FAQ

Got questions? Start here.

We've got answers. Lots of people are confused when setting up their company, but you don't have to be. Read up, we'll do the work for you.

About our service

Why do I need to pay?

You didn’t think life was this great, did you? More seriously, after you have paid, we are going to review your information, prepare documents for you to sign and then submit everything to the government. There are fees we will pay the government and the time of our people. This is what law firms usually charge $1,500 to $5,000 for.

What happens to my information?

We keep your information private and only use it for the purposes of generating documents to form your company.

Have any questions? Feel free to ask.

 

How do you use the information I provide?

Our legal team will use your information to generate the appropriate legal documents to form your company. You will get to review everything and sign the documents before we send them out.

 

Why happens to my payment info?

We use the gold standard for online payment systems (Stripe) which has the highest level of security. The information is safe and is not kept in our servers.

Why do you need my SSN?

It is a legal requirement of the Federal Government that an officer or director of a company provide their SSN in order to receive the Employer Identification Number (EIN) for their company.

If you do not have a Social Security or Tax Identification Number, we can still get an EIN for your company, but it is a complicated process and we have to charge extra for it. Please contact lawyer@stellarformation.com.

To see if you need an EIN, click here.

 

How do you process this information?

Our legal team will use this information to generate the appropriate legal documents to form your company. You will get to review this information and sign the documents before we send/mail them.


Basics

Can I switch to a corporation if I already own a Delaware LLC ?

Sure. Please reach out to our in-house lawyer at lawyer@stellarformation.com, who can set up the conversion documents for you.

What is a signature block ?

 

A signature block is pretty simple. It’s where you sign on the dotted line, and includes the text surrounding the signature. On our documents, this generally means your name, your title, and the company name. Also the date!

 

 

I am forming a business on my own, do I need an EIN ?

Most businesses need EIN’s - all corporations (C-Corps), the standard vehicle for Tech Startups, and all LLC’s with more than one member (i.e. anything classified as a “partnership). However, if you have a single member LLC, the IRS advises that you do not need one. Just use your own tax-payer identification number. If you do not have one, when you incorporate your company with Stellar Formation, we will take care of this for you!

 

How can I check if a Name is available for my Company?

Please head to the State of Delaware’s website to do a corporation entity search. Simply type in the name you would like and see what comes up. If a corporation or an LLC with your name is already listed, it’s probably better to chose another name.

 

What type of intellectual property protection do I need for my business name and logo?

With Stellar Formation, you will automatically have basic protection for the intellectual property of your company. Our setup documents formation documents ensure that the company’s owns all the intellectual property created by the founders for the company. With our documents, you can rest easy knowing that your IP is secure and the chain of ownership is crystal clear.

Additionally, we would recommend federally trademarking the name of your company, and of any of your products that are different from your company name. There’s nothing worse than creating a brand or a logo and finding out later that someone else has trademarked it. Please reach out to our inhouse lawyer at lawyer@stellarformation.com for guidance on setting up a trademark.

What information do I need to provide to form a company?

Here is the information that we will need to form your company with Stellar Formation:

Why should I even form a company?

Well, it depends. 

If you're a tech startup with multiple founders, then it's a no brainer. You need a company to split up shares between founders, take in investment and protect your intellectual property.

The same is true for a traditional business with multiple founders who decide to go down the LLC route. Teamwork makes dreamwork, but you have to split up the company somehow, and the company has to own the products and ideas, and not the people. 

But what if you're a single founder with a traditional business? Well. then the big answer is LIMITED LIABILITY. Let's say the business goes sour. Do you want the creditors coming after you personally or after your bankrupt LLC? We think the answer is clear. 

Well what about if the business is going great, but something happens? America is a litigious society. Protect your yourself and your personal belongings by putting your business in a company form.

Finally, customers, business partners, and investors take you more seriously if you've formed a company. They know you're ready for business and serious about your project.

Let us help you get ready!

When should I set up my company?

Starting a business takes time, and you can start doing a lot before you officially form your company. However, you need a company in order to carry out certain important actions for your business. Here are some examples below. If you need to do any of these, it’s probably a good time to set up your company:

What is an LLC?

