By: Brandon Shelton. Esq.
Starting a business involves more than just a great idea; it requires establishing a strong legal framework. Strategy Law LLP guides you through five crucial steps that founders need to take after choosing a legal structure and name in this second part of our startup formation series. Let’s get into it.
Issuing Shares – Ownership Starts Here
After your company is established, you need to issue shares. Most startups backed by venture capital authorize approximately 10 million shares, issuing between 6 and 9 million to founders and retaining the remainder for equity incentive plans and investors.
Pro Tip: Founders should sit down early to determine ownership percentages. For example, three equal founders might each take 2,000,000 shares.
Key Steps:
- Draft a robust Stock Purchase Agreement to control transferability.
- Vesting Schedules are a must—typically 4 years with a 1-year cliff.
- Understand that vested shares are owned, but subject to repurchase at cost if founders leave early.
- Consider a Shareholders Agreement to manage disputes and tie-breaker situations.
- Maintain a Cap Table to track equity ownership—platforms like Carta offer startup discounts.
File Your 83(b) Election – Don’t Miss This Window
Founders receiving restricted stock need to file an 83(b) Election with the IRS within 30 days of the grant date.
Why? Without it, you’ll be taxed on the fair market value as shares vest—potentially at much higher values.
Example: If you file 83(b) when your shares are worth $0.00001, you lock in a negligible tax event and future profits may qualify for capital gains tax.
Choosing a Board – Your Startup’s Decision Makers
Your Board of Directors governs the company under corporate law. Key points to remember:
- Must consist of natural persons, not entities.
- Ideally, the board should have an odd number of members to avoid deadlock in decision-making.
- Stockholders elect the board and are the only ones who can remove members.
- The board is also responsible for filling vacant seats and plays a crucial role in strategic decision-making.
Appointing Officers – Your Company’s Operators
Under Delaware law, the required officers are generally:
- President
- Secretary
Under California law, companies typically need:
- President
- Secretary
- Treasurer
Beyond that, your board can appoint additional officers like COOs, CTOs, and VPs to manage operations effectively.
Obtaining an EIN – Get Your Business Identity
To open a business bank account or pay employees, your company needs an Employer Identification Number (EIN) from the IRS.
Be prepared with:
- Number of W-2 employees (can be estimated)
- Approximate date of first payroll
Strategy Law Tip: Apply online via the IRS portal—it’s quick, free, and essential.
Ready to Launch? Let Strategy Law LLP Help
Strategy Law provides tailored support at every stage of your startup journey—from incorporation and equity structuring to compliance and beyond. Whether you’re a solo founder or part of an expanding team, our San Jose attorneys ensure your foundation is strong and secure.
Contact us today to set your company on the right legal path from the very beginning.
This blog is written as of July, 2025. Recommendations and legal requirements are changing rapidly, so please continue to review our legal updates or review postings on relevant government websites.
All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Strategy Law, LLP does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement including, without limitation, execution of Strategy Law, LLP’s formal legal services agreement, and with respect to specific factual situations. No blog constitutes a guaranty, warranty, or prediction regarding the result of any legal matter discussed in the blog or any representation.
