Incorporation Overview

Starting a company can be exciting, but the sheer amount of administrative and legal things you have to do at the outset can be a hassle. Below are some tips to make the process as pain-free as possible!

First, keep good records and save everything in a central and organized location. 

Also, hire good legal counsel early and utilize their expertise* in order to put all crucial documents and processes in place as early as possible. This will save you a ton of time, money, and headache. There are many law firms with strong startup practices; they’re used to working with startups on a tight budget, and they can help you with all incorporation-related stuff for minimal (sometimes flat) fees. You’ll have to do all of this stuff eventually (and certainly before raising any money), and doing it early means you’ll avoid the complication of having to change things around later. 

Now, on to some specifics:

Incorporate as a Delaware C corporation: Investors will expect your company to be a “C” corporation formed in Delaware. If your company is not currently a Delaware C corporation, many investors will expect you to convert into one before or concurrently with your financing. Don’t worry if you already incorporated as something else; your lawyers can help you make the switch. Explaining why Delaware C-corps are standard is beyond the scope of this article, but your lawyers can fill you in! 

IP/Invention Assignments: This is a crucial item, and will be a major focus of investor diligence at every stage of your company. You need to make sure that the company’s ownership of its intellectual property is rock solid. This means that you should require all employees to sign an IP Assignment Agreement. By signing this agreement, the employee agrees that the company (not the employee) owns any relevant IP that the employee creates during their employment. These agreements also typically include confidentiality language. Your law firm will have a form of IP Assignment Agreement that you can use.  NOTE: Consultants typically won’t sign a separate IP Assignment Agreement, but will instead sign a standard form of Consulting Agreement that includes similar language regarding IP assignment and confidentiality.

Establish Equity Structure: This is a very broad category with a lot of nuance (more on different types of equity here). Highlights include:

• Stock Agreements: Everyone who purchases Common Stock of the company should sign a stock purchase agreement, which will often include detail about the vesting schedule of the shares. The most typical vesting schedule is that the stock vests monthly over four years with a one-year cliff, although other arrangements are sometimes used depending on context. More on vesting here.
• Stock Option Plan: You should put an option plan in place so that you can grant options to employees and consultants. If you don’t establish one during incorporation, your lawyers can do it simultaneously with your first financing. 
• File Section 83(b) Elections: This is a crucial item, and a reason to engage good legal counsel ASAP. Anyone who receives stock that’s subject to vesting should strongly consider filing an 83(b) election with the IRS (which must be filed within 30 days of the stock purchase). Missing this deadline is something you cannot fix, and not filing the 83(b) election on time could have disastrous tax consequences. Ask your legal counsel and your personal tax advisor for more detail and for help navigating the process. They’ll likely have the forms you can fill out and instructions on exactly how to file. More on 83(b) Elections here.

Employment Agreements and Offer Letters: Work with your counsel to implement the appropriate employment paperwork and practices. This usually includes having employees sign offer letters, employment agreements, and IP Assignment Agreements (see above). Your law firm will have forms of all of these agreements that you can use, and they can help you customize and/or negotiate them as needed.

Miscellany:

• Register To Do Business in Applicable States: Your company must “register do business” in applicable states. State requirements vary, but your law firm can talk you through which states to register in, and how. For example, if you’re a Delaware C-corp doing business in California, you need to register as a “foreign corporation” with the California Secretary of State. This is a quick and easy process that paralegals at your law firm can lead.
• Other IP Considerations: Discuss with your counsel whether/when you should be thinking about filing trademarks and/or provisional patents. Although it may not make sense for you to spend time and money on trademarking or patenting anything right after incorporation, having a roadmap for the future is really valuable. Also, be sure your company’s domain name is registered, and that it’s registered in the company’s name and not in the name of an individual (e.g. a founder). You can check/change this yourself quickly and easily.
• Money Stuff: Get insurance, set up your bank account, and figure out who will do your finance and accounting functions for now. Ask around for vendor recommendations for all of these items - fellow founders, investors, and others in the ecosystem will have lots of good suggestions.

*NOTE: We don’t usually recommend online incorporation services - they only cover a portion of what you really need, they don’t offer strategic advice for some very important early decisions, and they sometimes result in mistakes that you/your lawyers need to correct later (which will cost you time and money). You’ll need real legal counsel before raising money from sophisticated investors anyway, so you might as well hire them at the outset and leverage their expertise (and low incorporation fees) to get everything correct from the jump.

Disclaimer: The content provided in the Amplify Legal Hub is intended for informational purposes only and should not be construed as legal advice. Always consult a qualified legal professional for advice tailored to your specific situation.