A Limited Liability Company (or LLC) is a flexible structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of the corporation.

We normally recommend LLC’s for companies who sell more traditional products and expect to grow organically and not seek fundraising to scale.

What is a Corporation?

A Corporation (or INC) is a type of business entity that is considered separate and distinct from its owners, and protects them through limited liability. If someone sues the company, the owners are safe.

Nearly all major companies are corporations. Its great advantage is that the owners of a corporation can passively own their ownership percentage of the corporation, known as a “share” or “share in the company”. That means you can own part of a company without getting involved in the day-to-day management of it.

We normally recommend Corporations for companies who expect to look for investors to scale up and go through several rounds of financing; i.e the traditional startup model.

 

What do you offer?

We offer our clients the ability to incorporate either Delaware LLCs, Delaware Corporations or New York LLCs. We work with you to determine which type of company better suits your business needs.
 

Why Delaware?

More companies are incorporated in Delaware than in any other state in the US. That’s because the state has tax and legal codes that are very conducive to young companies and their investors. In fact, it is our experience that investors often specifically ask for a Delaware incorporation.

 

Should I choose an LLC or a Corporation?

This is the #1 question most people ask. Here’s the short version: We normally recommend Corporations for companies who expect to look for investors to scale up and go through several rounds of financing; i.e. the traditional startup model. We normally recommend LLC’s for companies who sell more traditional products and expect to grow organically and not seek fundraising to scale.`

Here’s more:

LLC’s are simpler and cheaper structures for taxation purposes.  
They are known as pass through entities, which means their earnings just pass through to the personal income taxes of their members. This means accountants don’t have to file a separate tax form for the company which also saves on costs.
The downsides of LLC’s are that many investors don’t want to invest in them, because they become Members and will have to pay taxes on the Company earnings. There are also many institutional investors that are prohibited from investing in LLC’s. LLC’s tend to be more suitable for traditional businesses that are looking to sell products and grow organically without taking in investment.

Corporations are better for investors, because investors can passively hold shares without having to worry about tax consequences until they sell them again sometime down the road.  This means that most Tech Startups choose to form Corporations!
The downside of corporations are that they are taxed at a higher rate than LLC’s and they require separate filings with the IRS, which means added accountant bills. However, they are the gold standard. 95% of Companies in the United States are Delaware Corporations.


Still need help? Contact our lawyer who will answer your questions.

Do I need to live in the US to set up a company?

Non-US Citizens can form companies without any problem using Stellar Formation. Legally speaking, foreigners are allowed to form and be shareholders in US companies.

The only thing to watch out for, is that it may be difficult to open a bank account in the United States without a permanent address in the U.S.

 

What do I need to form a company?

Here is information you will need at your disposable to be able to form your company with Stellar Formation:

If you don’t have all of the information with you immediately, don’t worry! You can always start the process on stellarformation.com/start and log back in later to complete the process. Everything will be saved.

What does a registered agent do?

In order to create a company in Delaware, and if you are based outside of the State of Delaware (which is the case for most people), then you will need something called a Registered Agent. We provide this as part of the Stellar Formation package so you don’t have to worry about it.

The role of the registered agent is to receive and scan court filings in the unlikely event that someone ever sues your business.

The registered agent will also send out reminders to pay your Delaware Franchise Tax and make your annual Delaware filing. They will offer to do this for you as a service, but to be honest, so long as your finances are not very complicated you can handle this yourself on the Delaware website.

 


Post-Incorporation

How does my Delaware startup register to do business in other states?

We can handle this for you. Please reach out to our lawyer at lawyer@stellarformation.com

 

What are the next steps after payment?

Once payment is done we will prepare all the documents for you and send you an email request to sign them (within 48 hours). After this, we file documents with the relevant government bodies on your behalf and voila! Your company is formed. The post incorporation - waiting for the physical documetns from Delaware, scanning them and getting them back to you, will generally take about 10-14 days after that, and you will always be able to check the status of everything on your personal dashboard on this site.

