The Startup Playbook, 2nd Edition

Chapter 15How Do I Form My Company?

When I (Will) started my first company, DataWare Logic, which, just as a reminder, failed miserably in about eighteen months (see the Introduction), I incorporated it in Pennsylvania as an S-Corp. I didn't know what vesting was; 83(b) was just a number and a letter to me, Delaware was a small state just south of where I lived, and I had no idea about the advantages of multiple classes of stock. Basically, I was ignorant and walked into a rat's nest of paperwork, issues, and changes over the short life of the company.

While, in DataWare's case, I can't blame the failure of the company on my organizational missteps, they certainly took plenty of time to deal with—time that I could have used working with customers or developing the product further. If I had tried to raise outside money, I probably would have been laughed out of any venture capitalist's office.

I never made that mistake again. In subsequent companies, I gladly sought legal assistance to get it right or as close to it as I could. Still, it took me a while to learn all the ins and outs of company formation. What I mostly learned is that it's much easier to do it correctly up front than to try to fix it later.

Creating a Legal Entity

So, you have an idea for a company, and as we outlined in Chapter 5, you've iterated on it to validate both the vision and the business model. After testing and validating, you feel that it has the potential to be a viable business. As hard as that ...