When should I incorporate my startup?
Takeaway: Incorporation is a strategic trigger—not a ceremonial starting gun. The right time is just before you create valuable IP with co-founders, hire your first team member, sign a major contract, or accept outside capital.
For founders, deciding when to officially form a legal entity is one of the most important early calls. Incorporating too early means incurring Delaware franchise taxes and administrative obligations before necessary. Incorporating too late can cause legal and ownership issues that are expensive—or impossible—to fully fix later.
The decision isn’t about a date on the calendar; it’s about anticipating triggering events. Think of incorporation as building the “vessel” for your business—you need it ready before you have valuable assets to put inside.
Trigger 1: You Start Creating IP with Co-Founders
When you and co-founders begin developing intellectual property—writing code, designing products, documenting processes—you’re also creating legal risk.
Risk: Without a corporate entity, IP created jointly is by default jointly owned by the individuals. A departing co-founder could claim or license their share to a competitor, making your company unfundable.
Solution: Incorporation lets the company own the IP. Each founder assigns past and future IP to the entity via a Proprietary Information and Inventions Agreement (PIIA), ensuring clean ownership.
Trigger 2: You’re Ready to Hire or Engage Talent
Before hiring your first employee or contractor, you need a legal entity in place.
Risk: Without one, you’re the direct employer, exposing your personal assets to wage claims, liability for workplace issues, and unclear IP rights.
Solution: The corporation becomes the legal employer or contracting party, pays the individual, and secures IP ownership through a PIIA.
Trigger 3: You’re About to Accept Outside Capital
No sophisticated investor—angel or VC—will invest in you personally; they invest in a company.
Risk: You can’t legally take investment without an entity. Funding agreements (SAFEs, convertible notes, stock purchase agreements) must be executed with a corporation.
Solution: Form your Delaware C-Corp, issue founder stock, and organize corporate records before closing your first investment.
Trigger 4: You Need to Sign a Major Contract
If you’re signing a key commercial contract—lease, major license, or sales agreement—you need the corporate shield.
Risk: Sign as an individual and you’re personally liable for all obligations. If the business defaults, your personal assets are on the line.
Solution: Have the corporation sign, limiting liability to company assets.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.