How to Set Up the Legal Foundation for Your Startup
Handle the essential legal setup every startup needs: incorporation, equity agreements, intellectual property, and compliance basics. Get the structure right early to avoid costly mistakes later.
Before You Start
- 1
A committed founding team with roles defined
- 2
A general business plan or product concept
- 3
Budget for incorporation fees ($500-$2,000)
Step-by-Step Guide
Incorporate your company as a Delaware C-Corp
If you plan to raise venture capital, incorporate as a Delaware C-Corp. This is the standard structure investors expect. Use Stripe Atlas for a streamlined process ($500, includes EIN, bank account, and legal templates). Clerky offers more customization for legal documents. Firstbase provides a comprehensive package including registered agent and compliance. File your Certificate of Incorporation with the Delaware Division of Corporations.
Incorporate before building your product, signing any contracts, or accepting money. Intellectual property created before incorporation can create messy ownership disputes later.
Set up your equity structure with proper vesting
Issue founders stock with standard 4-year vesting and a 1-year cliff. This means if a cofounder leaves in month 8, they get nothing. After the cliff, shares vest monthly. Typical splits: equal splits for equal commitment, or negotiate based on contribution (idea, code, funding, full-time vs part-time). File your 83(b) election with the IRS within 30 days of receiving restricted stock. Missing this deadline can cost you hundreds of thousands in taxes.
The 83(b) election is the single most important tax filing for founders. Set a calendar reminder. Mail it certified mail with return receipt. Keep copies forever.
Create essential legal agreements
You need these documents from day one: (1) Founders Agreement: roles, responsibilities, equity splits, vesting, IP assignment. (2) CIIA (Confidential Information and Inventions Assignment): ensures all IP created belongs to the company. Every founder and employee signs this. (3) Board Consent: initial board resolution adopting bylaws, authorizing stock, appointing officers. (4) Terms of Service and Privacy Policy for your product. Stripe Atlas and Clerky provide templates for all of these.
Never use a handshake agreement for equity or roles. Even best friends should have written agreements. The cost of a legal dispute without documentation is 100x the cost of drafting agreements upfront.
Set up your business bank account and EIN
Get your EIN (Employer Identification Number) from the IRS immediately after incorporation. You can apply online and receive it instantly. Open a business bank account (Mercury, Brex, or a traditional bank). Never mix personal and business finances. Set up a business credit card for company expenses. Keep impeccable records from day one because sloppy books make due diligence painful and can kill deals.
Mercury and Brex are popular with startups because they offer fast onboarding, startup-friendly features, and integrations with accounting software. Traditional banks often have slow onboarding and minimum balance requirements.
Handle ongoing compliance and IP protection
File your Delaware Franchise Tax annually (due March 1). Register as a foreign entity in any state where you have employees or significant operations. Maintain your corporate minutes and board resolutions. Consider trademark registration for your company name and logo ($250-$350 per class via USPTO). Set up annual compliance reminders. Review your legal structure before each fundraise or major milestone.
Use a registered agent service (included with Stripe Atlas and Firstbase) to handle Delaware compliance mail. Missing a franchise tax deadline can result in your company being voided, which is a nightmare to fix.