We will also send you a handy “Next Steps” document which outlines the most common next legal steps taken by companies once they are formed. Please read it - it’s worth your time!

 


Traditional Company (LLC)

How can I check if the name is available for my Company?

Please head on the State of Delaware’s website to do a corporation entity search. Simply type in the name you would like and see what comes up. If a corporation or an LLC with your name is already listed, it’s probably better to chose another name.

 

How many Units will the founders own?

Each founder will start out with 100,000 Units, but don’t worry. If you are just one member, that’s 100,000 Units. Two Members: each receive 100,000 Units, unless you choose to split up your equity unevenly.

Don’t worry though. Founders will have 100% control of the company. The other Units will be available for distribution if you need them later.

 

Where are all the other Units?

The other 900,000 will just hang out in the treasury. If you own 100% of the issued units, then you own 100% of the company. If you’ve set up a multiple member LLC, then maybe there will be 800,000 in the treasury, maybe 700,000. It doesn’t matter how many extra Units there are authorized. It’s only the issued Units that count - i.e. the ones that are actually “sold” to the founders.

What are the standard formation documents?

A full company setup for a single member LLC should have the following documents. These are necessary to issue Units to the Members, set up your structure of governance, protect the company’s intellectual property, and get the ball rolling!

If you’re a Multiple-Member LLC you will also receive the following documents:

That’s why we charge more for multiple member LLC’s. They are more complicated.

What is the standard vesting schedule that you recommend?

We recommend a three year vesting schedule for all founders with a six month cliff. This means that no Units vest for 6 months, at which point 1/6th of your Units vest. After that, the Units vest monthly for the next 24 months until everything is vested. We think this is enough. When you receive your first major round of investment any sophisticated investor will require that the founders re-start their vesting, so this should be more than enough to get you there.

 

 

I heard 4 years is standard? Why 3 years?

We think 3 years is more than enough for founders, even though 4 years is standard for employee hires.

When you receive your first major round of investment any sophisticated investor will require the founders to re-start their vesting. 3 years of vesting should be more than enough to get you to that first round of investment!

What is a cliff?

Basically, none of your Units vest for the first 6 months. We think this is fair, because it takes about six months to get everything started and to make sure all the founders are committed to the project. After six months, you get all six months of vesting at once. If someone leaves before the first six months, they don’t leave with any Units. This saves you from losing Units to someone who’s not really up to the task!

What is an Officer?

Officers can be appointed by the Board of Managers. Most LLC's when they start out do not appoint officers. Sometimes they have a CEO or President, but it is rare. However, as the Company grows, it can be useful to have officers represent the Company or even take over the day-to-day operations of an LLC. Most founders will be familiar with the CEO or President position, but a lot of businesses also have other officer positions.

 

Why do we need Managers and Officers?

An LLC requires Managers to run it. Basically, they are like the Board of Directors for a corporation. The rational behind splitting up management of the Company from Ownership is to allow for passive owners for a company - people who just want to put in money and own a piece of the pie, but don't want to get caught up in the day to day management and operations.

As your Company grows, you may want to appoint Officers even though it is not required for an LLC. As the Board of Managers steps back and begins to make high-level strategic decisions, it can be helpful to have officers take over the actual management of the Company. It can also help distribute responsibilities among the founders. For instance, one founder can be CEO, another CTO (chief technology officer), another CMO (chief marketing officer) etc.

 

What are other officer positions?

Here are a few other officer positions:

What powers do Officers have?

It’s important to remember two significant facts about actions taken by officers:

Afterwards, the powers of each officer depends on the tasks delegated to them by the founders in their role as Managers of the LLC.

Have any questions? Feel free to ask.

What is an 83b Form and when does it have to be filed ?

The 83b form is an option the IRS implemented which allows you to pay taxes based on the initial value of the Units issued by a Company, which is generally $0!

If you don't file this form then, you have to pay taxes on the shares as they vest overtime. This means, if your company is successful, that you might suddenly be hit with a giant tax bill a year or two down the road. 

