Guide to Startup Incorporation

I wrote this in the summer of 2020 while working on Audiograph, a podcasting app focused on note-taking and sharing clips.

2021 Addendum:

Don't incorporate until you absolutely need to.

If you're pre-revenue and pre-raise, incorporating your company prematurely can lead to an inflated 409A valuation and a higher exercise price than necessary. Save yourself money and headache by building your startup rather than playing house.

Having heeded my warning, if you are ready to incorporate, the following primer should come in handy.

Why Incorporate?

  • Delaware C Corp

    • Better for investors, saves us headache in the future
    • Paperwork
      • Letter of incorporation
      • Assign
        • Board of directors
        • CEO, President, Secretary (these can all be the CEO)
        • Bylaws (super generic)
        • Stock purchase agreements (also create a cap table)
    • Use Stripe Atlas
      • Also handles post-incorporation documents
      • Approx. $400 bucks, but gives you access to Stripe ecosystem including Mercury integration
  • Equity

    • Stock purchase agreement (founders buy shares from the company)
    • 83B Election
      • Extremely important to get right
        • Pay a very low price for our stock when it vests
        • Need to make the 83B election 30 days within the day we buy our stock
        • We each save a copy and put it in our shared Google Drive
        • It can be a bitch to hunt these down from your co-founders; your job is to articulate that it's their responsibility to complete this.
  • Company Expenses

    • Recommend each person put in a few hundred bucks. I no longer recommend this. If you're pre-raise or pre-revenue and do not require a legal entity or bank to do business, just keep track of your receipts. Balancing the books for measely pre-PMF purchases is a waste of time.
    • Mercury
  • Paying ourselves (can/will do this later)

    • For liability reasons mainly (founder breakups)
    • Paying ourselves minimum wage
    • Need to pay payroll tax
    • Payroll service provider
    • Again, my recommendation is to maintain a good relationship with your co-founder (easier said than done) and ignore this until you need to
    • Cap Table
    • CIIA (protects IP)
    • Receipts
    • Formation documents
  • Resources