Setting up a corporation is not merely some formality of creating some paper documents; rather, it forms part of the legal system required to define ownership interests, liabilities, taxation structures, what types of investments are allowed, and how businesses maintain good standing on a state-by-state and regulatory basis. Most founders of U.S. companies choose to incorporate their businesses as either a “C” corporation, an “S” corporation (the type of federal tax election available to certain corporations that qualify), or a “Limited Liability Company” (LLC). The U.S. Small Business Administration (SBA) stresses that these decisions will impact liability issues; taxation; documentation/filing procedures; and that certain laws may differ based upon the state where the business is registered.

Many venture-capital-backed startups are structured as Delaware C Corporations due to investor expectations and the widespread use of standardized investment documentation.

Choose the Incorporation Jurisdiction

Founders must decide whether to incorporate in Delaware or in their “home state” (where they reside or primarily operate). If a company incorporates in one state but conducts business in others, it may need to qualify to do business in those additional states.

Many founders choose Delaware. Delaware is widely recognized for its sophisticated and frequently updated corporate law, its specialized Court of Chancery focused on business disputes, and the predictability of its legal framework due to well-developed case law.

However, incorporating in Delaware does not eliminate obligations in other states where the business operates. The SBA notes that companies operating in multiple states typically must pay additional fees and taxes in those states, in addition to maintaining their Delaware registration.

Incorporating in the home state may reduce complexity, including fewer registered agents, fewer filings, and avoiding the “two-state” issue of incorporating in Delaware while qualifying elsewhere.

Steps to Form the Entity:

1. Select the entity type and state of incorporation.
   The decision often depends on fundraising plans and tax considerations. The SBA cautions that tax structures vary by entity type and state.
2. Appoint a registered agent.
   Required in the state of formation. The registered agent receives official government documents and must have a physical address in that state.
3. File formation documents with the state.
   • Corporation: File a charter (in Delaware, the Certificate of Incorporation).
   • LLC: File required formation documents and prepare an operating agreement (strongly recommended).
4. Adopt internal governance documents.
   • Corporation: Adopt bylaws, appoint directors and officers.
   • LLC: Prepare an operating agreement.
5. Establish founder ownership properly.
   Ensure accurate capitalization records. Required organizational documents typically include appointment of directors/officers, adoption of bylaws, stock issuance, and intellectual property (IP) assignments.
6. Apply for an EIN.
   The IRS recommends obtaining an EIN after forming the entity. EINs can generally be issued within minutes at no cost.
7. Foreign qualification (if required).
   If operating in multiple states, the SBA states that companies must register in those states. This typically requires a Certificate of Authority and may require a Certificate of Good Standing from the formation state.

Tax and compliance basics

Obtaining a “federal tax id” or an “Ein” must be kept in mind when dealing with payroll and/or employment taxes (hiring employees). Employers will generally file and report federal income tax and Social Security and Medicare taxes using Form 941. New employers will want to make sure that they collect Form W4 from their employees and refer to employer publications for instructions on how to deposit and report employment taxes.

In regard to the state of employment, many states have varying requirements. Delaware serves as an excellent resource for this, as they have published clear requirements for the types of businesses that they own, including filing annual reports and paying franchise taxes. For example, corporations formed in Delaware have an obligation to file an annual report and pay franchise tax (with strict deadlines for each type); limited liability companies, limited partnerships, and general partnerships (created in Delaware) only have to pay a flat rate of $300.00 per year, and they do not have to file any annual reports.

The federal government has made several revisions to the reporting requirements under the FinCEN, as it was recently established that any entity formed in the United States after March 2025 would no longer be subject to report as a beneficial owner to the FinCEN (with certain conditions for U.S. persons) while obligations to foreign entities may still remain; However, the time frame to file continues to be uncertain. funding and equity basics stock classes and investor readiness. A venture financing often introduces a new equity class (commonly “preferred stock”).

securities compliance and Form D (when you raise). if you sell securities relying on Regulation D exemptions, the sec states you must file Form D within 15 calendar days after the first sale (defined as when the first investor is irrevocably contractually committed), the sec charges no filing fee, and paper filings are not accepted.  the sec also notes that-even where federal law pre-empts state registration under certain rule 506 pathways-states can still require notice filings and collect fees.

Timelines and typical costs

costs and timing depend on state, complexity, and whether you pay for professional help. sab notes that state registration fees vary by state and structure and are often under $300, but founders should verify with the relevant state offices.

Delaware example (state fees that founders commonly benchmark):

• formation filing fees (Delaware): domestic corporation “incorporation” filing is listed as $109 (noted as varying based on stock); domestic llc formation is $110.
• expedite options (Delaware): Delaware offers next-day, same-day, 2-hour, and 1-hour expedited services with published add-on fees (e.g., 2-hour $500; 1-hour $1,000), plus schedule-specific next-day/same-day ranges.
• annual obligations (Delaware): corporations: annual report fee $50 plus franchise tax (minimums published), due March 1, with a $200 late penalty and 1.5% monthly interest on unpaid balances.
  LLCs/lps/gps: $300 annual tax due June 1, no annual report; penalties also apply for nonpayment.
• Ein timing: Irs says Eins can be issued immediately online if approved.

FAQ

When is s corporation status a bad fit for startups?
if you need multiple stock classes or non‑U.S. investors: Irs rules require only one class of stock and no non-resident alien shareholders, and s corps have shareholder limits.

If I raise money on a Regulation D exemption, what filing should I expect?
the sec states Form D is generally due within 15 days after first sale; it must be filed electronically and has no sec filing fee.

How Can ERB Assist With U.S. Company Formation and Compliance?

Forming a U.S. entity involves more than filing documents. ERB assists founders with selecting the appropriate entity structure, coordinating state filings, obtaining an EIN, ensuring proper corporate governance documentation, and addressing ongoing compliance requirements. For startups planning to raise capital, ERB also helps structure companies in a way that aligns with investor expectations and long-term growth strategies.