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Incorporating a company is easy. Filing a certificate of incorporation in Delaware takes minutes and costs very little.
Incorporating it correctly for a company that will raise venture capital is a different exercise, and the gap between the two is where founders lose money. A general small-business formation service will give you a valid company. It will not give you founder stock with vesting, an invention assignment agreement, a properly approved option plan, or a reminder about a tax election with a thirty-day deadline.
Those omissions surface two years later, in diligence, at cost. This guide covers what formation actually requires, how the categories of provider differ, what to evaluate, and what to do in the first ninety days after filing.
The filing is one item on a list. A complete set-up for a venture-track company includes:
Our guides to founder vesting and co-founder equity splits cover why the middle items matter most.
Cheapest. You file the certificate, obtain an EIN, and appoint a registered agent.
What you will almost certainly not do: issue founder stock properly, apply vesting, file 83(b) elections on time, or execute IP assignments. Those are the items investors care about, and reconstructing them later requires the cooperation of everyone involved — including anyone who has since left.
Reasonable for: a company that will never raise institutional capital, or a holding entity. Poor for: anything venture-track.
Products aimed at small businesses generally — forming LLCs and corporations at low cost, with registered agent and compliance add-ons.
The specific trap: they are built for businesses that will never raise venture capital. They frequently default to an LLC, which cannot issue qualified small business stock and is not what institutional investors invest in. They rarely produce founder stock agreements with vesting, and they generally do not handle 83(b) at all.
The entity is valid. The surrounding package is not what you need, and you will not know that until an investor's counsel tells you.
Products built for venture-track companies — Clerky, Stripe Atlas, Firstbase and similar, alongside the entry tiers of cap table platforms such as Carta.
What distinguishes them: they produce the document set institutional investors expect. Delaware C corporation, founder stock with vesting, invention assignment agreements, 83(b) instructions, board consents for every issuance, and an option plan when you need one. Several extend into ongoing equity administration, so your grants and consents stay in one place.
Fits: the large majority of venture-track companies with conventional structures. Considerably cheaper than a law firm, and materially better than a general service.
A startup practice will do all of the above, plus give you advice — which is the part software cannot provide.
The cost objection is weaker than founders assume, because many firms defer formation fees until your first priced round. Ask directly; it is a normal request. Our guide to choosing a startup law firm covers the arrangement.
Necessary when: founders are outside the US, the equity split is unusual, there is pre-existing IP from an employer or university, more than two or three founders, any regulatory dimension, or an entity already exists that needs restructuring.
Formation is not a single event, and the most damaging omissions happen in the weeks after the filing rather than during it. A practical sequence:
Days one to seven — issue the stock and sign the assignments. Founder stock purchase agreements executed, consideration actually paid (a small cheque or wire that genuinely clears — a promise to pay is not the same thing), and confidential information and invention assignment agreements signed by every founder. If anyone built anything before incorporation, a technology assignment covering it. This week is the one that matters most, and it is the one most often deferred.
Within thirty days — the 83(b) elections. Filed for every founder holding restricted stock, with proof of mailing retained permanently. There is no extension, no relief and no fix. Put the deadline in a calendar the day the shares are issued, and confirm each founder has actually filed rather than assuming.
Weeks two to four — the operating infrastructure. EIN, a business bank account in the company's name, and payroll if anyone is being paid. Keeping company and personal money separate from day one is both a legal point about the corporate form and a practical one about how painful reconstruction is later. Our guide to startup banking covers account structure.
Weeks four to eight — the paper trail habit. Set up the minute book and stock ledger properly, and adopt the rule that nothing is granted or issued until a signed consent exists. Companies that establish this early never have a diligence problem; companies that intend to catch up later almost always have one.
Before the first hire — the option plan and the employment paperwork. A board-adopted option plan, a 409A valuation if you are granting options, offer letters, and invention assignment agreements for employees and contractors alike. Contractors are the common gap: their work is not automatically the company's, and a contractor who never signed an assignment is a real problem in diligence.