The 83b form needs to be filed within 30 days after signing the post-incorporations documents. If you have vesting on your Shares, PLEASE PLEASE REMEMBER TO DO THIS!!!

What is a CEO ?

The LLC’s CEO or president is responsible for the overall day-to-day activities of the LLC. A lot of LLC's only have Managers and do not appoint officers. We generally set them up without Officers, but if you want to be CEO or President be our guess. We also think it sounds cool!

 

What is a Secretary ?

The Secretary maintains the corporate records of the LLC and prepares minutes of board and members. The secretary also provides certification for banks or other financial institutions and provides requested copies of company documents.

Most LLC's do not appoint Secretaries, and instead have their Managers sign in this capacity. However, if you have a number of Founders, it might be smart to appoint officers to carry out certain duties on behalf of the company, and in that case a Secretary is not a bad idea.

 

How do you normally split up equity for a Company?

LLC’s issue what are known as Units. They are basically the equivalent of shares in a corporation and you divide the company by the number of units. So, for instance, we recommend authorizing 1 million Units. This is a pretty high number, which means that if you’re a single person LLC, you receive a high number of units.

It also gives you a lot of extra Units  just in case you intend to bring on other founders later on or issue units to employees.

If you are a multiple member LLC, then we will ask you what percentage of the company each founder will own and calculate your number of Units from that.  

 

Why am I both a Member and Manager?

Life is full of surprises. You never know later down the road if you might want to add a partner to your business. We set up all LLC’s as Manager-managed, because it gives you more flexibility down the road. When you’re one person, it doesn’t really make a difference. You just sign everything on behalf of the LLC as a Manager or you can even name yourself CEO.

As your company grows, and you decide to bring on a co-founder or partner, it is helpful to have a division between the individuals who own the company (the Members) and the individuals who run the business (the Managers). Investors, for instance, don’t want to have to vote on the day-to-day running of a company. So they can be Members but not Managers. People are happier to give you money when no responsibility comes with it.

What is vesting?

Ok. Let’s talk about vesting. Most multiple-member LLC’s subject the Units they issue to vesting. This is a situation in which you and your other founders receive all your Units  upfront. This means you can vote the Units and manage the company as you need.

However, for a period of time, the company has a right to repurchase these Units for $1. Over time, this right to repurchase diminishes. After 3 months the company can only repurchase 90% of the Units, after 6 months 80%, etc. After three years (which is the amount of time we recommend for founders) all the Units have vested and the holder owns them fully and outright.

So why do we do this? Look, sometimes things don’t work out, for good reasons and for bad. You start a company with a great co-founder, and then the cofounder gets an amazing job offer from Google, or runs off to become a surf instructor in Bali, or you realize after a while that you’re not a good fit.

One of the founders leaves, and the other founder or founders are left holding the ball. What’s worse, you have to find a new co-founder. But what are you going to if you don’t have any Units to offer the new cofounder because the old cofounder left with them? This is where the repurchase right comes in. The Company can claw back the Units that haven’t vested and can offer them to someone new to carry the torch. Vesting protects co-founders from both good and bad situations.

 

What is a Manager?

A Manager is a decision maker in a company. Together, all Managers form The Board of Managers, which is the governing body for a company. Every year at their annual meeting, the Members of the company elect Managers to the Board. Delaware law requires that you have at least one Manager in a Manager-Managed Company. If you have more than one Manager, we recommend appointing an odd number of Managers so you don’t end up with a board deadlocked 50-50 board for a major decision.

Each Manager normally has one vote, though you can change this. All major decisions need to be ratified by the Board. You will need the Board's approval to sell your company. You will need the Board's approval to raise a round of financing. The Board appoints officers of the company like a CEO and approves all matters of major strategic importance.

So what is the typical setup?

A good number of Delaware LLC’s are Manager-managed. This means that Managers make all the decisions about the day-to-day business of the company and make the major decisions. If you like you can appoint Officers as well, and one person can fill more than one role. A Founder can serve on the board of Managers and be an officer of the Company (very common).

