There is a moment, about eighteen months into a promising startup's life, when an investor's lawyer asks for the data room and finds a pitch deck, an unsigned NDA, and a Slack message reading "we're 50/50, we'll paper it later." They never papered it later. Investors do not buy ideas; they buy clean, well-documented ownership of a clearly defined entity with a clean cap table and clean IP. The startups that win the paperwork game are the ones that did the day-one documents correctly. This checklist is that day-one foundation.

For the full narrative tour of the document stack, see popular legal documents for startups. When you are ready to raise, see safe financing round checklist and preparing your startup for capital raising.

Phase 1: Choose and form the entity

  • Decide between an LLC (flexible, pass-through, governed by an operating agreement) and a corporation, based on your fundraising ambitions.
  • If you intend to raise venture capital and grant equity, form a Delaware C-corporation—the chassis institutional investors expect.
  • File the certificate of incorporation with the Delaware Secretary of State (DGCL § 102), naming a Delaware registered agent.
  • Authorize a generous block of common stock (e.g., ten million shares) so there is room for founder stock, an option pool, and investors.
  • Use the catch-all corporate purpose ("any lawful act or activity for which corporations may be organized under the DGCL").
  • Consider a DGCL § 102(b)(7) director (and, post-2022 amendment, officer) exculpation clause.

Why C-corp, and the trap. Venture funds are structured to invest in corporate stock, not LLC interests; stock options work cleanly in a corporation; and Delaware offers the deepest, most predictable body of corporate law. Crucially, qualified small business stock (QSBS) under IRC § 1202 is available only for a domestic C-corporation, so an LLC taxed as a partnership earns no § 1202 benefit. Converting an LLC to a corporation later costs fees, can create tax friction, and resets the QSBS clock—so founders with clear venture ambitions usually start as a Delaware C-corp. A common mistake is authorizing too few shares, forcing an early amendment. See corporate structuring and running multiple businesses.

Phase 2: Complete the organizational housekeeping

  • Have the incorporator's consent appoint the first directors.
  • Adopt bylaws (the corporation's operating manual—how directors are elected, meetings called, officers appointed, indemnification).
  • Through the initial board consent: appoint officers, authorize a corporate bank account, approve issuance of founder stock, adopt the equity incentive plan, and ratify pre-incorporation contracts.
  • Keep the consents organized—they prove the company actually did what it claims.

Why this is not merely clerical. Filing the certificate creates the shell; the company is not operational until the housekeeping is done by written consent. When an acquirer's lawyer later asks "where is the board approval for this stock issuance?", clean organizational consents are the difference between smooth diligence and a fire drill—and, as with 83(b) elections, a missing board approval can quietly invalidate a stock grant everyone assumed was effective.

Phase 3: Pin down founder ownership with vesting and the 83(b) election

  • Record the deal among co-founders (equity splits, roles, decision-making, what happens if a founder leaves) in a founders' arrangement.
  • Issue founder stock through restricted stock purchase agreements with vesting and a company repurchase right on unvested shares.
  • Use the market-standard schedule: four-year vesting with a one-year cliff.
  • Have each founder file a Section 83(b) election within 30 days of the stock transfer (26 C.F.R. § 1.83-2(b)).
  • Keep proof of timely filing (certified-mail receipt) forever; the founder, not company counsel, must file.

Why the 83(b) election is the part to read twice. Under IRC § 83(a), a founder who receives restricted stock is taxed as ordinary income as it vests, on each tranche's rising value—a cash tax bill on stock they cannot sell. A § 83(b) election flips this: the founder is taxed now, at grant, on the spread between fair market value and purchase price—which, for a founder buying near-worthless stock at the very beginning, is essentially zero. The election also starts the long-term capital-gains clock and the five-year QSBS holding period. The 30-day deadline is regulatory and the IRS does not grant extensions; missing it can cost a fortune and even forfeit a § 1202 exclusion. Vesting protects the founders from each other by preventing "dead equity"—a departed co-founder holding a large stake forever—which can make a company unfundable.

Phase 4: Assign the intellectual property

  • Have every founder sign an IP assignment transferring to the company all relevant pre-existing and future work product.
  • Have every employee and contractor sign an assignment (often a PIIA) before doing any work.
  • Do not rely on "work made for hire" alone—it reaches copyright only, and only for genuine employees.
  • Get express written assignments from independent contractors (freelancers, designers, consultants).
  • Include statutory invention-assignment notices where required (e.g., California Labor Code § 2870) and the DTSA whistleblower-immunity notice.

