Introduction
Starting a business is exciting. But if you’re planning to raise money from investors, there’s one thing you shouldn’t skip: company incorporation.
Incorporating your startup does more than just give it a name. It turns your idea into a legal business. One that can enter contracts, raise money, issue shares, and protect you from personal liability.
In this guide, we’ll break down why incorporation matters, how to do it, and what you need to get investor-ready. Whether you’re just starting out or looking to scale fast, this post will help you get it right from the start.
Why Incorporation Is Critical Before Raising Capital
Legal Identity and Investor Confidence
Incorporating creates a separate legal entity. This means your business is its own person in the eyes of the law. Investors love that.
It makes things clear: who owns what, who’s liable, and who’s in control. It also makes it possible to issue shares, build a cap table, and sign contracts. Without incorporation, raising capital is nearly impossible.
Access to Funding Options
Most venture capitalists and angel investors won’t touch a business that isn’t incorporated. Same goes for banks and lenders.
Why? Because formal business structures come with rules, accountability, and protections — things investors look for when putting in their money.
Protection for Founders
One of the biggest perks of incorporation is limited liability. Your personal assets are safe if your business runs into legal or financial trouble.
This separation helps you keep your personal and business finances clear — something that’s crucial when you start handling investor funds.
Choosing the Right Business Structure
LLC vs. Corporation for Startups
LLC (Limited Liability Company)
- Easy to set up and manage.
- Great for solo founders or small teams.
- Not ideal for raising capital — investors don’t love LLCs.
C Corporation
- The top choice for venture-backed startups.
- Can issue multiple classes of stock.
- Allows employee stock options and easy share transfers.
S Corporation
- Good for small businesses with limited shareholders.
- Pass-through taxation (profits go to owners).
- Restrictions on ownership and stock types.
Delaware C-Corp – The Startup Standard
Most serious startups go for a Delaware C-Corporation. Why?
- Investor-friendly laws.
- Predictable court system.
- Popular with VCs, accelerators, and legal pros.
Even if you’re not based in Delaware, incorporating there can be a smart move if you plan to raise capital.
Essential Steps to Incorporate a Startup
Step 1 – Select a Business Name
Your name must be:
- Unique
- Not too similar to an existing business
- In line with state naming rules
Use your state’s database to check availability.
Step 2 – Choose State of Incorporation
Delaware vs. Your Home State:
- Delaware: investor-friendly, scalable, common.
- Home state: easier compliance and possibly lower fees.
Choose based on your funding and growth goals.
Step 3 – Appoint a Registered Agent
A registered agent is someone who receives legal and tax documents for your business.
- Must have a physical address in the incorporation state.
- Can be you, someone you trust, or a professional service.
Step 4 – File Articles of Incorporation
File with the Secretary of State. Include:
- Business name
- Type of structure
- Address
- Names of founders
- Stock details (for corporations)
Step 5 – Draft Corporate Bylaws or Operating Agreement
- LLCs need an Operating Agreement.
- Corporations need Bylaws.
These outline decision-making, roles, and rules within the company.
Step 6 – Issue Shares to Founders
Founders should be issued stock right after incorporation. This creates the cap table — a record of who owns how much.
Step 7 – Apply for an EIN
An Employer Identification Number (EIN) is like a social security number for your business. You need it to:
- Pay taxes
- Hire employees
- Open a business bank account
Apply for free on the IRS website.
Step 8 – Open a Business Bank Account
Keep your startup’s money separate from personal funds. This helps with taxes, accounting, and impressing investors.
Preparing for Fundraising After Incorporation
Building a Cap Table
Your cap table shows who owns what. It helps track:
- Founder shares
- Employee equity
- Investor funding rounds
Founder Vesting Agreements
Vesting protects the startup if a co-founder leaves early.
- Common schedule: 4 years with a 1-year cliff.
- Keeps everyone committed for the long run.
Protecting Intellectual Property
Make sure all IP belongs to the company, not the founders. File for:
- Trademarks
- Copyrights
- Patents (if applicable)
Startup Legal Documents to Prepare
Stock Purchase Agreements
Details how founders buy their shares.
83(b) Election Forms
File with the IRS within 30 days of share issuance to save on taxes later.
NDA and Confidentiality Agreements
Protect your startup’s secrets when talking to investors, employees, or partners.
Employment and Advisor Agreements
Outlines expectations, compensation, and IP rights for team members and mentors.
Mistakes to Avoid Before Seeking Investment
Waiting Too Long to Incorporate
If you wait:
- You might lose IP rights.
- Fundraising could get delayed.
- Founder disputes might arise.
Choosing the Wrong Entity Type
LLCs can make it hard to raise money. C-Corps are easier to work with for equity and taxes.
Not Having a Clean Cap Table
Messy ownership records scare off investors. Keep it simple and accurate.
Skipping Legal Counsel
Free templates won’t cut it. Use startup-savvy lawyers or trusted platforms to stay compliant.
Startup-Friendly Tools and Services for Incorporation
Online Incorporation Platforms
Stripe Atlas
- All-in-one service to start a Delaware C-Corp.
Clerky
- Trusted by lawyers and accelerators.
LegalZoom / ZenBusiness
- Great for simple, guided setups.
Cap Table Management Tools
Carta
- Manages shares, equity plans, and investor dashboards.
Pulley
- Designed for early-stage startups.
SeedInvest
- Helps with equitycrowdfunding and investor outreach.
Conclusion
Recap
Incorporation gives your startup a solid legal base. It makes you credible to investors, protects your assets, and lets you issue shares.
Final Tips
Start early. Choose the right structure. And don’t do it alone. A legally sound business is your best launchpad for raising capital and scaling fast.
