Company Formation

The basics of legally forming a startup, in plain language.

Fundraise · 6 min

What is this?

Company formation is legally creating your business as its own entity — most commonly, for a startup planning to raise venture capital in the US, a Delaware C-Corporation.

This is a general educational overview, not legal advice for your specific situation. A real lawyer or formation service should always be involved before you make binding decisions.

Why it matters

Forming your company correctly early on avoids expensive fixes later — sorting out ownership, IP, or tax issues after the fact is far harder than setting them up cleanly at the start.

Step by step

1Choose an entity type appropriate for your plans (a Delaware C-Corp is the common default for a venture-fundable startup in the US; other structures fit other situations).
2Formalize founder ownership splits and put them in writing early, before it gets emotionally harder to discuss.
3Put vesting on founder shares (shares earned gradually over time) so the company isn't stuck if a co-founder leaves early.
4Make sure any code, designs, or IP created for the company is legally assigned to the company, not left with an individual.
5Get basic agreements in place with any early collaborators before real money or product work is involved.

What good looks like

Your founder agreement, equity split, and vesting are all in writing before it would be awkward to bring them up.

Common mistakes

Splitting equity 50/50 without vesting, then facing a messy situation if someone leaves after a month.
Delaying formation so long that a founder's personal assets and the company's finances get mixed together.
Not assigning IP to the company, which can become a serious problem during fundraising or an acquisition.
Making big legal decisions based only on advice from other founders instead of a real lawyer.

Checklist

You've chosen an entity type appropriate to your plans, ideally with professional guidance.
Founder equity is documented and vests over time.
IP created for the company is assigned to the company.
You have (or plan to get) a real lawyer or formation service involved before signing anything binding.