Why this can make or break a fundraise. Under the Copyright Act, copyright vests initially in the author (17 U.S.C. § 201(a)), and under patent law an invention belongs to the inventor until assigned. The work-made-for-hire rule (17 U.S.C. §§ 101, 201(b)) makes the employer the automatic owner of copyrights created by employees within scope—but it does not transfer patents and does not reach contractors except in narrow categories with a signed writing. The classic disaster is the founder who wrote the original code before the company existed and personally owns it until assignment. A missing founder IP assignment is one of the most common reasons a financing stalls. See employee invention assignment agreements and legal protection of software.

Phase 5: Stand up the equity machinery

  • Maintain a precise cap table from the first share issued, reflecting every issuance, option grant, and convertible with its board approval.
  • Adopt an equity incentive plan approved by the board and stockholders, reserving an option pool.
  • Grant options by written agreement specifying shares, exercise price, vesting, and type (ISO under IRC § 422 for employees; NSO for anyone).
  • Obtain a safe-harbor 409A valuation before granting options and set the strike price at or above the appraised fair market value.
  • Refresh the 409A valuation at least every 12 months and after any material event (e.g., a financing).

Why the machinery matters. An inaccurate cap table signals disorganization and is the first thing every investor reads. On options, the strike price must be at least fair market value on the grant date to exempt the option from IRC § 409A (26 C.F.R. § 1.409A-1(b)(5)); set it too low and the holder faces immediate income inclusion plus a 20% federal penalty. A safe-harbor independent appraisal creates a rebuttable presumption of reasonableness, shifting the burden to the IRS. Use the same valuation consistently for compensatory and non-compensatory purposes—one honest number, applied across the board.

Phase 6: Confirm the day-one foundation is complete

  • Confirm the entity is formed and the certificate authorizes enough shares.
  • Confirm bylaws and organizational consents are signed and organized.
  • Confirm founder stock is issued with vesting and all 83(b) elections are filed and receipted.
  • Confirm all founder, employee, and contractor IP assignments are signed.
  • Confirm the cap table, equity plan, and 409A valuation are in place before granting options or raising.

Why this final sweep. A surprising amount of the foundational stack belongs on day one because it is time-sensitive or cheap to do early and expensive to fix later. The cheap, standardized version of each document, done early, prevents the expensive, custom, painful version later. The 83(b) election is one paragraph and thirty days; the IP assignment is a routine form; vesting is a clause—and each one, skipped, can sink a company.

Common mistakes

  • Starting as an LLC with venture ambitions. Conversion costs fees and resets the QSBS clock.
  • Authorizing too few shares. Forces an early amendment and filing fee.
  • Missing the 30-day 83(b) window. Escalating ordinary-income tax on illiquid stock; possible loss of QSBS.
  • No founder vesting. Creates "dead equity" that makes the company unfundable.
  • Relying on work-made-for-hire alone. It does not reach patents or contractors—get written assignments from everyone.
  • Granting options off an invented number. Risks a § 409A violation and penalty tax for employees.
  • Letting the cap table drift. Promising equity in emails without documenting it.

Primary authority

  • Delaware General Corporation Law (DGCL), Title 8 — § 102 (certificate of incorporation), § 102(b)(7) (exculpation).
  • IRC § 83 and 26 C.F.R. § 1.83-2(b) — taxation of restricted stock; the 30-day 83(b) election.
  • IRC § 409A and 26 C.F.R. § 1.409A-1(b)(5) — deferred compensation; option strike-price exemption.
  • IRC § 1202 — qualified small business stock gain exclusion (figures fast-moving; confirm with a tax advisor).
  • IRC § 422 — incentive stock options.
  • Copyright Act, 17 U.S.C. §§ 101, 201(a)–(b) — authorship and work made for hire; patent law requires written assignment.
  • California Labor Code § 2870; Defend Trade Secrets Act, 18 U.S.C. § 1833 — invention-assignment limits and whistleblower-immunity notice.

Related resources

This checklist provides general information and is not legal advice. The law varies by jurisdiction and changes over time, and several areas here—including tax rules under Sections 83, 409A, and 1202—are unsettled or fast-moving. Consult qualified counsel and a tax advisor before acting.