A new legal person
When you incorporate, a state creates a new legal person. The corporation can own property, sign contracts, sue and be sued, hire people, open a bank account and owe taxes, all in its own name. It exists separately from the people who started it, and it keeps existing when those people leave, sell their stock or die.
That separateness is the point. Before incorporation, two founders building software together are usually treated by the law as a general partnership, whether they meant to form one or not. Each partner can bind the other to contracts, and each is personally liable for everything the partnership owes. The code they wrote may belong to them jointly, to each of them separately or, if one of them had a job at the time, to that person's employer. Nobody owns a defined share of anything.
After incorporation, the company owns the business and the founders own the company through stock. Their rights are written down in a short set of documents, and the law of the state of incorporation fills in everything the documents leave out.
Who does what inside a corporation
A corporation divides power among three groups. At the start the founders usually belong to all three, which makes the distinction feel academic. It stops feeling academic the first time you raise money, add a director or part ways with a cofounder.
The stockholders own the company. They elect the board, vote on a short list of major decisions such as selling the company or amending its charter, and share in whatever value is left after everyone else is paid. The board of directors manages the company. It approves stock issuances, appoints officers and makes the major decisions, and it acts only as a group. A single director has no power to act for the company. The officers, typically a CEO and a secretary, run the company day to day with the authority the board gives them.
Section 141(a) of the Delaware General Corporation Law puts it plainly: the business and affairs of a corporation are managed by or under the direction of its board. Owning stock, even most of it, does not let you run the company. Owning enough stock to elect the board does.
The documents that create and govern it
A new Delaware startup runs on five documents. The certificate of incorporation creates the company and sets its name, purpose and authorized shares; it is filed with the state and is public. The bylaws are the internal rules for meetings, directors, officers and stock transfers, and they stay private. A short action of the incorporator elects the first directors. The initial board consent appoints the officers, adopts the bylaws and approves the founders' stock. And each founder signs a restricted stock purchase agreement to buy their shares, which also sets their vesting and assigns their prior work to the company.
The certificate sits at the top. If the bylaws or a board resolution conflict with it, the certificate controls, and if the certificate conflicts with the statute, the statute controls.
What incorporation does not do
Filing does not give the company anything you have already built. Code, designs, domain names and customer relationships created before formation belong to whoever created them until they are assigned to the company in writing. That is why founder stock agreements include an assignment of prior work, and why the formation chapter of the next handbook spends time on it.
It also does not register you to do business everywhere. A Delaware corporation that operates from California, New York or Texas generally has to register in that state too, as the state registrations chapter of Running Your Company explains.
And it does not erase every kind of personal liability. You remain responsible for your own wrongful acts and for anything you personally guarantee, and in rare cases owners are held liable for the company's debts when they ignored the line between themselves and the company. The next chapter covers how to stay on the right side of it.