Legal and finance mechanics

Executive summary

Keep formation vanilla (Delaware C-corp), organise paperwork, vest founder equity, raise on standard safes/notes, pay people legally, and assign IP. Details are outsourced — ignorance of basics is not.

When to use this page

• Incorporating or cleaning a messy entity.
• First hire or first institutional money.

Formation

Separate entity → personal liability shield. Delaware C-corporation is the Valley default (settled law, investor familiarity). Conversion mistakes from exotic LLCs have cost hundreds of thousands in cleanup. Use standard kits (e.g. Clerky-class tools); store signed docs forever (diligence later is high-stress).

Equity

• Idea ≪ execution — avoid huge idea-founder premiums. Top YC outcomes rarely have wildly unequal founder splits.
• Stock purchase agreements; 83(b) within 30 days — no reliable fix later; deals die without proof.
• Vesting: typically 4 years / 1-year cliff. Protects remaining founders; solo founders still vest (skin in the game + example for employees).

Fundraising paper

Unpriced (safe / convertible note) vs priced (Series A+). Caps reward early risk. Model dilution: $2M on $6M cap ≈ ~25% to early investors plus A ownership. Prefer accredited / sophisticated investors — friends-and-family small checks often become kitchen-remodel headaches.

Know terms beyond valuation: board seats (usually no at seed), fake “advisor” equity grabs, pro-rata rights, information rights (monthly updates good; weekly budgets overreach).

Operations

Company bank account for company expenses — no Vegas on investor money. Keep receipts. Founders and employees need payroll + payroll taxes; contractors vs employees classified correctly; workers’ comp; I-9. Use a payroll provider.

Fire fast and professionally; pay wages/vacation immediately; cut access; repurchase unvested stock.

Legitimacy checklist

Know cash, burn, runway. Everyone assigns IP. Organised cap table and signed rounds. You are not a filing expert — you are responsible for not winging the basics.

Key takeaways

• Delaware + vesting + 83(b) + organised docs.
• Standard fundraising instruments; understand side terms.
• Pay people; assign IP; stay out of IRS/state traps.

What to do next

1. Fundraising for strategy around the paper.
2. Scaling the company for later finance/HR systems.