Startup Incorporation Basics for Founders
Incorporating is mostly a few forms and a modest fee — but the choices you make in that hour affect your taxes, your ability to raise, and who owns your product. This is the plain-English version: what to do, in what order, and which decisions actually matter later. It's general information, not legal advice.
When to Incorporate
Incorporate once you have something to protect or someone to contract with: a co-founder, a paying customer, an investor, employees, or meaningful spend. Before that, a company is mostly admin and annual filings.
There are three good reasons not to wait: liability sits with the company rather than you personally, you need an entity to take investment or sign serious contracts, and founder IP should be assigned to the company from the start rather than retrofitted later.
Choosing a Structure
**UK** — a private limited company (Ltd) is the default for a startup expecting investment. Sole trader is simpler but offers no liability protection and can't issue shares. **US** — a Delaware C Corporation is the standard for venture-backed startups because investors' documents assume it; an LLC suits consultancies and bootstrapped businesses but is awkward for equity and outside investment.
Incorporate where your investors and customers are, not where taxes look lowest. Exotic structures and offshore entities cost you diligence time and investor patience for savings that rarely materialise at this stage. If you expect US venture funding, take advice early — converting an entity later is possible but tedious and expensive.
Shares, Founders and the Cap Table
Issue founder shares at incorporation, while the company is worth almost nothing — it's cheap, clean and tax-efficient. Keep a single class of ordinary shares at the start; investors will add a preferred class when they invest.
Record everything in a cap table from day one: who holds what, when they were issued, and vesting terms. Put founders on vesting even without investors. Also reserve an option pool for early hires (commonly 5-15%), and understand that options need a scheme and a valuation — in the UK, EMI options are the tax-efficient route for employees, and in the US that's an 83(b) election and a 409A valuation to look into with an accountant.
IP Assignment — The Step Founders Forget
By default, the person who writes the code or designs the brand owns it. If that's a founder, a freelancer or a friend who helped, your company may not own its own product — and investors will find this in diligence.
Fix it with paperwork: an IP assignment from every founder to the company, contractor agreements that assign work product, and employment contracts with IP clauses. Also check your current or previous employment contract; many assign anything you build in related fields while employed. Sort this before you raise, not during.
The Admin You Must Keep On Top Of
Open a business bank account and never mix personal and company money. Register for tax as required, keep bookkeeping current from month one, and file annual accounts and confirmation statements on time — late filings are visible publicly and look careless in diligence.
You'll also need customer-facing basics: terms of service, a privacy policy, and a lawful basis for handling personal data under UK GDPR or equivalent. If you take card payments, that's a payment provider rather than storing card details yourself. None of this is expensive; all of it is annoying to fix retrospectively.
When to Pay for a Lawyer
Templates are fine for incorporation, standard founder agreements and basic contractor terms. Pay for advice when money or ownership is at stake: investment documents, unusual equity splits, co-founder departures, anything involving employees' rights, regulated sectors, and acquisitions.
A one-hour consultation with a startup lawyer at incorporation typically costs less than fixing one badly drafted document, and they'll flag the two or three things specific to your situation that a general guide can't.
Frequently Asked Questions
Should I incorporate before I have customers?
Only if you have a co-founder, are about to sign contracts, are taking investment, or have real spend. Otherwise validate first and incorporate when there's something to protect.
Ltd, LLC or C Corp — which do I choose?
A UK Ltd for UK-based startups, a Delaware C Corp if you expect US venture investment, and an LLC for bootstrapped US businesses that won't issue equity. Match your investors' expectations.
Do I need a US company to raise from US investors?
Not always, but many US funds prefer a Delaware C Corp. If US venture capital is the plan, get advice before incorporating — restructuring later is possible but costly.
What's IP assignment and why does it matter?
It transfers ownership of code, designs and content from the individual who made them to the company. Without it your company may not own its product, which blocks investment and acquisition.
How much does incorporation cost?
The filing itself is typically tens to a few hundred pounds or dollars. The real costs are accounting, an option scheme, and any legal advice you take on top.