Pre-incorporation guide: A comprehensive checklist
Incorporating in the US is one of the biggest steps you can take for your business. Whether you're interested in selling to US customers, hiring US employees, getting funding from US investors, or all of the above, there are many reasons to consider setting up a US business. Click here to learn more about the benefits of incorporation.
With that being said, incorporation is also a complex process with several key decisions for founders to make. In this article, we'll cover eight tasks to check off as you prepare to incorporate your business. We hope you'll use this as a resource to ensure a seamless incorporation and get your new company off on the right foot.
1. Select the right business structure
Most US companies are incorporated with one of these two business structures:
- Limited Liability Company (LLC): Offers limited liability protection and flexibility in management and taxation options.
- C-Corporation: Provides limited liability protection and the ability to attract investors, but also involves more formalities and potential double taxation.
In general, we recommend C-Corps for startups and businesses that plan to seek outside investors. Take our LLC vs. C-Corp Quiz for more help determining business structure is most suitable for you.
2. Choose a state
While some countries allow businesses to incorporate once and operate anywhere, the US requires businesses to register at the state level. You'll need to pick a single state for incorporation, then register in new states as you expand to them. The state you incorporate in has significant implications for taxes, regulatory requirements, and other key aspects of your operations.
At Firstbase, we offer incorporation in Wyoming and Delaware. We believe that Wyoming is the best state for LLCs, while Delaware is the best for C-Corps. Wyoming offers strong privacy protections and relatively low fees, and Delaware is the standard for corporate America — consider that 68% of Fortune 500 companies are registered in Delaware.
3. Understand Intellectual Property (IP) protection
Intellectual property (IP) protection is essential for any startup. You need to safeguard your innovative ideas and technologies through various legal mechanisms such as trademarks, copyrights, and patents. IP law specialists can help you conduct IP searches, file for IP registration, draft agreements, and monitor and enforce your IP rights. As a founder, you should be keeping these ideas in mind from the earliest stages.
IP protection is an ongoing process that requires regular review and updates to align with your startup's growth and innovations. Prioritizing IP protection and seeking professional guidance will help you safeguard your creative assets, maintain a competitive advantage, and minimize the risk of IP infringement.
4. Craft an effective shareholder agreement
If you incorporate a C-Corp, you'll need to write a clear shareholder agreement. This document establishes ownership rights, responsibilities, decision-making processes, and dispute-resolution mechanisms among founders and shareholders. You can find templates for these agreements online, but it's a good idea to bring in legal counsel to make sure there are no issues with your contracts.
Shareholder agreements and other equity-related concerns can be complex, especially for first-time founders. We've partnered with Carta to make cap tables and other equity management tools more accessible to founders than ever before. Learn more about our Carta partnership.
5. Develop a compliance strategy
Compliance concerns start the day you operate, and they won't go away for as long as your business exists. Complying with regulatory requirements is essential for risk management and your long-term success in general.
Familiarize yourself with industry-specific regulations, such as data protection, privacy laws, and licensing requirements. Develop a comprehensive compliance strategy, assign responsibilities, and implement clear policies and procedures aligned with the regulations.
Regularly conduct compliance audits, address issues promptly, and stay updated on regulatory changes. Consider seeking legal guidance to ensure adherence to laws and regulations. Prioritizing regulatory compliance safeguards your startup's reputation and mitigates legal and operational risks. Our Ongoing Compliance Guide has all the info you need to stay on top of your compliance obligations.
6. Create a business plan
Craft a comprehensive business plan that outlines your startup's mission, target market, competitive analysis, marketing strategy, financial projections, and scalability plans. This will be essential in attracting investors and securing partnerships. Clearly articulate your startup's mission and vision, identify your target market through thorough research, and develop effective marketing and sales strategies.
Present realistic financial projections and demonstrate scalability plans to showcase the growth potential of your startup. Craft a compelling narrative that highlights your startup's value proposition and the benefits for potential investors and partners. A solid business plan serves as a roadmap for success, guiding your startup's growth and facilitating strategic decision-making. Click here to learn more about building a strong business plan.
7. Establish strong corporate governance
It's crucial to implement effective corporate governance practices to ensure your tech startup's long-term success and sustainability. This involves conducting regular board meetings for strategic decision-making and operational oversight. Emphasize transparency, accountability, and ethical decision-making to build trust with stakeholders.
Implement strong financial reporting mechanisms to maintain accurate and reliable financial information. Monitor compliance with applicable laws and regulations to mitigate legal and reputational risks. By prioritizing corporate governance, you establish a solid foundation for your startup's growth and cultivate a culture of responsible management and stakeholder engagement.
8. Don't go it alone
No matter how much you try to prepare, no single person has all the skills and knowledge necessary to run a business on their own. Engaging the services of experienced legal and financial professionals who specialize in the tech industry and startup ecosystem is essential.
These experts possess the knowledge and experience to guide you through complex legal and financial matters, ensuring compliance and optimizing your startup's growth potential. They can assist with intellectual property protection, regulatory compliance, tax planning, and funding strategies. Their expertise allows you to mitigate risks, make informed decisions, and tap into their networks for valuable partnerships and investor opportunities. By engaging legal and financial experts, you gain a competitive edge and position your startup for success in the dynamic tech landscape.
Takeaways
Incorporating a tech startup is an exciting and complex process, but that doesn't mean it's simple. Following this comprehensive pre-incorporation checklist tailored for tech startups will give you valuable insights into the crucial steps necessary to establish a solid foundation.
Remember to leverage the expertise of legal, business, and financial professionals who understand the unique needs of the tech industry. Armed with this knowledge, we’ll help you be well-equipped to make informed decisions, navigate potential challenges, and propel your tech startup toward a prosperous future. When you're ready to move forward, click the button below to start your incorporation.