FAQs About Incorporation
What is the best business structure for a small startup?
It depends on your goals. If you are self-funded and want flexibility with minimal compliance, an LLC is often the best choice. If you plan to raise venture capital or scale nationally, a Delaware C-Corporation is the standard. For mission-driven ventures, a Public Benefit Corporation or non-profit may be more appropriate.
Why do investors prefer C-Corporations?
C-Corps allow multiple classes of stock, an unlimited number of shareholders, and provide a clear framework for equity compensation. Venture capitalists are familiar with Delaware C-Corp law, which gives them confidence that governance and shareholder rights will be handled consistently.
Do I need to incorporate before raising money from friends and family?
Yes. Accepting investments before incorporation can create serious legal and tax problems. Incorporation ensures you can issue equity properly, protect personal assets, and provide investors with legitimate ownership records.
Do I need an EIN if I don’t plan to hire employees?
Yes. Accepting investments before incorporation can create serious legal and tax problems. Incorporation ensures you can issue equity properly, protect personal assets, and provide investors with legitimate ownership records.
Can I convert my LLC to a C-Corp later?
Yes. Many startups begin as LLCs for simplicity and later convert to C-Corps to raise capital. However, conversions carry legal and tax implications. It’s usually easier and cheaper to start as a C-Corp if you know you’ll need it, but conversion is always an option.
Should I always incorporate in Delaware?
Yes. Many startups begin as LLCs for simplicity and later convert to C-Corps to raise capital. However, conversions carry legal and tax implications. It’s usually easier and cheaper to start as a C-Corp if you know you’ll need it, but conversion is always an option.
What happens if I don’t incorporate?
Without incorporation, you are personally liable for all debts, contracts, and lawsuits related to the business. You also lack formal ownership agreements, making disputes with partners more likely. Banks and investors are unlikely to take your business seriously without a formal entity.
Can I serve as my own registered agent?
Yes, but it is not recommended. Acting as your own registered agent means your personal address becomes public, and you must be available during business hours to receive legal documents. Most founders choose professional registered agent services for privacy and reliability.
How long does incorporation take?
Most states process incorporation filings within a few business days. In some cases, you can pay for expedited service and receive approval within 24 hours. Applying for an EIN online usually takes less than 10 minutes.
What documents do I need after incorporation?
At a minimum, you’ll need:
- Articles of Incorporation (or Certificate of Formation)
- Bylaws (corporation) or Operating Agreement (LLC)
- Board resolutions and organizational meeting minutes
- Restricted stock purchase agreements and vesting schedules
- 83(b) elections for founders receiving restricted stock
- Intellectual property assignment agreements
- Annual compliance filings and reports
Will incorporation affect my taxes?
Yes. Your entity type determines how your business is taxed. LLCs and S-Corps typically use pass-through taxation, where income flows to your personal return. C-Corps pay taxes at the corporate level, and shareholders are taxed again on dividends. Each structure has pros and cons depending on your income, growth goals, and fundraising plans.
Do I need a lawyer to incorporate?
You are not legally required to hire a lawyer to incorporate, and many states allow you to file online. However, legal guidance is highly recommended, especially if you have multiple founders, plan to raise capital, or need to issue equity. Mistakes at this stage can be costly to fix later.
What is an 83(b) election and why is it important?
An 83(b) election is a filing with the IRS that allows you to pay taxes on stock at the time it is granted rather than as it vests. For founders, filing an 83(b) locks in a low tax basis early, potentially saving thousands in future taxes. Missing the 30-day filing deadline can create serious tax consequences.
What if I want to change my business structure later?
You can convert your company from one entity type to another (for example, from LLC to C-Corp), but the process may have tax and legal consequences. Conversions are common as businesses grow, but they require careful planning and professional guidance.
Do I need to keep records after incorporation?
Yes. Recordkeeping is critical. You should maintain bylaws or operating agreements, stock records, board meeting minutes, financial statements, and compliance filings. These documents protect your liability shield and will be scrutinized by investors, lenders, or acquirers.