Startup Legal PackageS for Early-Stage Founders

The first step to setting up your corporation is to choose the jurisdiction you want to set up in.

There are 2 standout jurisdiction in this regard - Delaware and Wyoming.

Delaware is the premium option, most often seen as the gold standard when it comes to corporations. It’s the structure most favoured by investors and venture capital firms. It is, however, more expensive.

Wyoming offers low fees, and low taxes, along with a simplified set up process. However, Wyoming corporations do not enjoy the same level of prestige as Delaware corporations.

While Delaware and Wyoming are both excellent choices, there are tons of other options, each with their own advantages and disadvantages. Once your corporation is set up in a jurisdiction, moving it is practically impossible. So make sure you get it right.

Corporations must have an agent for service of process (called a "registered agent"). The agent is the “official contact” for legal communications (i.e. a lawsuit).

For businesses incorporated in New York, the New York Secretary of State is the default registered agent.

But for businesses incorporated in Delaware, you’ll need to appoint one. There are a number of businesses which offer registered agent services.

Next, it’s time to breathe life into your corporate entity, by filing your articles. There are two ways to do this:

Online: Use the DOS's On-Line Filing System for New York, or Delaware Division of Corporations.

By Mail: If you prefer the old-school method, mail your completed certificate to the relevant body.

If incorporating in New York, the Department of State offers a bare-bones certificate form.

Your minute book is your corporation’s official record. It helps ensure your business remains legally valid and that your corporate liability protection holds up if your company is ever challenged.

As a starting point for your minute book, you’ll need a set of corporate bylaws.

Corporate bylaws are an internal rulebook that sets out how your corporation, as a legal “person,” makes decisions and operates.

In both New York and Delaware, having signed corporate bylaws is mandatory. Failing to take this step can put the validity of your corporation at risk.

At a minimum, your corporate bylaws should address:

• how the corporation is structured (for example, the number of directors and officer positions)

• how shares are issued

• the process for meetings of directors and shareholders

• how the board and officers are elected and appointed, and

• the rights and obligations of directors, officers, and shareholders

While the corporation is a legal “person”, it cannot make its own decisions. This of course, falls on the directors.

For most new startups, the initial directors appointed will be the founder themselves.

As first step, the directors should pass a resolution (an official “decision” by the corporation).

The first director’s resolution typically:

• appoints corporate officers (i.e. CEO, CFO, COO)

• adopts bylaws

• select a corporate bank

• authorize the issuance of shares of stock

• set the corporation's fiscal year, and

• adopt an official stock certificate form and corporate seal

• Election of s-corporation status (see business formation & incorporation)

The resolution is then added into the Corporation’s minute books.

Once the first director’s resolution has been passed, the corporation can now issue shares of its stock out to the founders.

There are many considerations to keep in mind when issuing stock, as once stocks are issued, they typically cannot be taken back. For this reason, it is extremely important for a vesting agreement to be put in place, allowing shares in the company to trickle out.

Corporations are generally required to keep accurate records of their structure, including shareholders, directors, and officers.

While more sophisticated companies will use cap table software (like Carta) to do this, most startups will keep a registry on a word document.

Ratifying the share registry is a crucial part of incorporation, locking in the initial set up of the company.

It is important for companies to regularly review their registry, to ensure that it’s kept up to date.

Finally, it is important for all the founders involved in the business to sign their intellectual property over the business. This ensures that any work they produce is owned by the business, and not by the founders themselves.

This step is essential if you want to raise money for your business down the line. One of the first things investors will want to check as a part of due diligence is IP ownership.

Finally, once the shares have been issued, we get to the shareholder’s agreement, which sets out the rights an obligations of each shareholder.

While there is no statutory requirements for a shareholders agreement, having one in place is essential for ensuring that everyone is on the same page.

Depending on your business’ needs, you may want to elect S-Corporation Status.

S-Corporations are taxed just like LLCs, with pass-through to their owners. Depending on your tax situation, this could be hugely beneficial, especially if your corporation is your primary source of income.