corporate-structure

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# Corporate Structure & Governance — Founder OS

Prepares you for every investor corporate structure question. Covers 6 layers: entity structure, cap table, board, roles, accounting, and founder dynamics.

---

## Layer 1: Entity Structure

**Investor questions**: "How is the company organized?" / "Where is it registered?" / "Who is the registered agent?"

### The Standard: Delaware C-Corp

90%+ of VC-backed startups incorporate as Delaware C-Corps. The reasons:

- Established corporate law — Court of Chancery handles corporate disputes with predictability
- Investor familiarity — term sheets, SAFEs, and preferred stock structures are Delaware-native
- No state income tax on out-of-state revenue
- Easy to issue preferred stock (required for VC investment — LLCs and S-Corps cannot)

**If you're an LLC or S-Corp**: Convert before approaching institutional investors. Budget $2–5K in legal fees.

### Key Formation Documents

| Document | What It Is | Who Needs It |
|---------|-----------|-------------|
| Certificate of Incorporation | Filed with Delaware Secretary of State | All investors |
| Bylaws | Internal governance rules | All investors |
| Board Consents/Resolutions | Record of every major decision | Diligence |
| 83(b) Elections | Tax election for restricted stock (file within 30 days of grant) | Required for founders |
| State registrations | Foreign qualification in states where you operate | Diligence |
| Good standing certificate | Proves company is current on filings | Diligence |

**83(b) election**: If founders received restricted stock subject to vesting, they must file an 83(b) election with the IRS within 30 days of grant. Missing this window is a significant and unfixable tax problem.

### Documents-Ready Test
```
Can you produce all of the following within 24 hours?
[ ] Certificate of Incorporation
[ ] Bylaws
[ ] Board Consents (all major decisions since founding)
[ ] 83(b) elections for all founders
[ ] Current cap table (fully diluted)
[ ] State registrations and good standing certificates

If any are missing, list them and assign a deadline to fix them.
This is a pre-fundraising blocker.
```

---

## Layer 2: Cap Table Management

**Investor questions**: "How are shares split?" / "What equity has been granted?"

### Cap Table Fundamentals

| Term | Definition | Typical Range |
|------|-----------|--------------|
| **Authorized shares** | Max shares company CAN issue | 10M at incorporation |
| **Issued and outstanding** | Shares actually distributed | Founders + employees + investors |
| **Option pool** | Reserved for future employee grants | 10–20% at seed |
| **Fully diluted** | All issued + all options + all convertible instruments | What investors calculate ownership from |

### Standard Seed-Stage Cap Table Structure

```
Pre-funding (example):
- Founder 1:          4,000,000 shares  (40%)
- Founder 2:          4,000,000 shares  (40%)
- Option pool:        2,000,000 shares  (20%)
  Total authorized:  10,000,000 shares (100%)

Post-seed ($1M on $5M pre-money valuation):
- Founder 1:          4,000,000 shares  (33.3%)
- Founder 2:          4,000,000 shares  (33.3%)
- Option pool:        2,000,000 shares  (16.7%)
- Seed investors:     2,000,000 shares  (16.7%)  ← new shares issued
  Total authorized:  12,000,000 shares (100%)
```

### Equity Split Principles (YC Guidance)

- Equal splits among co-founders are generally recommended
- All work is ahead of you — past contributions matter less than future commitment
- Vesting schedule: 4-year vesting with 1-year cliff is standard and expected
- The 1-year cliff protects the cap table if a co-founder leaves early

**Vesting schedule explained**:
- 4 years total, 1-year cliff = 0% vests until month 12, then 25% vests all at once
- After cliff: 1/48th vests each month for remaining 36 months
- If a founder leaves before the cliff: they keep 0% (unless negotiated otherwise)

### Cap Table Tools

| Tool | Best For | Cost |
|------|---------|------|
| Carta | Standard for funded startups | Free to $100/month |
| Pulley | YC-backed, founder-friendly | Free to $50/month |
| Captable.io | Lightweight, early stage | Free |
| Spreadsheet | Pre-seed only | Free — migrate before raising |

---

## Layer 3: Board and Governance

**Investor questions**: "Is there an existing board?" / "Any advisors?"

### Board Structure by Stage

| Stage | Typical Composition | Notes |
|-------|--------------------|----|
| Pre-Seed | Founders only (2–3 seats) | Keep it simple |
| Seed | 2 founders + 1 investor observer or independent | Lead investor often gets observer rights, not seat |
| Series A | 2 founders + 1 lead investor + 1–2 independents | Standard 5-seat board |
| Series B+ | More investor seats, independent directors required | Governance expectations increase |

### Advisory Board Setup

- Advisors provide: domain expertise, introductions, functional guidance, credibility signals to investors

From The13thNode/VibeCorp_PromptCEO, MIT.

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