Ongoing — the annual obligations. Delaware franchise tax and annual report, state registrations wherever you have employees, and federal and state tax filings. Diarise them; the penalties are small but the pattern of missed filings reads badly.
Worth being explicit, because the marketing implies otherwise.
The sensible pattern for most companies: use a startup-specific platform for formation and routine equity administration, and retain counsel for financings, unusual situations and anything contentious.
A specific case worth calling out. Several platforms explicitly serve founders outside the US, handling the Delaware entity, EIN and banking set-up remotely — which genuinely solves a problem that used to be difficult.
What they generally do not address is the structure: whether you should hold your existing operating company under a US parent, what that restructuring costs, and what it does to your tax position and any local grants. That is a legal and tax question in two jurisdictions, covered in our guide to the Delaware flip.
The costly error is incorporating in the US through a platform while an operating company already exists elsewhere, creating a structure nobody planned. Get advice on structure first, then use a platform to execute it.
Most of it is repairable, and earlier is cheaper.
Do this clean-up before you start raising. Discovering it mid-diligence costs momentum and negotiating position — our guide to preparing for diligence covers the full checklist.
If you intend to raise venture capital, a Delaware C corporation, effectively without exception. Institutional investors expect it, and only a C corporation can issue qualified small business stock. An LLC can be right for a business that will stay closely held, and converting later costs money and resets your QSBS holding period.
Before you have anything worth protecting, and certainly before more than one person is contributing work. Incorporating early means founder stock is worth essentially nothing, which makes the 83(b) election free of risk and the equity conversation simpler.
Not necessarily at formation, if your situation is genuinely standard. You will need one for your first priced round regardless, and it is worth establishing the relationship before then — many firms will review a platform-generated set-up inexpensively.
You must have one in Delaware. Most platforms bundle it. It is a commodity; do not pay much for it, and note that switching is straightforward.
A startup-specific platform handles formation for a few hundred dollars plus state fees, with ongoing subscriptions for equity administration. A law firm package runs into the low thousands and is frequently deferrable to your first round. Against the cost of repairing a defective formation, both are inexpensive.
Predictable law, a specialist court that hears corporate disputes, and — most practically — the fact that every investor's counsel already knows the answer to any question that arises. Forming elsewhere is legal and occasionally sensible for a company that will never raise institutional money, but it introduces friction into every financing, because someone has to analyse an unfamiliar corporate statute. Note that you will still need to register as a foreign entity in the states where you actually operate, which is a separate and unavoidable obligation.
The usual convention is ten million authorised, with founders taking a portion and the rest reserved for the option pool and future issuances. The number is somewhat arbitrary — what matters is having enough headroom that you are not amending the charter every time you grant options, and a par value low enough that the Delaware franchise tax calculation stays sensible under the assumed par value method. This is one of the few genuinely standard answers in company formation, and there is little reason to deviate.
Issue them stock properly, with vesting, and file their 83(b) within thirty days of that issuance — their clock runs from their own purchase date, not from formation. The complication is that if the company now has value, their shares are worth more than nominal, which can create a tax charge on the difference. This is a strong argument for settling the founding team before there is anything worth valuing, and for taking advice if you are adding someone after a financing.
No. The major startup-specific platforms produce documents investors' counsel see constantly and are comfortable with, which is precisely their value. What looks bad is a set-up done through a general small-business service — an LLC, no vesting, no assignments — or a company assembled from templates found online with inconsistent terms. Investors are not assessing which product you used; they are assessing whether the documents are complete and internally consistent.
The filing is not the point. Founder stock with vesting, 83(b) elections filed on time, and IP assigned from everyone are what actually matter, and they are exactly what general formation services omit.
Use a startup-specific platform if your situation is standard, a law firm if it is not — and ask about deferred fees before assuming you cannot afford one.
Global Capital Network connects founders with investors and with the counsel and platforms that help them start correctly. See upcoming events or get in touch.
This article is general information, not legal or tax advice. Formation choices have lasting consequences. Product mentions are illustrative of categories, not endorsements.
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