Delaware C-Corp Setup: Essential Founder Documents Checklist

TL;DR: Delaware C-Corp is the standard. Get these 7 documents right from day one: Articles, Bylaws, Stock Purchase, Vesting, IP Assignment, Non-Disclosure, and Board Resolutions.

Don't wing it. Future investors expect proper corporate structure.

Why Delaware C-Corp (Not LLC)

The reality: 89% of venture-backed startups are Delaware C-Corps The reason: Investors, employees, and acquirers expect this structure

Delaware C-Corp advantages:

✅ Standard for venture funding
✅ Employee stock options (ISOs)
✅ Well-established case law
✅ Business-friendly courts
✅ Easy to transfer/sell
✅ Future IPO structure

LLC disadvantages for startups:

❌ Complex for multiple owners
❌ Tax complications with investors
❌ No stock options for employees
❌ Harder to raise venture capital

If you plan to raise money or hire employees, C-Corp is not optional.

The 7 Essential Documents

1. Articles of Incorporation (Certificate of Incorporation)

What it does: Legally creates your company Key components:

Company name and purpose
Authorized shares (usually 10,000,000)
Registered agent in Delaware
Incorporator information

Common mistakes:

Too few authorized shares (expensive to fix later)
Wrong share classes (should have Common and Preferred)
Missing Delaware registered agent

2. Corporate Bylaws

What it does: Internal operating rules for your company Key components:

Board composition and voting
Officer roles and responsibilities
Shareholder meeting procedures
Share transfer restrictions

Standard provisions:

Board size: 1-9 directors
Officer roles: CEO, CFO, Secretary (minimum)
Annual shareholder meeting requirement
Share transfer approval process

3. Founder Stock Purchase Agreements

What it does: Documents founder equity ownership Key components:

Number of shares each founder gets
Purchase price (usually $0.001 per share)
Vesting schedule (typically 4 years)
Acceleration triggers

Critical decisions:

Equity split: Based on contribution, not equality
Vesting start date: Company formation or when work begins?
Cliff period: Usually 1 year (you lose all equity if you leave before 1 year)

4. Restricted Stock Purchase Agreement & 83(b) Election

What it does: Protects company if founders leave early Key components:

Vesting schedule (when you actually own your shares)
Repurchase rights (company can buy back unvested shares)
Transfer restrictions
83(b) tax election (critical for tax optimization)

The 83(b) election:

Must file within 30 days of grant
Avoid this mistake: Founders who forget 83(b) pay massive taxes later
File with IRS and keep receipt

5. Intellectual Property Assignment Agreement

What it does: Ensures company owns all work product Key components:

All inventions belong to company
Pre-existing IP carve-outs
Confidentiality obligations
Non-compete provisions (where legal)

Critical for:

Code, designs, patents, trademarks
Business plans and customer lists
Any work done before incorporation
Future investor due diligence

6. Mutual Non-Disclosure Agreement (NDA)

What it does: Protects confidential information Standard uses:

Investor conversations
Customer discovery interviews
Vendor/contractor discussions
Partnership negotiations

Two-way protection: Both parties protect each other's info

7. Board of Directors Resolutions

What it does: Documents major corporate decisions Initial resolutions:

Approve bylaws and stock issuance
Appoint officers (CEO, CFO, Secretary)
Approve equity plans and option grants
Open bank accounts and financial decisions

Ongoing resolutions:

New hires and equity grants
Fundraising authorization
Major contracts and partnerships

Founder Equity: Getting It Right

The Equity Split Framework

Equal split myths:

❌ "We're all equally important"
❌ "It's fair to split 50/50"
❌ "We'll figure it out later"

Smart equity allocation:

✅ Based on contribution, risk, and commitment
✅ Accounts for who had the idea, builds the product, finds customers
✅ Considers who's full-time vs part-time
✅ Reflects fundraising and business development capabilities

Sample Allocation Framework:

CEO/Founder 1: 40-60%

Had the original idea
Full-time commitment
Leads fundraising and business development

