Congrats! You’ve incorporated. Your startup is officially a real company. It’s a meaningful step in the process but only the first step. Before you are able to legally operate your startup, there are a number of additional steps you need to take. This is sometimes referred to as the post-incorporation process, which brings you from a newly minted company to a fully functional company.
You’ll need to at least complete the following steps before you can legally open a bank account, hire contractors or employees, or start doing business. There may be some variation, depending on the needs of your company or the preferences of your counsel. But the list below has become a fairly standard set of initial documents for a venture-backable startup.
- Action of Incorporator
- Bylaws
- Initial board consent
- Restricted stock purchase agreements
- 83(b)
See more detail on each below. If you’re looking for legal counsel on the post-incorporation process, please check out our transparent flat fees and feel free to reach out to us here.
Action of Incorporator
The Incorporator is the person who files the certificate of incorporation with the Secretary of State. Generally, this is the lawyer or registered agent who incorporated your company. Once they file, from the state’s perspective, they are the only person who has the authority to act on behalf of the corporation. The Action of Incorporator is the document that officially hands that power off to the board of directors of the startup. (It also does a little more, as you’ll see below.)
Generally speaking, the Incorporator should send you an executed copy of the Action of Incorporator along with the filed copy of the certificate of incorporation. If this representative doesn’t, it’s essential that you follow up and request one. If you personally acted as the Incorporator, then you’ll need to make sure you (or your legal counsel) drafts an Action of Incorporator.
The common provisions in a startup Action of Incorporator are:
- Adoption of bylaws
- Establishing board of directors
If the Action of Incorporator is not properly drafted and executed, the board has no authority to act on behalf of the company. So, any action they might take, such as issuing shares to founders or even setting up a bank account, would be invalid corporate actions. Though the document isn’t complex, it’s important to do it right. If you’d like to learn more about the Action of Incorporator, click here.
Bylaws
Bylaws serve as a roadmap that outlines the company’s vision, mission and values, which helps ensure everyone is on the same page regarding goals, operations and decision-making processes. They provide clarity on how the company should operate, how decisions should be made and how potential conflicts should be resolved.
Bylaws also help to minimize confusion and misunderstandings among team members, investors and other stakeholders. This is particularly important in the early stages of a startup when roles and responsibilities are still being defined.
Moreover, bylaws offer legal protection for the company and its founders. They can help ensure compliance with relevant laws and regulations, protect intellectual property rights, and limit liability in case of disputes or legal issues. To learn more about bylaws, click here.
Initial Board Consent
The initial startup board consent is an important document that outlines the roles and responsibilities of the board of directors in the early stages of a company’s formation. This document guides decision-making processes, sets expectations for board members and establishes accountability measures. The purpose of this consent is to ensure that all parties involved are aligned with the vision and goals of the company, and are committed to working together to achieve success. It also provides a framework for addressing potential conflicts or issues that may arise down the road. Overall, the initial startup board consent plays a crucial role in laying the foundation for a successful business venture.
Initial board consents may vary, but below are common resolutions:
- Ratification of incorporation and bylaws
- Minute book
- Election of officers
- Uncertificated shares
- Founder share issuance
- Employer identification number (EIN)
- Incorporation expenses
- Fiscal year
- Foreign qualification to do business
- Management of finances
- Omnibus
If you want to learn more about the initial board consent, click here.
Restricted Stock Purchase Agreements
A startup stock purchase agreement is a legally binding document that outlines the terms and conditions of an investment in a startup company. The agreement aims to protect both the investor and the company by establishing clear expectations for the investment.
Most startup stock purchase agreements will include restrictions, such as vesting and restrictions on transfer, which will be discussed below. The title of the document is often called the Restricted Stock Purchase Agreement (RSPA).
One of the main advantages of a startup RSPA is that it provides clarity on how much equity an investor will receive in exchange for their investment. This helps to avoid any confusion or misunderstandings later on, which can be particularly important in fast-moving startup environments. With so much uncertainty surrounding early-stage investments, having a solid legal document in place can provide peace of mind for everyone involved.
There are several key terms and conditions that should be included in the RSPA. These include:
- Sale of stock
- Consideration
- Vesting
- Limitation on transfer
- Investment and taxation representations
If you’d like to learn more about RSPAs, click here.
83(b)
An 83(b) election is when a taxpayer decides to pay the taxes in full at the time the stock is granted. Generally, the stock vests over time and would otherwise be taxed gradually as it vests. By filing an 83(b) election, employees can lock in their tax liability at the time of the stock grant or purchase, instead of waiting until the stock vests. This can help employees reduce their overall tax burden. By paying taxes on the value of the stock when it is granted or purchased, they may avoid paying higher taxes later when the stock vests and potentially increases in value.
To learn more about the 83(b) election, click here.
Incorporating your startup is an important first step. Completing the necessary initial documents and agreements will enable you to legally operate your startup, hire employees, and start doing business. Remember that the needs of your company may vary, so it’s important to consult with legal counsel to ensure that you’re taking the proper steps to protect your business. With the right foundation in place, you can focus on growing your startup and achieving success.
If you’re looking for legal counsel, check out our transparent flat fees and feel free to reach out to us here.
