What founders should decide before the certificate of incorporation is filed
If you're about to incorporate a Delaware C-Corp, the certificate of incorporation you file will fix several things that are slow and costly to change later. The filing itself takes minutes. The decisions behind it deserve more time than that.
Before the certificate is filed, founders should settle the entity type and state, the company name, the number of authorized shares and their par value, who serves as incorporator and initial directors, and the registered agent. The founder equity split, vesting terms, and IP assignment are not written into the certificate, but they should be agreed at the same time, because they are documented in the first board consents and stock purchases that follow within days of filing.
Here is what each decision involves and what it costs to get wrong.
Entity type and state are the first decisions
C-Corp or LLC. A company that plans to raise venture capital, issue stock options, or qualify stockholders for the Section 1202 capital gains exclusion needs to be a C-Corp. An LLC can convert later, but conversion is a separate legal and tax event with its own filings, and investors will usually require it before they fund.
Delaware or your home state. Delaware is the default for venture-backed companies because investors and their lawyers know its corporate law well and its courts handle business disputes routinely. Incorporating in Delaware does not remove obligations where the company actually operates. If your team works from California or New York, the company will also need to register there as a foreign corporation and pay that state's taxes and fees.
Foreign ownership. If one or more founders are not US persons, the structure affects filings from the first year. A US corporation that is 25% or more foreign-owned files Form 5472 with its tax return, and the penalty for missing it is $25,000 per form. An S-Corp election is also off the table for a company with nonresident alien stockholders, which matters if you are weighing a C-Corp against other structures.
The company name has to clear more than the state
Delaware requires a corporate name to include a designator such as Inc., Corporation, or Company, and the name must be distinguishable from entities already on the state register. State availability is the minimum bar.
Trademark conflicts. Delaware approving a name says nothing about whether another business holds trademark rights to it. A search of federal trademark records before filing avoids renaming after you have built a brand.
Domain and product naming. The legal name does not have to match the brand, but a mismatch means using a registered DBA or trade name in the states where you operate.
Authorized shares and par value drive your Delaware franchise tax
The certificate must state how many shares the company is authorized to issue and their par value. These two numbers look like formalities and are the ones founders most often regret.
A common setup is 10,000,000 authorized shares of common stock at a par value of $0.00001. Founders are then issued most of those shares, with the remainder held back for a future option pool.
Low par value keeps founder purchases nominal. Founders buy their shares at or above par. At $0.00001 per share, 8,000,000 shares cost $80, which keeps the transaction clean for tax purposes and easy to document.
Franchise tax depends on the calculation method you file under. Delaware calculates franchise tax under the authorized shares method by default. For a company with 10,000,000 authorized shares, that method produces a bill in the tens of thousands of dollars. The assumed par value capital method uses issued shares and gross assets instead, and for most early-stage companies it brings the tax down to the minimum. The notice Delaware sends uses the default method, so the lower figure is only available if you file with the right data.
Common stock only, for now. Most companies authorize only common stock at formation. Preferred stock is added by amending the certificate when the company raises a priced round, with terms set by that financing.
Changing authorized shares later requires board and stockholder approval and a certificate of amendment filed with Delaware. That is routine, but setting a sensible number at the start saves an early amendment.
The incorporator and initial board control the first actions
The incorporator is the person who signs and files the certificate. Their role usually ends once they appoint the initial board of directors, either in the certificate or by written consent right after filing.
Who sits on the board. At formation the board is usually the founders. The board adopts the bylaws, appoints officers, approves founder stock issuances, and later adopts the stock plan. Decide the number of seats and who fills them before filing, because the first board consent depends on it.
Director and officer exculpation. Delaware allows the certificate to limit the personal liability of directors, and since 2022, officers, for certain breaches of the duty of care. Including this at formation is standard and avoids a charter amendment later.
Registered agent. Every Delaware corporation must maintain a registered agent with a Delaware address to receive legal notices. The agent is named in the certificate, so you need one chosen before filing.
The founder split and vesting should be agreed before filing
None of these terms appear in the certificate, but they should be settled before it is filed. The founder stock purchases usually happen within days of incorporation, and the 83(b) clock starts the day the shares are transferred.
Equity split. How the founder shares divide among co-founders. It is easier to agree before anyone holds stock than after.
Vesting. Founder shares are typically subject to four-year vesting with a one-year cliff, enforced through the company's right to repurchase unvested shares. Investors expect founder vesting, and founders are protected by it if a co-founder leaves early.
Acceleration. Whether vesting speeds up on an acquisition. Single-trigger acceleration applies on the sale alone. Double-trigger applies only if the founder is also terminated after the sale, and it is the more common term because acquirers prefer it.
IP assignment. Each founder assigns to the company any code, designs, or other intellectual property created for the business, including work done before incorporation. Investors check for this in diligence, and a gap is harder to fix once a founder has left.
83(b) elections. Each founder buying restricted stock files an 83(b) election within 30 calendar days of the date the shares are transferred. The deadline is not extended for any reason.
A summary of what is decided where
How Inkle fits in
Inkle assists with Delaware C-Corp incorporation. Once the company is formed, Inkle's tax experts handle the US tax and compliance obligations that follow, including Delaware franchise tax and, for foreign-owned companies, Form 5472.
The bottom line
The certificate of incorporation is short, and most of what matters about it sits in a few numbers and names. Authorized shares and par value deserve the most attention because they determine your franchise tax exposure every year. The terms that live outside the certificate, the founder split, vesting, IP assignment, and 83(b) elections, carry the larger long-term consequences, and they are cheapest to settle before anyone holds a share. Treat incorporation as the moment those decisions are recorded, not the moment they start.
Frequently asked questions
How many authorized shares should a startup have at incorporation?
A common starting point is 10,000,000 authorized shares of common stock at a very low par value such as $0.00001. This gives room to issue founder shares and reserve an option pool without amending the certificate early. The exact number matters less than filing franchise tax under the method that suits your share count.
Why did I get a large Delaware franchise tax bill?
Delaware's notice calculates tax under the authorized shares method, which produces high figures for companies with millions of authorized shares. The assumed par value capital method uses issued shares and gross assets and usually results in a much lower tax for early-stage companies. You can file under that method by reporting the required figures with the annual report.
Do I need to register in my home state if I incorporate in Delaware?
If the company operates in another state, for example with employees or an office there, it generally needs to register in that state as a foreign corporation. That registration brings its own annual fees and state tax filings. Incorporating in Delaware does not replace these obligations.
Should founder shares have vesting?
Yes, in most cases. Four-year vesting with a one-year cliff is standard and is expected by investors. It also protects the remaining founders if one co-founder leaves early, because the company can repurchase the unvested shares.
Can a non-US founder incorporate a Delaware C-Corp?
Yes. Delaware does not require founders or directors to be US citizens or residents. A company that is 25% or more foreign-owned files Form 5472 each year with its federal tax return, and the company cannot elect S-Corp status while it has nonresident alien stockholders.
What goes in a Delaware certificate of incorporation?
At minimum, the company name, the registered agent and registered office in Delaware, the corporate purpose, the number of authorized shares and their par value, and the name and mailing address of the incorporator. Many companies also include director and officer exculpation provisions and name the initial directors.