CTO/Founder 2: 20-40%

Builds the product
Full-time technical leadership
Critical to execution

Business Founder 3: 10-30%

Part-time initially
Brings specific expertise (sales, marketing, industry)
Joins full-time after validation

Employee option pool: 10-20%

Reserved for future hires
Dilutes founders, not investors

Vesting Schedule Standard:

4 years total vesting
1-year cliff (lose everything if you leave before 1 year)
Monthly vesting after cliff
Acceleration triggers: Single trigger on acquisition, double trigger on termination after acquisition

The $2,000 vs $20,000 Decision

DIY Option ($500-2,000):

Tools: Clerky, Stripe Atlas, LegalZoom Pros: Cheap, fast, standard documents Cons: No customization, no legal advice Good for: Standard 2-founder, simple equity split

Law Firm Option ($5,000-20,000):

What you get: Custom documents, legal strategy, ongoing support Pros: Tailored to your situation, expert advice, investor-grade docs Cons: Expensive, slower Good for: Complex equity, multiple founders, immediate fundraising plans

Middle Ground ($2,000-5,000):

Boutique startup lawyers who specialize in early-stage companies Pros: Experience with startups, reasonable rates, standard processes Best option for most startups

State Registration & Compliance

Delaware Requirements:

Annual franchise tax: $175 minimum
Registered agent: $100-300/year
Annual report: Basic info filing

Home State Registration:

Foreign corporation registration in your home state
State taxes where you do business
Workers comp if you have employees

Ongoing Compliance:

Board meetings and resolutions (quarterly minimum)
Stock ledger maintenance
Cap table updates
Annual franchise tax payments

Common Founder Mistakes

1. Handshake Equity Deals

Problem: "We'll split it equally and figure out details later" Why it fails: Relationships change, contributions vary, investors demand clarity Fix: Document everything from day one

2. Forgetting 83(b) Elections

Problem: Missing the 30-day filing deadline Consequence: Massive tax bill as shares vest Prevention: File immediately after stock purchase

3. No Vesting Schedules

Problem: Founder gets full equity immediately Risk: Co-founder leaves after 3 months with 30% equity Standard fix: 4-year vesting with 1-year cliff

4. Wrong State Incorporation

Problem: Incorporating in home state to "save money" Issue: Harder to raise VC money, less predictable law Solution: Delaware for venture-track startups

5. Insufficient Authorized Shares

Problem: Starting with 1,000,000 authorized shares Issue: Run out of shares for employees and investors Standard: Start with 10,000,000 authorized shares

Year One Legal Checklist

Month 1 (Incorporation):

[ ] File Delaware Articles of Incorporation
[ ] Draft and adopt Bylaws
[ ] Issue founder stock with vesting
[ ] File 83(b) elections (within 30 days!)
[ ] Get EIN from IRS
[ ] Open business bank account

Month 2-3 (Setup):

[ ] Register as foreign corporation in home state
[ ] Get required business licenses
[ ] Set up payroll if hiring employees
[ ] Draft IP assignment agreements
[ ] Create standard NDA template

Month 6 (First board meeting):

[ ] Hold first board of directors meeting
[ ] Approve equity incentive plan
[ ] Document major business decisions
[ ] Update cap table

Month 12 (Annual maintenance):

[ ] File Delaware annual report
[ ] Pay Delaware franchise tax
[ ] Hold annual shareholder meeting
[ ] Update corporate records

FAQ

Q: Can I change from LLC to C-Corp later? A: Yes, but it's expensive and complex. Better to start with C-Corp if you plan to raise money.

Q: What if I can't afford a lawyer? A: Use Clerky or Stripe Atlas for standard setups. Get legal help before your first fundraise.

Q: How do we handle pre-incorporation work? A: Document it in IP assignment agreements. Consider assigning early work to the company retroactively.

Q: What if co-founder relationships change? A: This is why vesting exists. Unvested shares return to the company if someone leaves.

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