Incorporation is the first legal act most founders take, and usually the first legal document they sign without reading. This handbook is the reading. It explains what a corporation is, why startups that plan to raise venture money nearly all pick the same kind of corporation in the same state, when to file, and what each article of a standard startup charter means.
It is written for founders of U.S. technology startups who expect to raise money from angels or venture funds, give equity to employees, and one day sell the company or take it public. If you are starting a consulting practice or a business you plan to own forever, much of it still applies, but the right entity may be different. The chapter on LLCs explains when.
You do not need a legal background. Where a rule comes from a statute we cite the section, so you can read it yourself or hand it to your lawyer. Underlined terms link to the glossary.
Read it straight through the first time; it takes about an hour. Then use it as a reference. When you finish, Legal Concepts for Founders covers what happens inside the company once it exists, and Running Your Company covers what the company owes every year after that.
Contents
- What incorporating means
A corporation is a separate legal person. Here is what that buys you, and what it doesn't.
- Why incorporate
Limited liability, clear ownership, something investors can buy, and equity you can give your team.
- When to incorporate
Earlier than you think, but not while anyone is still employed somewhere that could claim the work.
- Where to incorporate
Why Delaware is the default for venture-backed startups, and what you still owe the state where you work.
- What about LLCs?
LLCs are a good fit for many businesses. Here is why venture-backed startups rarely use them.
- The certificate of incorporation
The document that creates the company: what it must say, who signs it, and how it is filed.
- What's in the certificate
A read through a standard startup charter, article by article, using Corply's as the example.
Notes
- Dual-class common stock
High-vote founder shares: what they are, why some founders want them and why most seed-stage companies skip them.
- Founder preferred stock
FF preferred let founders sell some shares in a financing. It has to be set up at formation, and it has mostly fallen out of use.