Incorporation
Incorporation is the legal process of forming a corporation by filing articles of incorporation with a US state's Secretary of State. The filing creates a separate legal entity distinct from its owners. The new entity gains the ability to enter contracts, own assets, sue and be sued, issue stock, and limit owner liability to the amount invested. The filing (sometimes called a certificate of incorporation) is one of the most-consequential decisions a founder makes in the first weeks of a startup, and one of the easiest to handle poorly because the decisions look small individually but compound for years.
The basic filing process: choose state of incorporation (Delaware is the default for venture-backed startups; home state may suffice for non-VC businesses), draft articles of incorporation (the foundational document filed with the state; includes corporate name, registered agent, authorized shares, par value, business purpose), appoint registered agent (a Delaware-resident person or service authorized to receive legal documents on the company's behalf; required for Delaware corporations), draft bylaws (the operating rules of the corporation; not filed publicly but legally required), hold initial board meeting (formally adopt bylaws, elect officers, issue founder stock, approve initial corporate actions), issue founder stock (the foundational stock issuance to founders, usually at nominal par value; needs to happen before any value accrues to avoid tax issues), and file federal EIN and state tax registrations (necessary for banking, hiring, and tax compliance). The decisions made at incorporation that matter for years: authorized share count (typically 10 million shares for a startup, providing room for future option pools and dilution), par value (usually $0.00001 or $0.0001 to minimize Delaware franchise tax under the assumed-par-value method), founder vesting schedule (the 4-year cliff schedule from day one prevents the catastrophic case of a co-founder leaving with all their stock), 83(b) election (must be filed within 30 days of stock issuance; missing this deadline creates massive tax problems for founders). Standard tools: Stripe Atlas ($500 one-time, handles Delaware C-corp formation end-to-end), Clerky ($1,800/year, specifically built for venture-backed startups with full legal documentation), Carta Launch (free Delaware incorporation, monetizes through cap-table software), and traditional law firms ($5K to $15K for full white-glove incorporation, worth it for complex cap tables).
Ryan's Take
Incorporation is one of those things founders rush through to "get to the real work" and then pay for over the next five years. The mistakes that hurt most: not filing the 83(b) election within 30 days (irreversible tax consequence), forgetting founder vesting from day one (catastrophic if a co-founder leaves), choosing too few authorized shares (causes problems at every subsequent issuance), and incorporating in the wrong state for the company's actual plans. Spend the extra hour to do it right. Use Stripe Atlas or Clerky if you're an early-stage venture-track startup; use a real lawyer if the cap table is complex. The hour spent at formation saves months of cleanup later.
What founders get wrong: Skipping the 83(b) election. The 83(b) form must be filed with the IRS within 30 days of stock issuance for founders to be taxed on the (typically zero) value at issuance rather than on the (potentially large) value as the stock vests. Missing this deadline is the single most-expensive incorporation mistake; it's irreversible and can cost founders six or seven figures in unnecessary tax at exit.
Related: Delaware C-Corp · Articles of Incorporation · Bylaws · Registered Agent · LLC
FAQ
What is incorporation?
The legal process of forming a corporation by filing articles of incorporation with the relevant US state, creating a separate legal entity distinct from its owners. The entity can enter contracts, own assets, sue and be sued, issue stock, and limit owner liability to the amount invested.
What are the steps to incorporate?
Choose state of incorporation, draft and file articles of incorporation, appoint registered agent, draft bylaws, hold initial board meeting (adopt bylaws, elect officers, issue founder stock), issue founder stock, file federal EIN and state tax registrations. Tools like Stripe Atlas, Clerky, and Carta Launch handle the mechanics; lawyers handle complex situations.
What is the most important decision at incorporation?
Filing the 83(b) election within 30 days of founder stock issuance. The 83(b) form ensures founders are taxed on the (typically zero) value at issuance rather than on the value as the stock vests. Missing this irreversible deadline can cost founders six or seven figures in unnecessary tax at exit.
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