Q: What is a corporation?
A: A separate legal entity that can limit founders' personal liability and help the company contract, hire, own IP, and raise investment.
What a Corporation Is (and How to Form One)
A corporation is a legal entity that exists separately from you (the human). It can hold assets, sign contracts, hire people, own intellectual property, and (usually the whole point) limit your personal liability.
For most US venture-backed startups, the "default" version is a Delaware C-corporation — not because Delaware is magical, but because Delaware corporate and tax law is company friendly, more predictable, and well settled, often making investors and their lawyers more comfortable and familiar with it.
Note: A Delaware C-corporation is not the best legal entity for all companies.
The Key Idea Most Founders Miss
A process is not a PDF
Founders often think "incorporation" means signing a stack of formation documents.
Reality: incorporation is a process with timing and order-of-operations constraints.
Document
A thing you sign.
Process
The sequence of actions that makes those documents legally effective.
Same PDFs, wrong order = you can accidentally create a mess that costs you time, money, and tax pain later.
Why Incorporate?
Formal incorporation helps your company grow by:
1)
Limiting your liability
A Delaware C-corporation generally provides limited liability, meaning you're generally not individually liable for the company's acts and obligations.
2)
Providing structure
A corporation makes it easier to sign contracts with vendors and customers and engage employees, consultants, and advisors.
3)
Enabling venture-backed investment
U.S. investors are comfortable and familiar with Delaware C-corporations, and some U.S. investors can only invest in Delaware C-corporations.
Overview: Standard Incorporation Steps (The Process)
Here's a common sequence for forming a new Delaware C-corporation:
- 1
File the Certificate of Incorporation with the Delaware Secretary of State
- 2
Action of Incorporator appointing the initial board of directors
- 3
Board resolutions regarding initial corporate maintenance matters
- 4
Issue stock to founders
- 5
Assign intellectual property by founders to the company
- 6
Board and stockholder resolutions regarding initial corporate maintenance matters
- 7
Create a Stock Plan (optional at formation, but needed before issuing equity to service providers)
If you're broke (same), this list is your checklist. If you're busy (also same), this list is why people pay professionals: not for the PDFs — for the order.
Common Mistakes (How Things Go Wrong)
1)
Overthinking formation
For most companies, standard incorporation documents from a formation service (e.g., Clerky, Every) or your law firm are enough.
The classic trap is spending time/money on complicated governance and cap table structures (dual-class stock, custom vesting schedules, etc.) instead of building the company.
2)
Not issuing founders' shares (or doing it late)
Filing a Certificate of Incorporation and agreeing on equity split is not the same as validly issuing shares.
Shares generally aren't validly issued until:
the board approves the issuance,
you sign a stock purchase agreement, and
the purchase price is fully paid (cash or assignment of intellectual property).
Delaying issuance can create higher purchase price / negative tax consequences if shares are issued for less than fair market value later.
3)
Missing 83(b) elections (if your shares vest)
If your shares are subject to vesting and you are a U.S. taxpayer (or may become one), you should file an 83(b) election with the IRS within 30 days of issuance.
That 30-day window is a firm deadline without exceptions, and there's no easy fix for missing it.
4)
Not imposing vesting at formation
Vesting at formation helps avoid "dead equity" if a cofounder leaves early, and investors will likely require vesting in your first priced round anyway.
5)
Incorporating before founders have left prior jobs
It can be cleaner from an IP and diligence perspective to have a clear demarcation between prior employment work and incorporation. Incorporating too early can raise diligence questions about whether a prior employer might claim company IP.
6)
Name issues and brand collisions
Check the Delaware website to confirm your company name isn't already taken.
It's recommended to do a trademark knockout search (best: using a lawyer; minimum: yourself) in the U.S. and any other applicable markets.
7)
DBA filings (usually: don't)
Strong recommendation against DBAs because:
your legal name doesn't need to match product/domain name,
a DBA doesn't provide trademark protection in most states,
DBAs are administrative burden and filed locally with their own rules/costs,
if you hate your legal name, you can change it by amending the Certificate of Incorporation.
The Standard Incorporation Documents (What They Are)
Certificate of Incorporation
(aka 'charter')
Filed with Delaware to formally incorporate the company. It typically covers: full legal name, purpose, authorized shares, incorporator name/address, indemnification for directors/officers.
Watch out for: Authorized shares vs issued/outstanding shares. Ownership percentages are based on issued and outstanding, not authorized. Make sure you have enough authorized shares for founders shares and expected initial grants to service providers to reduce fees.
Action of Incorporator
Signed by the incorporator. Typically: elects initial directors and adopts bylaws.
Watch out for: It must be signed by the person listed as incorporator in the Certificate (or you can end up with an invalid board unless fixed).
Bylaws
Internal governance rules: board organization and meetings, officer roles/powers, recordkeeping.
Watch out for: Stock transfer restrictions can add control but reduce transferability; investors may require amendments later.
