So you’ve decided to incorporate your new technology startup. Now what? If you plan to seek funding for your startup from angel investors and Venture Capitalists (VCs), you will need a certain set of legal documents, in addition to the Delaware incorporation itself, which angels and VC’s will expect you to present as part of the financing process:
1. Incorporate: First, incorporate a C-Corporation in Delaware. Delaware is the industry standard for incorporation in the United States, as it offers the most favorable laws and regulations for companies. For more information on why to choose Delware for your startup, please refer to “Why Should You Incorporate in Delaware?”[[ link to article]]”
2. Corporate Charter: The corporate charter, often called the “certificate of incorporation” is used to incorporate the company in Delaware. This is a standard short 1-2 page document which sets forth the name of the company, the number of shares the company will be authorized to issue, and other basic information.
3. Bylaws: The bylaws are a longer document that set forth the corporate structure in more detail, such as the board structure and shareholder and board procedures and rights. It is best to use a form of bylaws typically used by startup companies planning to seek VC financing, which can be anywhere from 10-40 pages.
4. Founder’s Stock Purchase Agreement: This agreement must be prepared for each founder of the new company. It is a key agreement that issues shares to each founder and implements vesting and reverse vesting structures. For more information on Founder’s Stock Purchase Agreements and their content, read “What is Founder Vesting?”.
5. Founder’s Technology Assignment: This agreement must also be prepared for each founder and is key to securing support from VCs and angels. Under this agreement, each founder assigns all of their intellectual property to the newly formed company in exchange for some consideration of either compensation or, my often, their shares in the new corporation. This is vital in order to maintain the integrity of the company’s intellectual property.
6. 83(b) form: If you are a founder with a Founder’s Stock Purchase Agreement where the shares will vest over time, then you must file this form within thirty (30) days of execution of the Founder’s Stock Purchase agreement itself. This form must be filed by each founder with vesting provisions and is very important for your tax implications. In an 83b election, you are electing to have the income from the stock purchased under the Founder’s Stock Purchase Agreement recognized on the date is purchased instead of on the date that the stock vests. Assuming your company will increase in value, the income on the purchase date is less than that of the future vesting date, and thus you will have to pay substantially less income tax liability on the transaction. For more information please read “Founder’s 83(b) Election”.
7. Initial Board Resolution: The Initial Board Resolutions, or Initial Organizational Resolutions are a standard form which authorizes, among other things, the titles and duties of each founder, equity allocation, opening a bank account, adopting forms and such other initial set up resolutions.
8. Indemnification Agreement: This document is prepared for each founder in their capacity as a board member of the new company. It protects individual founders by allowing the company to indemnify a founder if they are sued personally in connection with company’s affairs.
9. EIN Letter: A federal Employer Identification Number (EIN) is required in order for a corporation to open a bank account. You can file for an EIN at the IRS website. Once answering a few questions regarding the new corporation, you should receive your letter immediately online.
10. Appointment of Directors and Resignation of Incorporator. This simple one-page document is executed by the corporation’s incorporator, often one of the founders, and appoints the initial directors of the company who will in turn execute the remaining incorporation documents as applicable.