What does it cost to start and run a company?
When considering forming a legal entity for your startup, you should think about whether your company can afford other costs beyond the initial costs of incorporation and company formation. To provide some clarity and help you plan ahead, detailed below are some expense estimates of the most common administrative costs a high-growth startup should plan for in its first 12-24 months, assuming that the corporation is pre-revenue and has no full-time employees. The administrative costs outlined below do not take into account additional costs companies may incur during that period like IT infrastructure, contractors, general technology expenses, or office space.
Incorporation and Formation
As a first step, you’ll need to get your company established as a valid corporation in Delaware - that means incorporating your startup, setting company bylaws, appointing board members, and issuing stock.
- Low range: $300
- High range: $1,000
In general, the low range refers to the cost of using a filing service that provides generic templates. The high range is generally what it would cost to use an attorney. Note that the high range can, in many cases, be more, but $1,000 is the typical rate a law firm would charge for incorporation and company formation.
Delaware Registered Agent Fee
Delaware requires all corporations to have a registered agent in Delaware to forward official notices to the company and inform the company of its annual franchise tax obligations.
- Low Range: $50
- High Range $200
Registered agent services are typically charged annually.
These are common documents that all startups will need in their first 12 months. Legal agreements include intellectual property assignments, non-disclosure agreements, independent contractor agreements, and advisor agreements.
- Low range: Free
- High range: $2,000
The low range refers to templates that can be found online. However, there is no guarantee that these templates are high quality, that they are appropriately and correctly designed for startups, or that they are legally compatible with one another. The high end is a typical price for an attorney to create custom legal agreements for a company.
In order to do business in any state outside of Delaware, states require corporations to register their entities. This is so the company can file and pay state income taxes.
Per registration expense
- Low range: $100
- High range: $1,000
Note: Virginia has a unique way of calculating their foreign qualification fee that unfortunately causes startups using standard best practices to be assessed at over $2,500 to register in that state.
Annual Delaware Franchise Taxes
A startup with 10 million shares authorized and standard equity allocations will generally pay the following amount each year in franchise taxes:
The majority of Gust Launch customers pay this amount in franchise taxes every year.
Other State Franchise Taxes
There are 11 other states that also have franchise taxes that they levy on companies. A Delaware corporation will be subject to these additional franchise taxes if they are doing business in those states.
- Low range: $0
- High range: $1,000
These ranges are based upon what we have typically seen with Gust Launch customers. Check with your home state’s secretary of state website and those you plan on doing business in to see if they have franchise taxes and how they are calculated.
Bookkeeping and Accounting Services
Even if the corporation is not generating revenue or has limited expenses in its first year, it will still need to organize its books in order to pay taxes and be properly prepared to take on future investment. This expense range assumes that the startup founders are not professional accountants, do not have the expertise to manage it themselves internally, and that the startup is a pre-revenue company.
- Low Range: $400
- High Range: $1,000
Preparing and Filing Tax Returns
Even if the corporation has limited expenses and no revenues in its first year, it will still be required to prepare and file state and federal corporate income tax returns.
- Low Range: $250
- High range: $1,000
This range is most dependent on the rates and packages that various accounting firms may charge. Those that focus their practices on small business and startups tend to be closer to the lower range.
Taking on Friends and Family Investment
Some companies within their first 12-24 months will take on Friends and Family investment. Closing investment requires drafting the agreements, collecting signatures, and making sure the investment complies with state and federal law.
Cost to close the financing round
- Low Range: $2,000
- High Range: $10,000
The variability in these costs is typically based on the number of investors in the Friends and Family round, the compliance complexity, and the attorney’s individual rates.
Filing a Federal Trademark for the Company’s Name
Filing a federal trademark protects the company’s name from being used by another.
Per trademark expense
- Low Range: $1,000
- High Range: $2,000
This range includes the federal filing fee and the attorney time for preparing a federal trademark application in one classification. The more classifications a company wants its name protected in, the more it will need to pay.
Summing it Up
While there are many benefits to legally launching your startup, before you incorporate it’s important to make sure you have enough runway to afford the costs that come with starting and running a valid company. On the administrative side alone, a pre-revenue company with no employees should expect to pay between $4,500-$20,000 in its first 12-24 months. While some of these costs, like foreign qualification and franchise taxes, are fixed, the others will largely depend on the complexity of your unique legal and financial circumstances as well as your ability to accurately do it yourself versus using a professional.
Gust Launch offers a do-it-yourself price point while helping your startup avoid the complexity and risks of expensive legal and compliance mistakes typically associated with going it on your own. We provide a comprehensive early stage formation and administration solution built by experienced founders, investors, and lawyers using standard best practices for startups. Our Accelerate plan covers Incorporation and Formation, the Delaware Registered Agent Fee, Legal Agreements, and the drafting and signature collection associated with Taking on Friends and Family Investment. For legal needs that can’t be covered by our standardization approach, you’ll have access to monthly time with a startup lawyer to be used at your discretion. You’ll also be provided discounts on Bookkeeping and Accounting Services and Preparing and Filing Tax Returns. While the fees associated with Foreign Qualification and Franchise Taxes are not included in the price of Gust Launch, we make sure the founders on our platform stay compliant by helping them file, setting important reminders, and keeping track of outstanding compliance tasks.
Finally, it’s important to remember that as your company grows, there will be additional costs to consider that are not outlined in this FAQ, such as IT infrastructure, software contractor services, employee and payroll expenses, employee health insurance expenses, and coworking and office space, among others.
Last updated on February 5, 2020