Legal Checklist for Startups

Get This Right From Day One

Core Principle: Legal = Your DBA. Technical debt haunts you. Legal debt destroys you.

Why Legal Matters

❌ Without Proper Legal

Equity disputes: "I thought I owned 50%!"
IP issues: Former employer claims ownership
Cap table chaos: Can't raise because ownership unclear
Tax penalties: Didn't file 83(b) election on time

✅ With Proper Legal

Clean cap table: Everyone knows who owns what
Protected IP: Company owns all code/IP
Investor-ready: Can raise capital without fixing mess
Peace of mind: Sleep at night

Timeline: What to Do When

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Week 1      →  Incorporate (Delaware C-Corp)
Day 1       →  Vesting agreement
Before code →  IP assignment
First hire  →  Offer letter + equity docs
Fundraising →  SAFE docs (YC template)

Day 1: Core Company Formation

1. Incorporate (Delaware C-Corp)

Why Delaware?

Standard for US startups
VC-friendly legal framework
Established case law
Easy to admin remotely

Why C-Corp (not LLC)?

Can issue stock options
VC/accelerator requirement
Easier to raise capital
Clear ownership structure

How to do it:

[ ] DIY: Stripe Atlas ($500) or Clerky ($1K-$2K)
[ ] Lawyer: Startup lawyer ($2K-$5K)

What you get:

[ ] Certificate of Incorporation
[ ] Bylaws
[ ] Initial board resolution
[ ] Stock purchase agreements
[ ] 83(b) election forms

Time: 1-2 weeks

2. Vesting Agreement (Day 1)

What it is: Your founder shares vest over 4 years

Standard terms:

4-year vesting: Earn shares over 48 months
1-year cliff: Nothing vests until month 12, then 25% vests
Monthly thereafter: Remaining 75% vests monthly

Why it matters:

Protects cofounders: If someone leaves early, they don't keep 50%
VC requirement: Won't invest without founder vesting
Fair to everyone: Rewards people who stay and build

Example:

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You and cofounder each get 5M shares (50/50 split)
Total: 10M shares outstanding

Month 0-11: Neither of you vest anything
Month 12: You each vest 1.25M shares (25%)
Month 13-48: You each vest ~104K shares/month

If cofounder quits at month 6: They keep 0 shares
If cofounder quits at month 24: They keep 2.5M shares (50% vested)

Critical: Everyone on the same vesting schedule, including you.

3. IP Assignment Agreement

What it is: All code/IP belongs to the company, not individuals

Must be signed:

[ ] Founders: Before writing any code
[ ] Employees: Day 1 of employment
[ ] Contractors: Before starting work
[ ] Advisors: Before giving equity

What it covers:

Code written for the company
Inventions/ideas related to business
Works created during employment
Pre-existing IP you're contributing

Common mistake: Someone writes code before forming company, then claims ownership later.

Fix: Sign assignment agreement retroactively assigning all prior work.

Before Your First Hire

4. Employment Offer Letter

Must include:

[ ] Title and role description
[ ] Salary and benefits
[ ] Start date
[ ] At-will employment clause (can fire anytime, for any legal reason)
[ ] Equity grant details (if applicable)
[ ] Confidentiality and IP assignment

Template: Use lawyer template or Clerky

5. Equity Grant Documentation

If giving equity:

[ ] Stock options: Grant agreement, vesting schedule
[ ] Stock purchase: 83(b) election form (FILE WITHIN 30 DAYS!)
[ ] Restricted stock: Vesting and repurchase agreement

Standard early employee equity:

Employee #1: 0.5%-2%
Employee #2-5: 0.25%-1%
Employee #6-10: 0.1%-0.5%

Vesting: 4-year vest, 1-year cliff (same as founders)

Before Writing Any Code

6. Founders' Agreement

Covers:

[ ] Equity split: Who owns what %
[ ] Roles & responsibilities: Who does what
[ ] Decision-making: How do you resolve disagreements?
[ ] Time commitment: Full-time vs. part-time
[ ] Vesting terms: Standard 4-year with 1-year cliff
[ ] Exit scenarios: What if someone wants out?

Example clauses:

Decision-Making:

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Major Decisions (unanimous required):
- Raising capital
- Selling company
- Hiring executives
- Changing business model

Minor Decisions (majority or founder with domain):
- Product roadmap → CTO decides
- Marketing strategy → CEO decides
- Hiring engineers → CTO decides

Exit Scenario:

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If a founder wants to leave:
1. Unvested shares return to company
2. Company has right to buy vested shares at fair market value
3. 60-day notice required
4. Non-compete for 6 months

83(b) Election (CRITICAL!)

What It Is

Tax election to pay taxes on stock NOW (when it's worth $0) instead of later (when it's worth $$$)

Example Without 83(b)

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Year 0: You buy 5M shares at $0.0001/share = $500 cost
Year 1: 25% vests, company valued at $10M
        Your 1.25M shares worth $2.5M
        IRS says you owe tax on $2.5M income (!)
        Tax bill: ~$1M
        Problem: Shares are illiquid, you don't have $1M

Example With 83(b) (Filed within 30 days)

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Year 0: You buy 5M shares at $0.0001/share = $500 cost
        You file 83(b) election
        Tax on $500 income = ~$200
Year 1+: No tax bill as shares vest
        Pay capital gains tax only when you SELL

How to File

[ ] Day 1: Sign stock purchase agreement
[ ] Within 30 days: File 83(b) with IRS (mail + receipt)
[ ] Within 30 days: Send copy to state tax authority
[ ] Within 30 days: Send copy to company
[ ] Keep proof: Certified mail receipt

Miss this deadline? You're screwed. It's a one-time election.

