Startup Legal Structure & Equity Strategy

RECOMMENDED STRUCTURE: Delaware C-Corporation Rationale: You plan to raise VC funding. VCs almost universally require C-Corp structure for: preferred stock issuance, clean cap table management, established Delaware corporate law precedent. If you were bootstrapping with no VC plans, an LLC would be simpler and more tax-efficient. EQUITY SPLIT: 55% CEO / 45% CTO Rationale: Both full-time from day one (good — equal commitment). CEO contributing $30K cash + business plan + customer relationships. CTO contributing proprietary codebase. The 55/45 split (not 50/50) reflects the cash contribution differential. Note: 50/50 splits create deadlock risk — one person should have tiebreaker authority. VESTING: 4-year vesting with 1-year cliff for BOTH founders. 25% vests at 1-year cliff, remainder monthly over 36 months. Single-trigger acceleration: 25% accelerates on acquisition. Double-trigger acceleration: 100% accelerates if founder is terminated within 12 months of acquisition. 83(b) ELECTION: CRITICAL — both founders MUST file 83(b) election with IRS within 30 days of receiving shares. This is the most commonly missed deadline in startups. Failure to file means you pay ordinary income tax on stock value as it vests (potentially catastrophic if company value increases). OPTION POOL: Reserve 15% for employee option pool. Use ISOs for US employees (tax advantage). Set strike price via 409A valuation (cost: $2,000-$5,000 for early-stage). First 409A needed before issuing any options. Formation Costs: Delaware C-Corp filing: $89 + registered agent ($50-$300/year). Startup attorney for formation + founder agreements: $3,000-$7,000. 409A valuation: $2,000-$5,000. Total: $5,000-$12,000.