5 Things Every Founder Must Do Before You Incorporate

You have not filed anything yet. There is no company, no bank account, no letterhead - just an idea and, usually, a co-founder. It feels too early for lawyers.

It is not. The most expensive legal mistakes in a startup's life are often made in this exact window - before incorporation - because founders assume nothing "legal" has happened yet. Something has. The moment two or more people agree to build something together, a set of risks starts forming- around ownership, IP, confidentiality and even potential partnership-like liability, depending on how you operate.

Here are five things to do before you file a single form.

1. Put the equity split in writing, even if you trust each other completely

Trust is exactly why founders skip this and exactly why it backfires. A verbal "50-50" or "60-40" understanding means very little the day one co-founder wants out, works less or disagrees on direction.

You do not need a 30-page agreement at this stage, but you do need a clear, written record of:

• Who is a founder and who is not.
• The agreed equity split (in percentage terms).
• Any conditions attached (e.g., continued involvement, milestones, time commitment).

This does not have to be your final shareholders' agreement. It can be a simple founders' note or term sheet. But it must exist before money, IP or real work starts flowing.

Real pattern: We routinely see co-founders who "agreed 50-50" but have completely different memories of what that meant: 50% of what? On what vesting? What if one person stops working? By the time this surfaces, it is usually in front of an investor, a mediator, or a court.

2. Decide what happens if someone leaves, before anyone wants to

Reverse vesting for founders is not a sign of distrust, it is standard practice in serious startups and every institutional investor will ask if you have some form of it. Without it, a co-founder who leaves in month four can walk away holding 50% of a company they did not help build.

At a minimum, decide and document:

• A basic vesting timeline (e.g. over 3-4 years, with a 1-year cliff).
• What happens to unvested equity if a founder exits early.
• How "good leaver" and "bad leaver" situations are treated (resignation vs. misconduct vs. breach).

You can refine this later, but the principle must be clear now- equity is earned over time, not granted forever on day one.

3. Assign your IP to the company, not to yourselves

Code, designs, brand names, product concepts and early work created before incorporation technically belong to whoever created them, personally - not to the company you are about to form. If that assignment is never formally made, it becomes a live diligence question at your first funding round, at the worst possible time to discover it.

Before or at incorporation:

• Execute a simple IP assignment from each founder (and any early contributors) to the company.
• Cover all past and future work created for the startup.
• Make sure it is signed, dated and stored with your corporate records.

Real pattern: Investors do not care that "everyone knows the code belongs to the company." They care that the paperwork proves it. Missing IP assignments are a classic diligence red flag that can delay or complicate a round.

4. Use targeted confidentiality protections, not just "NDA everything"

Founders often swing between two extremes: "We do not need NDAs, ideas do not get stolen" and "We'll NDA everyone, including investors." Both are wrong.

• Investors: Many early-stage investors will not sign broad NDAs at the first pitch stage. Pushing for one can signal inexperience. Use a tight pitch deck, avoid disclosing your deepest secrets upfront and reserve detailed NDAs for later-stage discussions where sensitive data is actually shared.
• Employees, consultants, vendors, strategic partners: These are the relationships where confidentiality matters most. Use well-drafted NDAs and employment/ consulting clauses that cover confidential information, IP ownership and post-exit obligations.

The goal is not to litigate your idea. It is to have a clear paper trail if a dispute over ownership or confidentiality ever comes up.

5. Decide your entity structure with the next three years in mind, not just today

Private Limited, LLP, OPC - the cheapest, fastest option to set up now is often the wrong one to raise equity funding into later. Restructuring after the time is possible, but it is a legal and tax exercise in itself, with its own costs and consequences.

As a rule of thumb:

• Equity-funded, high-growth startups: Private Limited is usually the right vehicle.
• Services/profit-first businesses with no external equity plans: LLP or other structures may make sense.
• Single-founder experiments: OPC can work, but understand the conversion and compliance implications before you scale.

Think about where you want to be in 18--36 months: raising equity, bringing in ESOPs, onboarding co-founders, or staying small and profitable. Choose the structure that fits that future, not just today's convenience.

The cost of getting this wrong

Every one of these mistakes is invisible on the day it is made. They resurface at the worst possible moment - a funding round, a co-founder exit or an acquisition - when there is a term sheet on the table, a deadline attached to it and no time left to fix a document that should have taken a day to draft two years earlier.

None of these five things take long to do properly. All five take a lot longer to undo.

Next in this series: You have decided to move ahead with a co-founder. Before you file for incorporation, there is one document that determines almost everything that happens after, and most founders write it wrong or do not write it at all.

Next: 5 Things Every Co-Founder Must Put In Writing (Before It is Too Late)

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