Before Fundraising

7. Clean Cap Table

Cap table = Capitalization table = who owns what

Must be accurate:

[ ] All founders listed with vesting schedules
[ ] All employee grants documented
[ ] All advisor grants documented
[ ] All SAFEs/convertible notes listed

Tools:

Carta: Industry standard ($2K-$5K/year)
Pulley: Cheaper alternative ($500-$2K/year)
Spreadsheet: Fine for pre-seed, upgrade at seed

8. SAFE Documents (Simple Agreement for Future Equity)

What it is: Quick way to raise pre-seed/seed capital without setting valuation

Standard terms:

Valuation cap: Maximum valuation for conversion (e.g., $10M)
Discount: % discount on next round (e.g., 20%)
MFN: Most favored nation (get best terms of any later SAFE)

Example:

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You raise $500K on SAFE with:
- $10M valuation cap
- 20% discount

Next year, you raise Series A at $20M valuation
SAFE converts at lower of:
- $10M cap (50% discount from $20M) ← this wins
- $16M ($20M with 20% discount)

SAFE investor gets: $500K / $10M × 100 = 5% of company

Where to get SAFE docs:

Y Combinator: Free templates (most common)
Lawyer: Customized ($1K-$5K)

Customer Contracts

9. First Customer Contract

Must include:

[ ] Scope of work: What you're delivering
[ ] Payment terms: How much, when
[ ] Term & renewal: Length of agreement
[ ] SLA (Service Level Agreement): Uptime guarantees
[ ] Liability caps: Limit your exposure
[ ] IP ownership: Customer owns their data, you own platform
[ ] Termination clause: How to end agreement

Red flags in customer contracts:

Unlimited liability: "Company liable for all damages"
IP assignment: "Vendor assigns all IP to customer"
Perpetual licenses: "Customer can use software forever without paying"
Revenue sharing: "Customer gets % of your revenue"

When to negotiate: Always. Don't sign their paper without lawyer review ($500-$1K).

Ongoing Compliance

10. Annual Requirements

[ ] Delaware franchise tax: Due March 1 ($450 minimum)
[ ] Annual report: File with Delaware by March 1
[ ] Federal taxes: 1120 corporate tax return (April 15)
[ ] State taxes: If doing business in other states
[ ] Board meetings: Quarterly minimum, document decisions

11. Record Keeping

What to keep:

[ ] Board meeting minutes
[ ] Stock issuance records
[ ] Employee offer letters and terminations
[ ] IP assignments
[ ] Contracts with customers/vendors
[ ] Tax filings

Where to keep:

Physical: Fireproof safe or bank safety deposit box
Digital: Encrypted cloud storage (Google Drive, Dropbox, Carta)

When to Hire a Lawyer

DIY (Pre-seed, <$100K raised)

Incorporation: Stripe Atlas, Clerky
SAFEs: YC templates
Contracts: Modify templates

Lawyer (Seed+, >$100K raised)

Fundraising: $5K-$20K per round
Customer contracts: $500-$1K per review
Employment issues: $2K-$5K
IP disputes: $10K-$50K+

How to Find Startup Lawyer

[ ] Ask accelerator (YC, a16z, Techstars)
[ ] Ask other founders
[ ] Wilson Sonsini, Cooley, Gunderson Dettmer (top startup firms)
[ ] Look for "deferred fees" (pay when you raise)

Budget: $10K-$20K for year 1 (with deferral)

Common Legal Mistakes

Mistake #1: Splitting Equity 50/50 Without Vesting

Problem: Cofounder leaves month 2, keeps 50%

Fix: Everyone vests, including you

Mistake #2: Not Filing 83(b) Election

Problem: $1M tax bill when shares vest

Fix: File within 30 days, no exceptions

Mistake #3: Verbal Agreements

Problem: "I thought we agreed I'd get 10%!"

Fix: Everything in writing, signed by everyone

Mistake #4: Founder as Employee Instead of Officer

Problem: Can't make decisions, need board approval for everything

Fix: Founders are officers (CEO, CTO), not employees

Mistake #5: Giving Equity Without Vesting

Problem: Advisor gets 1% for one intro, does nothing else

Fix: Everyone vests (standard: 2-year vest for advisors)

Legal Checklist Summary

Week 1

[ ] Incorporate (Delaware C-Corp)
[ ] Sign founders' vesting agreement
[ ] File 83(b) election (within 30 days!)
[ ] Sign IP assignment agreement
[ ] Open bank account

Before First Hire

[ ] Offer letter template ready
[ ] Employee stock option plan approved
[ ] IP assignment agreement template

Before Fundraising

[ ] Cap table accurate and up-to-date
[ ] SAFE documents ready
[ ] Board meeting minutes documented

Ongoing

[ ] Quarterly board meetings
[ ] Annual Delaware franchise tax (March 1)
[ ] Federal taxes (April 15)
[ ] All equity grants documented

Resources

https://www.law.upenn.edu/clinic/entrepreneurship/startupkit/
Carta: Cap table management (free until you raise)
Cooley GO: Free legal resources for startups

Download all 12 templates: sanscourier.ai/qconsf-2025

*From the QCon SF 2025 talk: "From Staff Platform Engineer to a16z Founder: What I Wish I'd Known" by Gonzalo (Glo) Maldonado*