Here’s a typical setup for a two founder startups:


Tech Startups (C-Corp)

How do startups usually allocate shares ?

The Gold Standards setup for a Technology Startup is to authorize 10,000,000 shares of common stock for the formation of a startup. From these 10,000,000 shares, 8 millions are usually distributed between the owners according to how they want to split up their percentage ownership.

The other 2,000,000 (2 Million) are reserved in the treasury for future employees, advisors, and sometimes for early investors. Remember, before issuing any shares to non-founder employees, you will need to set up a company stock plan. It’s the law! our in-house lawyer can help you with this at lawyer@stellarformation.com

 

I heard 4-year vesting is standard. Why do you only provide for 3 years?

We think 3 years is more than enough for founders, even though 4 years is standard for employee hires.

When you receive your first major round of investment any sophisticated investor will require the founders to re-start their vesting. 3 years of vesting should be more than enough to get you to that first round of investment!

 

What is the standard vesting schedule that you recommend?

We recommend a three year vesting schedule for all founders with a six month cliff. This means that no stock vests for 6 months, at which point 1/6th of your shares vest. After that, the shares vest monthly for the next 24 months until everything is vested. We think this is enough. When you receive your first major round of investment any sophisticated investor will require that the founders re-start their vesting, so this should be more than enough to get you there.

What is a cliff?

Basically, none of your shares vest for the first 6 months. We think this is fair, because it takes about six months to get everything started and to make sure all the founders are committed to the project. After six months, you get all six months of vesting at once. If someone leaves before the first six months, they don’t leave with any shares. This saves you from losing shares to someone who’s not really up to the task!

How many shares will each Founder own?

We ask you what percentage of the company each founder should have, and then we  calculate your shares based on that.

Since we authorize 10 million shares, but make sure to leave 2 million shares in the treasury fo future employees and early investors, that leaves 8 million shares to divide among the intitial founders.

You give us the percentages and then we divide up 8 million shares - it’s simple math.  

 

What is a Secretary ?

The Secretary maintains the corporate records of the corporation and prepares minutes of board and shareholder meetings. The secretary also provides certification for banks or other financial institutions and provides requested copies of corporate documents.

 

What is a CEO ?

The corporation’s CEO or president is responsible for the overall day-to-day activities of the corporation. Basically, the CEO is the head honcho. (S)He directs the company, subject of course to the Board of Directors who can hire or fire the CEO at any time.

 

What is an Officer?

Officers are appointed by the Board of Directors. They are responsible for the management and day-to-day operations of a corporation. Most founders will be familiar with the CEO or President position.

Delaware law requires that every corporation has a CEO or President and a Secretary. Remember, though, a single person can hold multiple officer positions, and we often set up companies with the same person acting as CEO and Secretary.

 

Why do we need Directors and Officers?

Delaware law requires a CEO and a Secretary for every corporation, as well as at least one Director for the Board of Directors. On a different note, you have to have someone govern the Company. The Board of Directors does this by passing resolutions authorizing the Company, and specifically, the Officers of a company to take certain actions. The officers then sign agreements, contracts, etc. on behalf of the company. It may all seem a bit silly when a company only has a few people in it, but as your company grows, you will be thankful that there are people fulfilling all these different roles. 

 

What is an 83b Form and when does it have to be filed ?

The 83b form is an option the IRS implemented which allows you to pay taxes based on the initial value of the stock, which is generally $0!

If you don't file this form then, you have to pay taxes on the shares as they vest overtime. This means, if your company is successful, that you might suddenly be hit with a giant tax bill a year or two down the road. 

The 83b form needs to be filed within 30 days after signing the post-incorporations documents. If you have vesting on your Shares, PLEASE PLEASE REMEMBER TO DO THIS!!!

 

What are other officer positions?

Here are a few other officer positions:

What powers do Officers have?

It’s important to remember two significant facts about officers of a Corporation:

Afterwards, the powers of each officer depends on the tasks delegated to them by the founders in their role as Directors.

Have any questions? Feel free to ask.

 

What is Par Value?

