Posted on 8/19/2025, 3:39:08 PM
Starting a company involves more than building a product and pitching to investors. Legal decisions come up early—and they tend to stick around. If they’re handled poorly, they don’t quietly go away. So it’s worth paying attention to the structural things while the stakes are low. Here are a few legal moves that make a real difference as your startup grows.
Founders usually form a Delaware C-Corp. That’s standard. It works well for most venture-backed businesses, especially if you plan to raise from institutional investors.
But there’s more to think about. Entity structure affects how your income is taxed, what paperwork you’ll need, and how you bring on co-founders and employees. It also ties into where you operate. Some startups benefit from forming in their home state and converting later. Once you file, it’s not set in stone, but changing it can be tedious. Picking the right setup early on avoids future cleanup.
It’s easy to give away equity verbally or scribble terms in a shared doc. It’s also easy to forget who owns what six months later.
Better approach? Issue founder stock through formal agreements. Use vesting. Assign IP. Put it all in writing. Maintain a clean cap table, even if it’s simple at first. Tools like Carta or Pulley help, but a spreadsheet works fine in the early days—as long as it’s accurate and updated. This saves time when you raise money, hire key employees, or start thinking about exits.
If code is written before the company is formed, or by someone who isn’t under contract, the company may not own it. That’s not a minor issue.
Have everyone sign IP assignment agreements. Include contractors. Include co-founders. Make it a default part of onboarding. If someone helped build the product, and there’s no assignment in place, you’ll need to fix that before it becomes a problem.
Some early contributors work without contracts—friends, former colleagues, people doing small tasks. This creates ambiguity around ownership, payment, liability, and IP.
Short agreements are fine. What matters is clarity. Use offer letters or contractor agreements with IP clauses and confidentiality terms. Distinguish between employees and contractors based on actual work and IRS standards. It’s easier than resolving misclassification issues later.
You’ll need an EIN to open a bank account or run payroll. Depending on where your team is located, you might also need state tax IDs. If you sell products or software, sales tax registration might apply—even if you’re not profitable yet.
This isn’t just paperwork. Skipping steps now can delay operations and create retroactive liabilities down the line.
Equity compensation and fundraising both trigger securities law rules. Even early-stage grants should be structured to fit exemptions like Rule 701 or Regulation D. It’s also worth checking if state-level filings are required.
This keeps your equity grants valid and enforceable. Later investors will check this during diligence.
Not all problems can be avoided. A founder leaves. A contractor sues. A partner claims they were promised equity. These things happen.
Working with a firm experienced in dedicated litigation can make a difference. Think through your forum selection, arbitration provisions, and indemnity terms. It’s all easier to handle before anything goes sideways.
Startups are complicated. You don’t need to handle every legal issue upfront. But the foundational ones—incorporation, equity, IP, tax, contracts—are worth doing right the first time. They’re hard to fix later, and they form the base for everything else. Get these pieces solid, and future steps get easier.
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