The Founder’s Playbook

A startup’s legal life begins with one of the most consequential decisions a founder will make: what kind of entity to form, where to form it, and how to paper the first thirty days of its existence. Done well, the decisions in this chapter cost a few thousand dollars, take about a week of calendar time, and produce a company that will pass any investor’s diligence without rework. Done poorly, they produce an entity that must be converted later at meaningful tax and legal cost, founders whose equity is not cleanly issued, and a cap table that investors will not fund until it is rebuilt from scratch.

The single biggest mistake pre-seed-stage startups make is failing to set up and document founder equity early and properly. And formation mistakes rarely stay contained — they show up as friction in the first term sheet, as reps and warranties the company cannot make, and as schedule-of-exceptions items that discount the company’s valuation.

This chapter answers four questions in order. First, which entity form fits the business you are actually building? Second, why is Delaware the default jurisdiction for venture-backed companies, and when does that default not apply? Third, what are the mechanical steps of forming a Delaware C-Corp and registering to operate in your home state? And fourth, what are the traps founders fall into during their first ninety days, and how do you avoid them?