Checklist for Incorporation (Delaware)

I realize many startups don’t worry about paperwork until later. However, they can avoid legal and tax problems by setting it up right from the start.

A client asked me today, what documents do they need to set up a Delaware corporation. Here is a checklist of documents typically used for incorporation and issuing stock:

Consent of Incorporator
– approve certificate of incorporation
– approve bylaws
– designated directors

Certificate of Incorporation
– name of corporation
– designation of registered agent
– authorizing shares
– indemnification of directors and/or officers (if needed)
– designation of preferred shares (if needed)
– limitation of liability of directors
– other rights as appropriate for specific company

– Certificate of adoption by incorporator
– management controls
– voting / powers of directors, officers & stockholders
– designation of annual meetings
– designation of fiscal year
– indemnification of directors and/or officers (if needed)
– other administration

Acknowledgement by Directors
– confirm acceptance as directors

Consent of Directors
– ratify bylaws
– designate officers
– authorize EIN, S-election (if needed)
– adopt seal & stock certificate (if needed)
– authorize shares to founders for stated consideration
– designate fiscal year (if not in bylaws)
– authorize new bank account
– authorize foreign registration in other states
– authorize use of electronic mail (if not in bylaws)
– approve shareholder agreements
– adopt stock incentive plan (if needed)
– approve other contracts
– other actions as appropriate

Subscription Agreements
– grant common or preferred shares to each founder
– designate fixed number of shares
– designate consideration (e.g., cash, equipment, IP, etc.)
– assignment of IP by founders (if needed)
– representations for securities law compliance
– other terms of stock purchase

Stockholders Agreement
– vesting of shares (if not in separate agreement)
– right of first refusal on all shares
– tag-along, drag-along & other rights
– buy-sell terms upon death, disability, termination
– other special buy-out rights
– valuation of shares
– designation of key founders as directors
– dispute resolution
– confidentiality (if not in separate document)
– assignment of IP (if not in separate document)
– non-competition (if not in separate document)
– maintenance of S-election (if needed)
– other terms as appropriate

Restricted Stock Agreements (vesting)
– designation of shares subject to vesting
– restriction on transfer
– right of first refusal on all shares
– right to repurchase unvested shares
– other repurchase rights (if needed)
– maintenance of S election (if needed)
– investment representations (if needed)
– legend for restrictions
– lockup for IPO
– 83(b) election (must be filed within 30 days)
— designation of share subject to vesting
— date of transfer
— tax year for recognizing income
— nature of restrictions on shares
— designation of fair market value
— amount paid for shares
— delivery of copy to company
— copy of filing with tax return

Stock Ledger (cap table)
– list all stockholders
– list all option holders
– show all shares issued and outstanding
– list all stock transactions
– show consideration for all stock issuances

Other documents
– promissory notes (founder loans)
– investment docs

These documents vary with each company depending on the specific situation. There are corporate, tax, and securities law issues that must be taken into consideration in preparing the documents properly. Some founders do their own paperwork, but ideally having a lawyer and accountant makes it easier to get the paperwork done right the first time.

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