The scenario. A software engineer has been building a side project on nights and weekends for nine months. The product has 200 beta users, an angel investor friend has offered $50,000, and the founder is now wondering whether to incorporate, what state to incorporate in, how to issue herself stock, and how to take that first $50,000 without painting the company into a corner.
Month 1: Choose an entity and form it
The first decision is Delaware C-corp or Florida LLC. If the founder plans to raise institutional venture capital and grant stock options, the answer is almost always a Delaware C-corp. Institutional VCs cannot invest in an LLC without triggering unrelated business taxable income for their limited partners, and equity comp for engineers is more straightforward with options on stock than with profits interests on units.
The founder files a one-page Delaware Certificate of Incorporation with the Delaware Secretary of State, adopts Delaware Bylaws, and files a Florida foreign-corporation registration so she can do business in Florida. Total state-side cost is under $500.
Month 1, week 2: Issue founder stock with vesting
The single biggest mistake founders make is issuing themselves unrestricted common stock. If the founder later brings on a co-founder, leaves the company, or has a falling-out with anyone on the cap table, unrestricted stock walks out the door with the holder. Every founder should issue herself stock under a Restricted Stock Purchase Agreement subject to four-year vesting with a one-year cliff. The company keeps a repurchase right over the unvested portion.
Within thirty days of the stock issuance, the founder files an 83(b) election with the IRS. This locks in tax at issuance (when the stock is worth almost nothing) rather than at vesting (when the stock is worth something). Missing the 30-day deadline is the most common — and most costly — founder tax mistake. It is irreparable.
Month 2: Protect the IP
Any code the founder wrote before incorporation belongs to her personally, not to the company. To assign it cleanly to the new corporation, she signs a Founder IP Contribution and Assignment Agreement. From here forward, every contractor, freelancer, and eventual employee signs a Proprietary Information and Inventions Assignment (PIIA) on or before their first day, before touching the codebase. Without these documents, a future acquirer’s diligence will find IP-chain-of-title gaps that can blow up a deal.
Month 3: The $50,000 angel check
The friend offers $50,000. The right instrument is a Post-Money SAFE with a valuation cap. Two pages, no interest, no maturity, no dilution math to renegotiate. The SAFE converts into preferred stock at the company’s next priced equity round at the lower of (a) the valuation cap or (b) the next-round price minus a discount.
The founder writes a $50,000 SAFE with a $5 million post-money cap. If the next round prices at $10 million pre-money, the SAFE converts at the $5 million cap and the angel ends up with roughly 1% of the post-conversion cap table — double the equity she’d have gotten at the new round’s price.
Months 4–12: Stack more SAFEs and one convertible note
The founder raises another $400,000 across three more SAFEs and one Convertible Promissory Note. The SAFE caps tighten as traction grows ($7M, then $9M). The note is from an investor who wanted interest; she accommodates with a 5% rate, 18-month maturity, and the same discount mechanic.
By month twelve she has raised $450,000, hired two contractors (both signed PIIAs), and is in conversations with a tier-2 venture fund about a Series Seed.
Month 18: The priced seed round
The lead investor offers a $2 million Series Seed at $8 million pre-money. The SAFEs convert at their respective caps. The note converts at its cap or the round price, whichever is lower. The founder ends up with roughly 65% of the company on a fully diluted basis after the round and after a 10% option pool refresh. Without the discipline of the previous steps — vesting, 83(b), PIIAs, post-money SAFEs — this conversation would look very different.
What the documents accomplished
- Vesting protected the company against a founder departure.
- The 83(b) election made the eventual sale of vested stock long-term capital gains.
- The PIIAs and Founder IP assignment kept the chain of title to the codebase clean.
- The post-money SAFE structure made dilution easy to model at each subsequent round.
- The Series Seed stack drops naturally on top of clean cap-table foundations.
Talk to a Florida Business Lawyer
If you are navigating a scenario like this one, schedule a consultation with Montague Law at 904-234-5653 or use the contact form. The firm represents founders, investors, and business owners statewide and nationally from offices in Fernandina Beach and Coral Gables (Miami).
Templates and resources referenced
- Delaware Certificate of Incorporation
- Delaware Bylaws
- Founders’ Agreement
- Restricted Stock Purchase Agreement
- 83(b) Election Letter
- Proprietary Information and Inventions Assignment (PIIA)
- Post-Money SAFE
This case study is a composite illustration drawn from common founder scenarios. It does not describe any specific client or matter and is provided for general informational purposes only. It is not legal, tax, or financial advice and does not create an attorney-client relationship. Consult counsel for guidance tailored to your specific facts.
