Startup Incorporation Checklist
How to bootstrap a Delaware C-corp (or S-corp) with employee(s) in California
Disclaimer: I am not a lawyer (IANAL). This list is intended as a learning tool and you should definitely consult with a lawyer if you have any questions or concerns. This is a work in progress, so suggestions and pull requests are welcome!
Intro
Other than building a product people want, incorporating a new business is essential to raising money, opening a bank account, and creating a legal entity for contracts and other liabilities. For technical folks like me, it's the "necessary evil" of founding a company and just needs to get done. Having gone through this recently, I made a checklist in case I'd have to do it again in the near future. Why you should incorporate in DE is outside the scope of this article, but other folks have written good answers.
Some notes:
- The full process will take several weeks to complete
- Most steps are sequential and depend on an earlier step being complete
- Many steps require the use of snail mail or a fax machine
- For brevity, Delaware and California are shortened to DE and CA
- Again, consult your lawyer. Some will defer fees for startups
The checklist
Register with Delaware
- Choose a name for your business and check that it's available. DE Name Search & CA Name Search. In DE a name can be reserved without registering it, so check DE Name Reservations as well.
- Generate incorporation documents and sign them [free document service]
- Buy registered agent service in DE - 1 yr Free
- File incorporation docs with DE - ~$150 including fees for 1 week service
- You can do this yourself, but it will probably take longer and not save you much money
First steps with the IRS
- Apply for a Federal Employer Identification Number (EIN) - Free
- IRS info & form
- Expect the IRS to mail you a document containing your EFTPS Pin. This allows you to pay federal taxes electronically
- (for founders with stock vesting) File 83b election within 30 days of stock grant
- reference: https://www.irs.gov/irb/2012-28_IRB/ar12.html
- example letter: http://accountalent.com/83b-elections-for-dummies/
- include 2 extra signed copies and self-addressed stamped return envelope
- (only for S-corp) File IRS Form 2553 to convert C-corp to S-corp
NOTE: Most of the following steps require a valid U.S. checking account and the steps above allow you to open an account. This is probably the best time to do so.
Register with California
NOTE: This section applies to companies that are doing business or have employees in CA - similar requirements apply for other states. Many steps require registration via the CA Secretary of State bizfile system.
- Order certified copy of Certificate of Good Standing from DE - $50
- June 2022 note: According to a contributor's experience, DE is experiencing a backlog on certificate requests & they suggest an upgrade to "Same Day" filing speed
- Use the DE Document Upload Service (only available on weekdays) to request a Certificate. more info
- Or, find an agent with online access
- Sign up for Registered agent service in CA 1 yr free
- Sign up for an account with the CA bizfile system. bizfile registration form free
- Register your foreign entity with CA Secretary of State - $100
- Fill out and eFile Registration - Out-of-State Corporation - Stock OR mail CA form S&DC - S/N
- Make sure NOT to include mailing address for registered agent
- Include DE Certificate of Good Standing with mailed form
- (optional for solo founders) Exclude yourself from paying SDI taxes
- Within 90 days of CA registration, file Statement of Information (SI-550) - $25
- eFile CA Form SI-550 via CA Secretary of State website
- if multiple directors, also attach CA Form SI-550A if sending by mail
Set up payroll tax payments with IRS and CA
- Sign up to make IRS payroll tax payments electronically - Free
- Enroll via phone call to IRS 1-800-555-3453
- have your EFTPS Pin and checking account info handy
- be prepared to write down enrollment number
- Set password via EFTPS password form
- Confirm enrollment via EFTPS login form
- Enroll via phone call to IRS 1-800-555-3453
- Register with CA Employment Development Department (CA EDD) as an Employer - Free
- Sign up with Social Security Business Services - Free
Recurring items
- varies File and pay CA payroll taxes
- quarterly eFile CA Form DE9 & CA Form DE9C
- File forms via CA EDD website
- varies File and pay Federal payroll taxes
- Mail or eFile federal tax form (Medicare, Social Security, Federal Income Tax) (reference) (eFile tool)
- quarterly use IRS Form 941 (instructions)
- yearly use IRS Form 944 (instructions)
- Pay via EFTPS website
- Mail or eFile federal tax form (Medicare, Social Security, Federal Income Tax) (reference) (eFile tool)
- yearly File federal tax return
- (S-corp only) File IRS Form 1120S (instructions)
- (C-corp only) File IRS Form 1120 (instructions)
- (LLC-only) depends on ownership structure, but partnerships must distribute IRS Schedule K-1 to each owner
- yearly File DE annual report and pay franchise tax >= $450
- yearly File CA statement of information $25
- yearly File CA tax return >= $800
- Note: First year loss might waive $800 minimum [ref]
- Note 2: COVID-19 Relief Bill waives $800 minimum for companies formed between Jan 1, 2021 and Dec 31, 2023 for first taxable year [ref]
- File and pay via CA Franchise Tax Board (FTB)
- yearly Send W2 to employees (eFile tool)
- yearly File W3 with IRS
- yearly Send 1099 to contractors, lawyers, et. al. (eFile tool)
Tools & References
Free or mostly-free tools
- Founder's Workbench - generate incorporation documents
- FreeRegisteredAgent - one year of free registered agent service in DE and/or CA
- HelloFax - send faxes without a fax machine
- Wave - free accounting software, with extra services for a $fee
- Cooley GO Document Generators - free incorporation package, early-stage financing documents and other common documents needed by startups.
Non-free tools
- Clerky - software to handle the complete set of company formation paperwork online (incorporation, appointing directors and officers, issuing stock, protecting IP, etc.)
- Stripe Atlas - like Clerky, handles most of the company formation paperwork, it will also automatically setup a bank account with SVB as well as a Stripe account
- InCorp - will file DE incorporation papers quickly on your behalf for ~$150, including state fees
- Tax1099 - e-file federal tax forms (e.g. tax return, 1099, W2, etc), small fee per form
- Intuit 1099 service - generate and e-file 1099 forms, small fee per form
- VirtualPostMail - virtual mailbox for real mail. Good for nomadic workers and short-term offices. Also offers free registered agent in CA with paid plan
References
- Q: Choosing between C-corp, S-corp, and LLC? Answer
- Q: Why incorporate in DE? Answer
- Q: What should I look for in a startup lawyer? Answer
- Q: What is a public benefit corporation and is it right for my company? Answer
Known unknowns
- Sales taxes
- Generate Terms of Service, Privacy Policy, etc (Docracy.com has some good templates)
- Liability insurance
- Start using bookkeeping software right away to track expenses, income, etc. Lots of free/affordable options