Initial Board Resolutions
(often unanimous written consent)
Approves formation/cap table basics: ratifies incorporator actions, approves founder stock issuance (often via CSPAs), elects officers, authorizes bank accounts and fiscal operations.
Watch out for: Founder stock isn't valid unless board approved. If approvals aren't in the initial resolutions, you need a separate board action.
Common Stock Purchase Agreement (CSPA)
Sets terms for founder common stock: vesting, acceleration, company right of first refusal on transfers.
Watch out for: Standard founder vesting is often '4 years with a 1 year cliff' and '100% double-trigger acceleration.'
Confidential Information and Invention Assignment Agreement
(CIIAA / PIIAA)
Assigns service provider inventions/IP to the company and restricts disclosure of confidential info.
Watch out for: Any excluded inventions will be scrutinized in future diligence.
Stock Plan / Equity Incentive Plan / Option Pool
(optional at formation)
You need a stock plan before issuing equity to service providers. (Founders don't need to be issued equity from a plan due to a separate exemption.)
Watch out for: This is optional at formation but required before issuing equity to employees, consultants, or advisors.
If You Have Basically No Money: A Practical Approach
If you're broke, you can still be precise. The goal is to:
follow the sequence,
get founder equity issued correctly,
and avoid missing time-sensitive steps.
Use standard docs, don't customize yourself into a hole, and focus on building.
If you have some budget (even a little), having a lawyer run the process (not just hand you PDFs) can save serious founder time and prevent the most common "we'll fix it later" problems.
Delaware-Specific: Franchise Tax "Don't Panic" Notes
If your Delaware franchise tax looks insane, there are two calculation methods and you owe the lower amount:
1) Authorized Shares Method
(often high)
2) Assumed Par Value Method
Based on issued shares + gross assets at 12/31 (often lower)
To remain active and in good standing, Delaware franchise taxes must be filed and paid by March 1.
If you're late and get a scary letter with a huge number, Delaware may have used the method that yields the highest tax. Work through the form fully and recalculate.
Structured Summary (for Fast Retrieval)
What a corporation is
A separate legal entity that can limit personal liability, provide structure, and enable venture investment.
Corporation formation is a process
The effectiveness depends on timing and order, not just signing documents.
Typical Delaware C-corp incorporation steps
Certificate filing → incorporator action → board resolutions → founder stock issuance → IP assignment → board and stockholder resolutions → stock plan (before service-provider equity).
Common errors
Delayed founder stock issuance, missed 83(b) window, no vesting at formation, incorporating before leaving prior jobs, brand/name problems, unnecessary DBA filings.
Frequently Asked Questions
Q: What's the difference between "documents" and "process" in incorporation?
A: Documents are what you sign. The process is the correct sequence and timing that makes those documents legally effective.
Q: Why do startups often choose a Delaware C-corporation?
A: Delaware corporate and tax law is company friendly, more predictable, and well settled, often making investors and their lawyers more comfortable and familiar with it, and some investors can only invest in them.
Q: What are the basic steps to incorporate a Delaware C-corp?
A: File Certificate of Incorporation → incorporator appoints board → board adopts resolutions → issue founder stock → founders assign IP → board and stockholder resolutions → (optional now, required later) create stock plan before issuing equity to service providers.
Q: When are founder shares "actually issued"?
A: Generally after board approval, signing a stock purchase agreement, and full payment of purchase price (cash or assignment of IP).
Q: What is an 83(b) election and when does it matter?
A: If shares are subject to vesting and you are (or may become) a U.S. taxpayer, it should be filed within 30 days of issuance; the deadline is firm without exceptions.
Q: Do I need a stock plan on day one?
A: It's optional at formation, but you need it before issuing equity to employees, consultants, or advisors.
Q: Should I file a DBA if my legal name doesn't match my product?
A: Strong recommendation against DBAs for most startups; legal name doesn't need to match product/domain name, DBAs don't provide trademark protection in most states, and they add admin burden.
How to Use This Guidance
This is meant to be the kind of basic information you'd hear from a lawyer friend — so you can understand what's happening, where it can go wrong, and why the order matters.
We're lawyers, remember? Please read this important note:
Story LLP is a law firm, and Story's lawyers built Aegis to deliver better, standard legal services at scale so founders can choose between elite specialized lawyers and standardized process automations that replicate those lawyers according to their needs and budget. By definition, a standardized process may not be perfect for you. Please review our Policies page to better understand the difference, as well as how we use AI and how we manage conflicts, privilege, etc.
As a law firm, we must screen clients for conflicts of interest, and we treat all correspondence with clients seeking legal advice as privileged and confidential to the maximum extent possible in consideration of any conflicts. However, Story's law firm or our Attorney Allies do not represent you or your company as your lawyer, do not have an attorney-client relationship with you or your company, and do not provide you with legal advice absent a formal Engagement Letter signed between you and the Story LLP law firm. Please don't confuse the free knowledge we offer on this site with legal advice for you.
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