Congratulations, you just created a new corporation! In getting to this point, you have signed many documents, possibly filed an 83(b) election, obtained an Employee Identification Number (EIN), made securities filings and made decisions about who will hold offices and stock. Now what? Along with getting down to the exciting work of actually creating a product, here are a few other common next steps in operating your new company.
Open a Bank Account
The company will need its own bank account. To avoid making the company’s liabilities your own, founders should not use their personal bank accounts for company finances. To open a company bank account, you should have on hand the company’s filed certificate of incorporation (your lawyers will have this document if you do not), your EIN and licenses and/or passports that the bank may need for Know Your Customer checks.
Hire Accounting Services
Businesses taxes, bookkeeping and other accounting processes are important matters to consider as your business grows. It is possible to do these yourself, but many companies find that they can outsource these tasks and receive high quality service at a reasonable price. No matter what you do, it is important to remember that keeping these records clean and professional will be highly beneficial if you intend on raising outside funding.
Qualify to Do Business
You will need to qualify to do business in the state, county and/or city where your company is headquartered, and also possibly where any full-time employees live. This qualification may have been taken care of as part of your formation. If not, you should discuss where and how you need to qualify with your lawyers, or consult your state/county/city business and tax agency websites. You can also qualify to do business yourself — for example, in California as outlined online— or hire a registered agent service to help.
Set Up a Capitalization Table
It is essential to keep very detailed records about who actually owns your company, so it is best to start immediately. A spreadsheet showing the owners and their type and quantity of equity can work for the initial founders. However, if your company grows in a traditional fashion by offering employee equity and raising money from selling equity to investors, you will need a more sophisticated method of tracking the company’s capitalization details correctly. It is easiest to set up such a capitalization table early. Popular choices include Carta, Captable.io, Shareworks and Shoobx. There are special deals for Goodwin clients at Carta and Shoobx.
Set up Employment and/or Contractor Matters
Hiring your first employee or independent contractor requires several steps:
- Engage with accountants or a payroll system to help you register with the appropriate state and local entities, complete the appropriate tax forms, coordinate payroll and withholdings and report payroll taxes to the appropriate entities as needed. This article includes some helpful links.
- Make an offer. Consult your lawyers on whether a service provider should be classified as an employee or as a consultant. This determination affects whether they receive an offer letter or a consulting agreement, respectively. Once that decision is made, your lawyers can provide a free offer letter template or independent contractor agreement. If you are offering equity, they can help with the associated language as well. This primer on equity types is available for you to learn more.
- Assign intellectual property. Employees should sign their proprietary information and inventions assignment agreement (sometimes called a confidential information and inventions assignment) in addition to their offer letters. Consultants need to sign a consulting agreement that has intellectual property assignment language. Your lawyers can provide a free form of these agreements.
- Adopt employee handbooks and policies, and make sure you are in compliance with employment laws that vary by city, county and state.
Grant Equity to Service Providers
Offering options to service providers in offer letters and/or consulting agreements is just a promise of equity. To actually make the grant, you need to:
- Discuss adopting a stock option and grant plan with your lawyers, which will require both a board and a shareholder consent. If you are interested to know what roles the board and shareholders play in business decisions generally, we’ve created a short introduction video on corporate governance.
- Determine the fair market value of the equity, which is typically done by obtaining a 409A valuation from a third party, such as an accounting or valuation firm. Most online capitalization platforms also provide these valuations.
- Approve the equity in a board consent or meeting.
- Have each equity recipient sign the applicable equity agreements.
- Confirm whether any equity security filings are needed based on the state of residence of the grantees.
- Update the company’s capitalization table to reflect the grants.
Adopt Website Terms
When your company is ready to launch a website, you may need a terms of use and privacy policy depending on the content and purpose of the website. Your lawyers can provide templates that will help you get these in place quickly and efficiently. An overview of some data privacy considerations is available for your use.
Enter into Commercial Agreements
If you are already ready to sell a product or service, your lawyers can help you draft a form agreement that helps you understand the terms of another party’s agreement.
Set up a Document Storage System
Various parties will be requesting many documents from you throughout the company lifecycle for a variety of reasons, including for accounting, auditing, diligence and/or litigation purposes. It’s important to have a single organized location for paperwork. Having to find all of these documents after you receive a term sheet for a financing can materially delay the closing, and not being able to find an important document at all could require expensive or time-consuming steps to fix or mitigate the issue. For examples of agreements that you should be storing, read this article reviewing standard diligence requests. Your lawyers may be able to offer a free storage site if helpful. For example, Goodwin can offer a free Box folder.
Consider Registering Intellectual Property
Many early software companies will not create intellectual property that makes sense to patent. However, you should consider whether you have the resources to try to register a trademark or copyright a logo or brand. There is some protection based on usage if you do not have the funds to formally file yet.
Obtain Office Space, or Don’t
Most companies still have an office headquarters, which requires entering into a commercial lease agreement. If you are opting for a fully remote team, you still need to select an address to use for vendors, financial services and permits. This address will be public, so you may not want to use your personal address. However, that is still a potential option if you want to do so. Alternatively, there are services that allow you to use a physical address they own for business purposes.
Consider Insurance
You should consider obtaining insurance such as general liability insurance, workers’ compensation insurance, cybersecurity insurance and directors/officers insurance. If you choose not to obtain some insurance policies immediately, you should set reminders to reassess your insurance needs in the future.
This list is meant to serve as an overview of some of the most common issues that should be tackled after formation. Your company may have other issues that you need to consider. Conversely, not all of the issues discussed above may apply to you.
