Legal Entity Formation: Startup Incorporation Recipe

Purpose

This recipe produces a fully registered legal entity — certificate of incorporation, tax ID, business bank account, founder equity agreements, and compliance calendar — ready to accept revenue and sign contracts. Covers US (Delaware C-Corp, LLC), EU (Estonian OU, German GmbH/UG), and UK (Ltd) with exact costs, tool paths, and hard deadlines including the critical 83(b) election window. [src1]

Prerequisites

• Business idea validated — do not form entity for untested concept → Idea Validation Playbook
• Funding path decided — VC-track vs bootstrapped determines entity type
• Co-founder equity split agreed — resolve before incorporation, not after
• Primary operating jurisdiction identified — where customers and founders are located
• Government-issued ID for all founders — required for filings and EIN

Constraints

• Delaware C-Corp mandatory for US VC-track — LLCs cannot issue preferred stock. [src1]
• 83(b) election: hard 30-calendar-day deadline from stock grant — no extensions. [src5]
• Founder agreements must be at or before incorporation — not retroactively. [src1]
• State filing fees non-negotiable: DE $89; UK GBP 100; Estonia EUR 265. [src6] [src7]
• Annual compliance begins immediately — DE franchise tax min $175-$400/year. [src2]

Tool Selection Decision

Which path?
├── VC-track AND want speed + simplicity
│   └── PATH A: Stripe Atlas — $500 all-in, 1-2 business days
├── VC-track AND want maximum legal quality
│   └── PATH B: Clerky — $427-$819, VC-grade docs
├── Bootstrapped AND want lowest cost
│   └── PATH C: DIY State Filing — $89-$200, 3-5 days
└── Complex (regulated, multi-jurisdiction, non-US)
    └── PATH D: Attorney — $2K-$5K, customized

[src3] [src4]

Execution Flow

Step 1: Choose Entity Type and Jurisdiction

Duration: 1-2 days · Tool: Decision matrix

VC-track (US): Delaware C-Corp — no exceptions. Bootstrapped (US): LLC or S-Corp. VC-track (EU): Dutch BV, Estonian OU, or Delaware + EU qualification. Bootstrapped (EU): Estonian OU, German UG, or UK Ltd. [src1]

[src2] [src6] [src7] [src8]

Verify: Entity type and jurisdiction selected; rationale documented; all founders agree · If failed: If founders disagree, resolve before filing

Step 2: File Formation Documents

Duration: 1-5 business days (US); 1-6 weeks (EU) · Tool: Per path selected

Path A — Stripe Atlas ($500): Complete application at stripe.com/atlas (15 min). Entity active in 1-2 days. Includes Certificate of Incorporation, EIN, bylaws, restricted stock agreements, 83(b) forms, and $2,500 Stripe credits. [src4]

Path B — Clerky ($427-$819): Select Delaware C-Corp formation. Expedited filing included. Certificate in 2-3 days. Add Post-Incorporation Setup ($299) for bylaws, board consent, stock agreements, 83(b) forms, IP assignment. [src3]

Path C — DIY ($89-$200): Check name at corp.delaware.gov. File Certificate of Incorporation ($89). Appoint registered agent ($50-$300/yr). Standard 3-5 days; 24-hour +$100; same-day +$1,000. [src6]

Path D — Attorney ($2K-$5K): Engage startup-experienced firm. Best for regulated industries, international founders, complex structures. [src1]

Verify: Stamped certificate received; entity in state database · If failed: Name conflict — add distinguishing word and refile

Step 3: Post-Formation Setup (EIN, Banking, Payments)

Duration: 1-5 days · Tool: IRS.gov, Mercury, Stripe

• EIN: Apply online at irs.gov — free, immediate (US). International: fax Form SS-4 (4-6 weeks). [src1]
• Bank account: Mercury (recommended, no minimums, free), Relay, or Brex
• Payments: Stripe — Atlas users get $2,500 in credits [src4]
• Accounting: QuickBooks or Xero ($0-$30/mo) — track expenses from day zero [src2]

Verify: EIN received; bank active; Stripe processing test payment · If failed: Bank rejected — try Mercury or Relay

Step 4: Founder Agreements and 83(b) Elections

Duration: 3-7 days · Tool: Clerky/Atlas templates or attorney

• Restricted stock: Issue to all founders with 4-year vesting, 1-year cliff [src1]
• 83(b) election — 30-DAY HARD DEADLINE: File IRS Form 15620 electronically (available since June 2025) or via certified mail. Give copy to company. [src5]
• IP assignment (IIPR): All founder-created IP belongs to the company [src1]
• Option pool: Reserve 10-15% for future employees; 409A valuation before first grant

Verify: Cap table correct; 83(b) filed with proof; IP assignment signed · If failed: 83(b) deadline approaching — file immediately, this is the most critical action

Step 5: Compliance Calendar Setup

Duration: 2-4 hours · Tool: Google Calendar or Notion

• DE C-Corp: Franchise tax + annual report (March 1) — min $175-$400; $125 late penalty [src6]
• DE LLC: Franchise tax (June 1) — $300 flat [src2]
• Estonian OU: Annual report 6 months after fiscal year end [src8]
• UK Ltd: Confirmation statement (annual, GBP 50); corp tax return 12 months after accounting period [src7]

Verify: Calendar entries created; reminders set 30 days before · If failed: Engage startup CPA within 60 days

Output Schema

{
  "output_type": "legal_entity_formation_package",
  "format": "document collection",
  "columns": [
    {"name": "entity_type", "type": "string", "required": true},
    {"name": "jurisdiction", "type": "string", "required": true},
    {"name": "certificate_number", "type": "string", "required": true},
    {"name": "ein_or_tax_id", "type": "string", "required": true},
    {"name": "bank_account_status", "type": "string", "required": true},
    {"name": "eighty_three_b_filed", "type": "boolean", "required": false},
    {"name": "formation_date", "type": "date", "required": true},
    {"name": "formation_cost_total", "type": "number", "required": true}
  ]
}

Quality Benchmarks

If below minimum: If formation exceeds 4 weeks (US), check for filing errors. If 83(b) deadline passed, consult tax attorney immediately.

Error Handling

Cost Breakdown

EU: Estonian OU EUR 385-620; German UG EUR 700-1,500; German GmbH EUR 1K-3K + EUR 12.5K capital; UK Ltd GBP 100-300. [src8] [src7]

Anti-Patterns

Wrong: Forming LLC when planning to raise VC

LLCs cannot issue preferred stock. Converting to C-Corp later costs $5K-$15K in legal fees. [src1]

Correct: Match entity type to funding path from day one

VC-track: Delaware C-Corp. Bootstrapped: LLC. Cost difference at formation is $0-$400, trivial vs $5K-$15K conversion.

Wrong: Skipping 83(b) election for restricted stock

Without 83(b), founders pay income tax at increasing valuations as stock vests. A $0.001/share grant worth $10/share later means tax on $9.999/share “income.” [src5]

Correct: File 83(b) within 30 days — no exceptions

Use IRS Form 15620 electronically (since June 2025) or certified mail. Tax at near-zero formation value. Savings can be six figures. [src1]

Wrong: 50/50 equity split without vesting

A co-founder who leaves after 3 months keeps 50% forever with no vesting protection.

Correct: All founders vest over 4 years with 1-year cliff

Even solo founders should vest (VCs expect it). Agree on split based on contribution, then vest it. [src1]

When This Matters

Use when a founder or agent needs to actually form a legal entity — not evaluate options or plan strategy, but execute the incorporation. Requires a funding path decision as input; produces a registered entity with tax ID, bank account, and founder agreements as output.