Delaware C-Corp is the standard form for US-fundable startups because the legal infrastructure (case law, preferred stock, board governance) is the most battle-tested. It's not because Delaware is somehow tax-friendly to startups — it isn't. It's because every VC firm's lawyer already knows the playbook.
Why Delaware C-Corp specifically
- Predictable case law. Decades of Delaware court rulings make corporate disputes faster and cheaper.
- VC-friendly preferred stock. Preferred shares with liquidation preferences, anti-dilution, and pro-rata are well-defined under Delaware law.
- Standard documentation. NVCA model documents ("National Venture Capital Association") assume Delaware. Using another state means custom legal work for every round.
- QSBS eligibility. Delaware C-Corps qualify for Section 1202 qualified small business stock — up to $10M in tax-free gains for founders/early employees if held 5+ years.
How to incorporate
Three common paths:
Path 1: Stripe Atlas
Best for international founders or founders who want a one-stop setup. Includes:
- Delaware C-Corp incorporation.
- EIN (tax ID).
- Bank account (Mercury or similar).
- Standard founder docs (incorporation, bylaws, shareholder agreements).
- Ongoing compliance support.
Cost: $500 + $50/month ongoing. 1-3 weeks total to fully operational.
Path 2: Clerky
Best for US founders who want a higher quality of standard legal documents. More configurability than Atlas; specifically designed for venture-backed startups.
Cost: $99-799 plus filing fees. Fast (1-2 weeks).
Path 3: Startup lawyer
Best when you have complex situations — multiple founders with non-standard splits, international tax considerations, IP from prior employers. Names: Cooley, Wilson Sonsini, Gunderson Dettmer, Orrick, Fenwick.
Cost: $3-10K for incorporation + initial founder paperwork. Establishes the relationship for future rounds.
The core documents
Whichever path you take, you should end up with these:
- Certificate of Incorporation. Filed with Delaware. Establishes the company's legal existence and authorized share count.
- Bylaws. The company's internal operating rules (how board meetings work, etc.).
- Stockholders' Agreement / Founders' Agreement. Equity split, vesting, transfer restrictions, IP assignment. See our founders' agreement guide.
- Restricted Stock Purchase Agreements. Each founder buys their shares for nominal consideration ($0.0001 per share usually). 83(b) elections required within 30 days.
- Confidential Information and Invention Assignment Agreement (CIIAA). Each founder and employee assigns their work product to the company. Critical at diligence.
- EIN. Tax identification number, required for banking and payroll.
The 83(b) election — don't forget this
Restricted founder stock vests over time. Without an 83(b) election, you pay tax on the value of stock as it vests — at higher and higher prices.
With an 83(b) election (filed within 30 days of stock issuance), you pay tax once, on the original purchase price (typically near zero). All future appreciation is capital gains, not ordinary income.
The 30-day window is hard. Miss it and there's no recovery. File certified mail, return receipt requested, to the IRS. Atlas/Clerky walk you through this.
Authorized vs issued shares
New corporations typically authorize 10,000,000 shares but issue only 8,000,000 to founders, reserving 2,000,000 for the option pool. Why this matters:
- You don't have to amend the cert every time you grant options.
- The unissued shares form the pool.
- Most term sheets reference percentages, but the math underneath needs the share count.
Atlas/Clerky default to sensible numbers. A startup lawyer will customize if needed.
Common incorporation mistakes
- Forming an LLC first, then converting. Doable but expensive ($5-15K of legal). Skip the LLC stage if you plan to raise venture money.
- Missing the 83(b) election. Causes tax problems at exit. Set a calendar reminder for 25 days after stock issuance.
- Founders without IP assignment. If you built something before incorporation, the IP needs to be assigned to the company explicitly.
- No vesting on founder stock. Vesting protects remaining founders if one leaves. Always 4-year, 1-year cliff, even between co-founders.
- Unsigned founders' agreement. Verbal agreements on equity = future disputes. Paper everything.
Once incorporated, set up your books (guide) and ESOP (guide) before your first hire. The order matters.