Have you finished the incorporation process and are now unsure of what comes next?
You aren’t alone. We get a lot of recurring questions from founders on what to do post-incorporation. For those of you who are confused or lost in this area, read on. We’ll outline the post-incorporation action items founders need to take into consideration and put into practice.
Step 1: Owner/CEO Issuance
Once you’ve incorporated, you’ll likely want to issue founders stock straight away. This is because your stock is worth very little (or nothing at all) when you start operating, so it’s beneficial for you to get the stock at this point since you’ll pay very little for them. This step is often overlooked by founders who have used online legal tools to incorporate. Instead, the founders focus on starting to operate then look to issue stock once they start to see investor interest. This can be problematic for the investor and for the founder since they will likely need to pay more for the initial stock at this point. You should talk to your tax professional for more specifics about this.
Step 2: Legal Considerations
Firstly, you must have documentation that shows the issuance itself, that you are the founder or owner, and how much you paid for the corporation. You must be sure that the board has approved this issuance and that you have the correct amount of stock. From there, you must have an actual stock purchase agreement, which shows that you have purchased the stock. This isn’t necessary but is largely expected, especially by investors. This will require you to have a business bank account and you’ll also need a receipt that proves you paid for the stock as well as a stock certificate that proves that you own the stock. If you incorporated in Delaware, you should also include any transfer restrictions to note that you’re exempt from securities laws.
Step 3: Tax Considerations
As the founder, you should file an 83(B) election. This is an action item that has a fixed deadline: it must be filed within 30 calendar days of the issuance.
Many founders don’t think about having their own shares vest, but this can be beneficial both legally and from a tax perspective. From a legal perspective, it shows investors that you have some skin in the game. Personally, it also protects you in case you have a disagreement with a significant owner and they end up leaving the company. You should talk to your tax professional about the tax benefits you’ll access by completing the 83(b) election.
Step 4: Consultation
There’s so much information available online to help you run your business. But there are also so many things that are specific to your entity that make it hard to find information specific to your entity. Often, this relates to protecting your business and yourself from liabilities, furthering your business, and attracting the right investors. Consultants can help you with this. You will also likely need consultants who are experienced in finance or accounting, payroll, and legalities. We’re in a really exciting time in that there’s increasing diversification in terms of price points and different ways to meet your needs at various stages.
Finally, if you haven’t already opened a business bank account, do that now. There are so many benefits attached to doing so, including shielding you from personal liability for your business. If you don’t open a separate bank account, you can’t access those benefits.
To learn more about these post-incorporation action items, check out Episode 015: Post Incorporation Action Items.
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