
• Business cards — $50
• Virtual post address — $15 to a few hundred dollars per month
• Marketing, Branding, Conferences and Ad Spending — your choice
• Dev shop — tens of thousands to hundreds of thousands of dollars
• Software licenses: Google for work — starting at $5 per month per user (minimum 5 users); Microsoft Office — starting at $8 per month per user; Adobe Illustrator or Photoshop — $20 per month per user; File storage — free to $15 per month per user
• Other insurance — your choice

To wrap things up, as you can see, it has become increasingly easy and inexpensive to get into a company, and many services and needs of companies have been unbundled and productized. Many service providers — legal, accounting, payroll and benefits, co-working space, incubators, payment providers, registered agents, etc. — are aiming for the concept of providing a “company in a box” to make the startup available to a larger group of customers. Some level of professional services, perhaps from providers aiming for “company in a box,” can keep costs manageable, save money in the long run and allow you to focus on the core business. That said, if you want to do custom stuff or get into the area of complicated transactions (e.g., equity financings), the spend will likely increase by magnitudes. However, as long as you are not making changes and can keep your needs inside the box, costs can remain fairly low, perhaps even as low as a few thousand dollars per year.

Many thanks to the following individuals for valuable points and discussion: Ryan Purcell @RyanPurcell9 at Social Capital, Eric Cheung at Gunderson Dettmer, Matt Melville at Goodwin Procter LLP, Daniel Park @deep4rk at Justworks, Nodar Janashia @NodarJ at CountUp.io, and Jeanne Goulet @jeannegoulet at Marks Paneth.

Mark Oblad @markoblad is the founder of valcu.co that provides automated tools for incorporating startups in Delaware, automates other complex transactions, and is developing a suite of tools to assist companies and professionals in efficiently maintaining a company.