Decisions investors look for
Startups that expect to raise venture capital are commonly formed as corporations in Delaware, because investors and their counsel are familiar with that structure, though an LLC or another state can make sense for different plans. The founders' equity split should be settled and documented at the outset, along with vesting terms that let the company buy back unvested shares if a founder leaves. The number of authorized shares and the size of an option pool affect later dilution. If the company will operate from New York, it generally needs to register here as a foreign corporation as well. These choices are not hard to make at formation and are much harder to unwind later.
Intellectual property and tax steps
Investors expect the company to own its technology, so each founder should assign to the company the code, designs, and other work created for the business, including work done before formation. Founders who are still employed elsewhere should check their current employment agreements for terms that could give an employer a claim to their side project. When founders receive stock subject to vesting, a federal tax election filed shortly after the grant can significantly change how that stock is taxed, and the deadline is strict and cannot be extended. Keep a copy of each filing, the signed stock purchase agreements, and proof of payment for the shares.
What a formation meeting covers
In a first meeting we discuss who the founders are, what each is contributing, and how decisions will be made if they disagree. We review any agreements already signed with early collaborators, contractors, or advisers who may have been promised equity, since informal promises are a common source of later disputes. We also talk about the expected path for raising money and whether the company will issue convertible instruments such as SAFEs before a priced round. What we are aiming for is a clean set of records that a future investor can review without surprises.
