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Guy Kawasaki made a recent post stating that he spent $4,824.13 in legal fees to get his new project, Truemors, off the ground. Guy received a lot of questions about spending that much money and responded by making another post detailing what those fees covered. Since this seems to be a hot topic, we thought we’d share some of our experiences having incorporated two very different web businesses at both ends of the legal spectrum, Particletree Inc. and Infinity Box Inc.

The Cheap Route

Particletree Inc., the S Corporation that houses both Particletree.com and Treehouse Magazine cost us about $525 in legal fees. $400 of this was spent on forming a boiler plate corporation through a generic getacorporation.com type site, and $100 gave us a year’s access to legal help through the same company. It turned out that that the $100 extra didn’t actually provide access to any answers, but it did allow you to call their offices and ask questions. If you wanted the answers, you’d have to pay their hourly fees. The last $25 was spent on copyrighting Treehouse.

What we didn’t pay for was a privacy policy, terms of agreement, founder’s agreement, or anything else of that nature. We did draft a terms of agreement for Treehouse, but we just looked at a basic template on the Internet for inspiration. We didn’t worry about vesting or what would happen if the three of us went our separate ways because we weren’t making a ton of money, and we looked at these ventures as more of a learning experience or means to fund a “real” company. What it came down to was the company was not serious enough or profitable enough to justify spending the big bucks on the big guns.

The Not-So-Cheap Route

Unlike Particletree Inc., we haven’t cut any corners with Infinity Box Inc., a C corporation that houses our favorite product, Wufoo. Infinity Box was incorporated for around $700 thanks to some YCombinator legal connections. In addition to the incorporation fees, we’ve probably spent an additional 5-6k on legal fees with Wilson Sonsini Goodrich & Rosati, who are probably the biggest guns in the Valley. The lion’s share of that money was spent on stock agreements dealing with our Angel investors, a privacy policy, a terms of agreement, and some legal counsel before Wufoo ever launched. The other 1k or so was spent on trademarks, copyright, and some general questions we’ve had over the past year.

With Infinity Box, we chose to go with the big boys because we knew we were in it for the long haul. We were confident that Wufoo would become profitable, pay our bills, and grow. Unlike Particletree, Wufoo collects and stores sensitive customer data and it would be irresponsible to cheap out when other businesses and people are also at stake. We might have been able to get some of the work done for cheaper elsewhere, but it helps to know that we can call on the people who actually wrote all of our legal documentation if any issues arise. It also seems that $6,000 is a lot of money when you haven’t launched or made a cent, but it’s money well spent when you’re making money and don’t want to worry about shoddy legal documentation.

Conclusion

Infinity Box and Particletree Inc. are about as different as corporations can be. One was made as a hobby and learning experience, while the other was made to create a profitable, self sustaining company that businesses trust to collect and protect their data. If you’re going to make a simple company to make a few bucks on the side, hiring $500/hour lawyers might be overkill. If you’re making a real run at building a real company, then spending the money to get things done right is probably worth it. Guy Kawasaki is right when he says, “If you don’t use a law firm that’s “in the know” at the very start, you will probably have to undo or redo a lot of things.” There is definitely a difference in the quality of legal counsel, and if your hobby becomes a real business, you’ll probably have to pay eventually in the end.