Founder’s Legal Checklist: From Incorporation to Series A
Launching a startup involves dozens of legal decisions that affect everything from tax treatment and investor readiness to founder relationships and IP protection. This guide outlines the essential legal steps every founder should address — from initial incorporation through the completion of a Series A financing. Each item is something Montague Law regularly advises on, and getting them right early avoids costly corrections later.
Phase 1: Before You Incorporate
Choose the Right Entity Type
If you plan to raise venture capital, a Delaware C-Corporation is almost always the right choice. Delaware’s well-developed corporate law, the Court of Chancery’s specialized expertise, and institutional investor familiarity with Delaware governance make it the default jurisdiction for venture-backed companies. LLCs and S-Corps may be appropriate for bootstrapped businesses or companies that will not seek institutional investment, but they create complications if you later decide to raise from VCs.
Resolve Co-Founder Alignment
Before incorporating, have candid conversations with your co-founders about equity splits, roles and responsibilities, full-time commitment expectations, and what happens if a co-founder leaves. These discussions are easier before legal documents are signed and before the company has value. The answers to these questions will shape the founders’ stock purchase agreements, vesting schedules, and the operating norms of the company.
Phase 2: At Incorporation
Incorporate in Delaware
File a Certificate of Incorporation with the Delaware Secretary of State. Authorize enough shares to accommodate your initial capitalization and future equity grants without needing an immediate amendment — a typical authorization for an early-stage company is 10 million shares of common stock. Adopt bylaws, appoint initial directors and officers, and hold an organizational board meeting to ratify the formation actions.
Issue Founder Stock with Vesting
Issue restricted stock to all founders subject to vesting — typically four years with a one-year cliff. Vesting protects the company and the remaining founders if a co-founder departs early. Without vesting, a departing co-founder retains their full equity position regardless of their contribution. Every serious investor will expect founder vesting to be in place, and adding it after the fact requires the founders to agree to give up vested rights.
File 83(b) Elections
Every founder who receives restricted stock subject to vesting must file an 83(b) election with the IRS within 30 days of the stock grant. This is one of the most critical and time-sensitive actions in the formation process. An 83(b) election allows the founder to pay income tax on the stock at its current (low) fair market value rather than being taxed as the stock vests and potentially appreciates. Missing the 30-day deadline cannot be corrected.
Assign All Intellectual Property to the Company
Execute Confidential Information and Invention Assignment Agreements (CIIAAs) for all founders and early contributors. These agreements assign all work product and IP to the company, ensure that the company — not the individual founders — owns the technology. Investors will conduct IP diligence, and any gaps in the assignment chain will be flagged as a material issue.
Phase 3: Before Raising Capital
Adopt a Stock Option Plan
Establish an equity incentive plan (typically covering 10-15% of the company’s fully diluted shares for an early-stage company) and have the plan approved by the board and stockholders. This allows you to grant options to employees, advisors, and consultants. Before granting any options, obtain a 409A valuation from a qualified independent appraiser — this establishes the fair market value strike price for option grants and protects the company and recipients from adverse tax consequences.
Clean Up Your Cap Table
Ensure your capitalization table is accurate, complete, and reflects all outstanding equity — including founder shares, advisor grants, consultant equity, and any SAFEs or convertible notes you have issued. Investors will scrutinize the cap table during due diligence, and errors or omissions create unnecessary friction and raise credibility concerns. Use a reputable cap table management platform and keep it current.
Formalize Advisor Relationships
If you have advisors receiving equity or providing services to the company, formalize those relationships with written advisor agreements. The agreements should define the scope of advisory services, the equity compensation (typically 0.25-1% vesting over 1-2 years for advisors), confidentiality obligations, and the terms of the relationship. Informal arrangements create ambiguity about what has been promised and what obligations exist.
Phase 4: First Fundraise (Pre-Seed / Seed)
Understand Your Fundraising Instrument
Most pre-seed and seed rounds use SAFEs (Simple Agreements for Future Equity) or convertible notes rather than priced equity rounds. Understand the key terms of each — valuation caps, discount rates, MFN provisions, pro rata rights, and conversion mechanics. These terms determine how much dilution founders will experience when the SAFE or note converts in the next priced round. Montague Law advises founders on the economic and governance implications of each instrument.
File Required Securities Filings
Any sale of securities — including SAFEs, convertible notes, and stock — must comply with federal and state securities laws. Most startup fundraises rely on Regulation D exemptions, which require filing a Form D with the SEC and blue sky notices in applicable states. Failing to make these filings creates unnecessary regulatory risk that investors in later rounds will flag during due diligence.
Phase 5: Scaling to Series A
Establish Employment Foundations
As you hire employees, ensure you have proper employment agreements, offer letters, employee handbooks (when you reach 15-20+ employees), and CIIAAs for every team member. Determine correct employee classification (W-2 vs. 1099), comply with state-specific employment laws, and establish payroll and benefits infrastructure. Employment law compliance is a due diligence item that Series A investors will evaluate.
Implement Key Commercial Agreements
Standardize your customer contracts — whether that is a SaaS subscription agreement, terms of service, or master services agreement — and ensure they are professionally drafted and address liability, IP ownership, data privacy, and payment terms. Well-drafted commercial agreements increase the predictability and defensibility of your revenue base, which directly affects your Series A valuation and investor confidence.
Prepare for Series A Due Diligence
Series A investors will conduct thorough due diligence covering corporate records, capitalization, IP ownership, material contracts, employment matters, regulatory compliance, and litigation history. Organize your records proactively using a virtual data room. Common issues that create problems in due diligence include incomplete IP assignment chains, missing 83(b) elections, informal advisor arrangements, and inconsistencies between the cap table and corporate records. Addressing these issues before the process begins saves time and preserves your negotiating position.
This guide provides general legal information and does not constitute legal advice. Every startup’s situation is unique, and the specific legal steps required will depend on your company’s circumstances. Contact Montague Law to discuss your specific needs.