Life & fun · September 19, 2022
Managed 83(b) Elections from Clerky (YC S11)
Hi HN! I'm Darby, one of the founders of Clerky (https://www.clerky.com). We build software to help startups and their attorneys get legal paperwork done. We're one of the most popular ways for startups to get formation paperwork done and issue safes for seed financings. Prior to starting Clerky, my co-founder Chris and I were both engineers-turned-startup-attorneys at a law firm called Orrick, which has one of the top startup law practices in the U.S. and internationally. We just announced a new add-on for 83(b) elections and I thought some people here might be interested in the…
What it does
In the maker’s words, at launch
Hi HN! I'm Darby, one of the founders of Clerky (https://www.clerky.com). We build software to help startups and their attorneys get legal paperwork done. We're one of the most popular ways for startups to get formation paperwork done and issue safes for seed financings. Prior to starting Clerky, my co-founder Chris and I were both engineers-turned-startup-attorneys at a law firm called Orrick, which has one of the top startup law practices in the U.S. and internationally. We just announced a new add-on for 83(b) elections and I thought some people here might be interested in the nitty gritty of the decisions that went into it. If you've never heard of an 83(b) election before, I've included a brief explanation at the bottom here. Unfortunately, the nature of a tax election is that it isn't really something you can try out for yourself on a whim, but if you think you might ever start a startup, check us out at https://www.clerky.com :) You and your co-founders will get a prompt to use this new add-on right after issuing shares to yourselves. If you add a new co-founder or issue restricted stock to employees from a stock plan through Clerky, they'll be able to use the add-on too. 83(b) elections have historically been a pain to make because the IRS required physical signatures on the election and you had to mail it in (there is no e-file option) within 30 days. When we launched in 2013 and brought standard startup formation paperwork online, we were able to get rid of another huge kludge — stock certificates — with uncertificated shares. But we couldn't do much about 83(b) elections because of the physical signature requirement, which has always annoyed us. To our delight, the IRS recently announced they would allow electronic signatures for 83(b) elections. It's provisional, but it seems likely they'll make it permanent at some point. This is a huge deal because that makes it possible for us to print and send the 83(b) election in for people, which makes it finally possible to bring 83(b) elections online. It's obviously easy to mail a piece of paper, but our add-on does a lot more than that. Here are all the things it does: * Sends it via Priority Mail with Certified Mail service * Obtains postmark for the Certified Mail receipt from a USPS office * Alerts you if the election is not delivered on the expected delivery date so you can decide whether you want to wait longer or send another * Requests a physical return receipt from the IRS * If the physical return receipt isn't received, submits PS Form 3811-A to the USPS to get delivery information for the return receipt * Asks the IRS to send a file-stamped copy of your 83(b) election back via a self-addressed prepaid Priority Mail envelope with Certified Mail tracking * Scans and uploads evidence of your election to your account as it comes in * Stores the physical evidence in secure offsite file storage * At your request, sends the physical evidence back to you via your choice of Registered Mail (the most secure service the USPS provides) or Priority Mail (faster than Registered Mail) Why does our add-on do more than what's necessary? This is the interesting part to me because I think it's a good illustration of how there can be non-obvious depth when it comes to legal paperwork. This is something that a lot of companies don't realize or willfully ignore when they build online legal services. What's key to understand is that in a venture capital financing, acquisition, or IPO, attorneys will be reviewing your company's legal paperwork in a process called legal due diligence. The purpose of legal due diligence is to identify issues with the company's legal paperwork that could have a significant effect on the company. Part of that is making sure people who received shares subject to vesting made 83(b) elections, which is important given how much could be at stake and because it can be impossible or extremely painful to fix a missed 83(b) election. In…
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