The Steps to Forming a Corp.

by | Jan 11, 2018

In the world of startups, the following are the steps most often taken on the road to incorporation:

Incorporation

  1. A certificate of incorporation first has to be filed with the Secretary of State’s Office.

Post-Incorporation Setup

  1. After the Secretary of State receives the certificate of incorporation, the incorporator creates bylaws for the newly formed corporation. He or she also appoints members to the board of directors.
  2. The board, in turn, appoints officers to oversee the daily operation of the corporation — for startups this generally includes at least a CEO and potentially a CFO, Secretary, and President. However, the CEO/President and the CFO/Secretary are often the same person in a startup.
  3. The founders purchase their shares as outlined in the certificate of incorporation. If the stock options are subject to a vesting schedule, the founders then make 83(b) elections.
  4. The founders then generally bind themselves to confidentiality and intellectual property contracts.

Create Stock Plan

  1. The board of directors establishes, and the stockholders approve a stock plan.

Geographic Variance

Although the term gets tossed around a good bit, startups rarely need to set a shareholder agreement. These are generally reserved for traditional small businesses, although regional differences exist. Legal counsel is more likely to use them in regions where they have traditionally been the standard procedure for the setup of corporations.

Getting Help

This paperwork is tough to complete. In fact, almost everyone uses an attorney or some type of software to aid in the process. Making sure of the value in the help you pursue is key. It is fairly straightforward to see that the paperwork is completed. Any lawyer with experience working with startups will be familiar with the steps outlined above. If you opt to go with software to assist in the process, make certain that it is equipped to handle all of the involved steps in the creation of the corporation. If, for some reason, the software cannot handle each step, the process can be made more complex for the simple fact that you will then have to isolate the document or information that is not provided for and to identify the correct information for its completion out of the stream of the process.

Unfortunately, the quality of legal documents provided for startups is rarely tested, as the majority never require due diligence that comes with acquisition or VC. So, the best course of action is probably through personal recommendations. Give us a holler. We at Bax can help you find the right assistance at the right time.

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