Question 1

When is the right time to incorporate?

Accepted Answer

The right time to incorporate your startup is before you sign contracts, take money, or hire anyone. Operating as an unincorporated business means you're personally on the hook for anything that goes wrong, like a lawsuit, debt, or dispute with a co-founder. Most startups incorporate when they're ready to open a bank account or bring on their first outside collaborator.

Question 2

Do we have to incorporate in Delaware?

Accepted Answer

No, you do not have to incorporate in Delaware, but there's a reason most venture-backed startups do. Delaware has a well-developed body of corporate law, predictable courts, and investors who expect it. If you're not planning to raise money from angel investors or venture capital, then incorporating in Washington is simpler and cheaper and you will have one fewer state to file in.

Question 3

Should co-founders split equity equally?

Accepted Answer

Splitting equity equally between co-founders may feel like the right thing to do, but can create real problems later if everyone doesn’t continue putting in the same effort or someone leaves early.  Splitting equity proportionally to effort often makes better sense. Also, most experienced founders use a vesting schedule (typically four years with a one-year cliff) so equity is earned over time, not handed over on day one.

Question 4

We hired a freelancer to build our app. Who owns the code?

Accepted Answer

By default, the freelancer you hired to build your app owns the code so you'll want to transfer that ownership properly. Paying someone doesn't automatically transfer intellectual property rights. You need a written assignment agreement that explicitly transfers ownership to your company. If you don't have one, you may be using code you don't actually own.

Question 5

We’ve been accepted into an accelerator. The program wants equity or IP rights in exchange for participation. What should we negotiate?

Accepted Answer

Before you sign an agreement to join an accelerator, you want to understand exactly what IP you're assigning or licensing, whether the equity ask is reasonable, and whether any exclusivity provisions limit your options down the road. Accelerator programs and agreements vary widely; some are founder-friendly while others can tie up your IP or cap table in ways that make future fundraising harder. This is one of the most important contracts an early-stage startup will sign, and it's worth having an attorney review it before you do.

Question 6

We used university rescources and/or a federal grant to develop our technology. Who actually owns it?

Accepted Answer

If you used university resources or federal funding to develop your technology, your university probably owns it and you’ll need a licensing agreement from your school’s tech transfer office to commercialize it. The Bayh-Dole Act allows universities to claim ownership of inventions from federally funded research, and most do through IP assignment agreements you likely signed when you joined the lab. Founders who skip over a check-in with their university tech transfer office when they’re ready to spin out their startup often discover too late that they don't actually own their own IP.