How I Incorporated My Startup

This is a nice do-it-yourself guide to how to file a certificate of incorporation in Delaware.<p>A few observations from the dark side (I am a business lawyer):<p>1. Filing the certificate is only the first of several steps you need to take to complete an incorporation (you also need to set up its management structure, capitalize it, enter into any shareholder agreements as are appropriate, adopt bylaws, and comply with securities laws, among other things, or else your corporation is only half-baked).<p>2. Even if you complete an incorporation, you still need to do this in a distinctive way for a startup as opposed to what you would do if you were incorporating a typical small business - meaning, the process leaves the founders vulnerable to a fair number of legal risks unless they take pains to put strings on the stock issuances in case someone bolts without earning his piece, to assign IP rights into the company to make sure no individual founder later claims such rights as his own, to enter into work-for-hire arrangements to make sure that the rights to any continuing work done on the company's technology will belong to the company and not to any individual founder, etc. (summarized in more detail here: <a href="http://grellas.com/faq_business_startup_001.html" rel="nofollow">http://grellas.com/faq_business_startup_001.html</a>).<p>3. There are also issues about which entity might be best for your situation (corporation or LLC) and which state (Delaware or other).<p>I don't want to be misunderstood here. I have never discouraged clients from taking any self-help steps they see as helpful to them and I will refer them to resources that help them in this. And often an initial bare-bones corporate or LLC setup makes infinitely more sense for founders than does anything more elaborate and more expensive.<p>But such steps must always be understood for what they are. If you have an inexpensive method for filing a Delaware certificate of incorporation at the hand, that is helpful and broadens your options as a founder in getting your entity technically formed on the cheap. Just don't forget that it is at that stage only an incomplete formation. Just as lighting the stove in only step one in cooking your dish, so filing the charter document does not really make you "incorporated" until you have done the rest of it as well. Nor does it necessarily mean that you have made your entity choice in the right way.<p>Forgive me if this sounds like self-promotion (I have assiduously tried to avoid this in my HN comments) but it does pay normally to at least meet with a skilled attorney to get some strategic advice on how to do your setup. The cost of doing an initial meeting is usually nominal and will at least let you make the choices you do make with open eyes on what the trade-offs are. It is commendable to conserve cash. It is not commendable to do so in a way that leaves you potentially flying blind on important choices affecting your startup.

I'm going to take the opposite view and suggest that this is not a good idea. While I whole-heartedly endorse bootstrapping when you can, there is a huge risk to not having a professional look at your incorporating documents, especially when there are multiple co-founders involved. That's why this is the first thing incubators like YC and AlphaLab require. Many attorneys (if you ask) will do incorporation for a flat fee (ours was $2500).<p>Specifically our attorney helped us with the following issues:<p>- What is the structure of the shareholder agreement?<p>- What happens if a co-founder leaves?<p>- Filling out the 83(b) Election Form (so that you pay capital gains taxes on the shares you're about to be issued now rather than later)<p>- Mutual confidentiality agreement amongst co-founders<p>- Proprietary rights agreement<p>Believe me, I know what it's like to be a starving startup. Any cash outlay is terrifying. But you must be able to separate fear from the decision making process. $2500 is not a lot of money. And if you can't bring yourself to pay that much for something as important as an attorney, are you really starting a business? Or is it just a side project that you hope will become a business? There is a serious difference.<p>One last thought. We (<a href="http://www.shoefitr.com" rel="nofollow">http://www.shoefitr.com</a>) didn't incorporate until we quit our "real" jobs to go full time. This gave us time to mitigate some technology risk and get comfortable working with each other before shelling out $2500. I think that's ok too. But if you're at the full-time stage of things, consult a professional.

This a great, succinct guide - glad to see it.<p>One very important step five to add: check with your state's Secretary of State office to see if there are any additional steps that must be taken. Many states require foreign-registered LLCs and corporations to submit an "application for authority to transact" or otherwise register with them.<p>Depending on where you're located, a local business registration fee or license may be required as well.<p>It's also important to apply for an EIN number, which is generally required before opening a bank account in the business' name, and for tax purposes: <a href="https://sa2.www4.irs.gov/modiein/individual/index.jsp" rel="nofollow">https://sa2.www4.irs.gov/modiein/individual/index.jsp</a><p>There may be other steps that I'm missing, but as with any guide to navigating these waters, always ask for help in your particular situation, and don't be afraid to (indeed, please do!) consult a lawyer.

Good basic outline. It's too bad the difficult part of incorporating is the upkeep of accounting, taxes and everything else that goes with it. I too spent a couple hundred to incorporate, but thousands for the CPA, bookeeper, lawyers, etc.. to keep you in check. My startup is up to 11 employees though.<p>If it's just you or you and a friend starting something basic, a local business attorney should be able to keep you in check for $100-$150 an hour a few times a year. Early on I actually found some local contests for startups and won $4,000 in attorneys fees once, and once I got bigger applied for another one and received $10,000 in fee credit.<p>Look around, there are lots of people willing to help young startups. Offer to use an attorney on deferred payment status until you close at least a $1MM series A or have $1MM in revenue. From my personal experience many will do this for the chance at having you as a longtime client when you make it big.<p>Good luck!

Good post, getting incorporated (or making an LLC) really IS that easy, and I've not seen anyone outline the process so succinctly before.<p>One comment: You don't NEED to incorporate in delaware, unless you have specific liability reasons for doing so. Incorporating in your own state is usually cheaper and easier, so unless you have specific protection you want that only a delaware corporation corporation can provide (or nevada, they're also good), don't bother and just use your home state.<p>Also don't forget that there are upkeep costs for a corporation or LLC, certain paperwork (usually annual) that you have to keep up with and file each year to maintain the corporation.

Is it possible (or legal) for a set of foreign people (outside the country, no citizens) to create a delaware company? Would that work at all, what with banking and all? Anyone know?

Nice post. A lot of people get this wrong, but the right word where you used 'stocks' is 'shares'. You own shares in a company, not stocks—when you hear people talk about "their stocks" they're talking about their shareholdings in multiple companies.

I would also recommend incorporating in your home state. I incorporated in Minnesota and it was ridiculously easy, simplest government form I've ever seen.<p>However if you're going to be seeking VC then it probably makes sense to incorporate in Delaware. However if you're like me and bootstrapping it, there is no need to go with a Delaware Corp.

This is a helpful post, but there were a couple points that might have been overlooked.<p>The OP didn't mention anything about having the papers notarized. This is typically required, but perhaps not in Delaware? Also, as others noted, you'll often have to file for "foreign corporation" status in your home state.<p>Once you have filed "foreign corporation" status in your home state, you will probably need to check whether your product or service is subject to sales tax. Then you will need to get a sales tax account. Depending on your jurisdiction, this may include both state and city or county sales tax accounts. You should also call up the IRS or file online to get a Tax ID number (TIN/EIN).

Does anyone have experience doing this from out of state? For example, setting this up while residing in California?<p>Setting up an LLC in California will cost you $800/year..so this out of state C-Corp seems like a cheaper option

Thanks very much for this. I'm new to the country and have been looking for this kind of info. Much cheaper than I expected.

Posts like this is why I read HN. I believe the synergy in this start-up community is amazing. :)

Very nice article, would have saved me time last year when I was looking into the same things. One question though: why file a C-corp instead of an S-corp?

After incorporating in Massachusetts, I learned that I must pay a minimum state tax of $456 per year. Ouch.