Par value is an antiquated concept that comes from a previous era when companies actually issued physical paper stocks and people kept them in bank vaults. Now everything is digital and par value doesn’t matter except for TAXES! For this reason,  we keep the par value as low as possible $0.0001 per share. This allows you to qualify for the minimum Delaware annual tax rate of $350 per year.

 

What is vesting?

Ok. Let’s talk about vesting. Every sophisticated startup subjects the shares it issues to vesting. This is a situation in which you and your other founders receive all your shares upfront. This means you can vote the shares and manage the company as you need. However, for a period of time, the company has a right to repurchase these shares for $1. Over time, this right to repurchase diminishes. After 3 months the company can only repurchase 90% of the shares, after 6 months 80%, etc. After three years (which is the amount of time we recommend for founders) all the shares have vested and the holder owns them fully and outright.

Why do we do this?

So why do we do this? Look, sometimes things don’t work out, for good reasons and for bad. You start a company with a great co-founder, and then the cofounder gets an amazing job offer from Google, or runs off to become a surf instructor in Bali, or you realize after a while that you’re not a good fit.

One of the founders leaves, and the other founder or founders are left holding the ball. What’s worse, you have to find a new co-founder. But what are you going to if you don’t have any shares to offer the new cofounder because the old cofounder left with them? This is where the repurchase right comes in. The Company can claw back the shares that haven’t vested and can offer them to someone new to carry the torch. Vesting protects co-founders from both good and bad situations.

What is a Director?

A Director is a decision maker in a company. Together, all directors form The Board of Directors, which is the governing body for a company. Every year at their annual meeting, the stockholders of the company elect Directors to the Board. Delaware law requires that you have at least one director. If you have more than one director, we recommend appointing an odd number of Directors so you don’t end up with a board deadlocked 50-50 board for a major decision.

Each Director has one vote, and all major decisions need to be ratified by the Board. You will need the Board's approval to sell your company. You will need the Board's approval to raise a round of financing. The Board appoints officers of the company like a CEO and approves all matters of major strategic importance.

What is the typical setup?

Delaware law requires that each corporation have a CEO or President and a Secretary.  However, one person can fill more than one role. A Founder can serve on the board of directors and be an officer of the Company (very common). In single founder companies, the founder has three hats: Director and two Officer positions - CEO and Secretary.

In early stage startups, the Founders usually both sit on the Board and act as the officers that run the day-to-day business of the company. However, as the company grows and brings on  investors, outside directors will likely be appointed to the board.

Here’s a typical setup for a two founder startups:

What are the standard documents for a Tech Startup?

A full company setup for a Tech Startup should have the following documents listed below. These are necessary to issue shares to the Founders, deal with any vesting (especially the Tax side),  set up your structure of governance, protect the company’s intellectual property, and get the ball rolling!

Why do I only have 1 Million shares if the Company has 10 Million shares?

This has to do with the difference between authorized shares and issued shares. The Gold Standards setup for a Technology Startup is to authorize 10,000,000 shares of common stock for the formation of a startup. However, for a single founder corporation, from these 10,000,000 shares, we only issue 1 million shares to the Founder.

The other 9,000,000 (9 Million) are reserved in the treasury for a possible future co-foudner, future employees, advisors, and sometimes for early investors.

However, a Corporation is controlled by the ISSUED shares, not the AUTHORIZED shares. So this means, if you own One Million of the One Million issued shares, then you have 100% control over the company.


Setting up a Bank Account

How do I set up a Bank Account? Also, can Stellar Formation help?

We do not currently provide assistance with bank accounts. We are working on setting up a partnership and we will let you know when we can speed up the process.

Right now, though, it’s pretty easy. Just print out a copy of your Certificate of Incorporation (C-Corp) or Certificate of Formation (LLC) with the Delaware Stamp and bring your EIN Number, and any bank will set up a business account for your company. Make sure you have an address in the United States as well.

One thing to note: It normally takes Delaware about a week to send us the physical stamped copies of these forms, at which point we scan them and send them to you. So hold on a bit, and then head to your local bank branch!

 

 


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