4.01Legal and corporate structure

When to incorporate

Stage: Pre-seedCore

1. Core idea and who it's for#

Incorporating creates a separate legal person that can own IP, sign contracts, employ people, take investment and apply for most grants. It also starts ongoing costs: annual filings, accounts, audits in India, and franchise tax in Delaware.

The common mistakes go both ways. Some founders incorporate too late, after money, IP or promises have already moved informally. Others incorporate too early, before they know who the founders are, where the company should sit, or whether the university will license the technology.

The rule of thumb: incorporate just before the first thing that needs a company. That means just before you:

  • sign a licence or option with a university or lab;
  • take any outside money, including angel cheques, SAFEs or most grants;
  • hire or pay anyone, or engage a contractor to build IP;
  • sign a customer pilot or a paid contract;
  • or need founder shares issued at a near-zero price, before value is created.

Who it's for: researcher-founders and early teams in the minus-one stage (1.04) deciding when to move from "a project" to "a company", and where (4.02, 4.03).

The one-line rule: choose the country and entity first, then incorporate before money, IP or people move, and not much earlier.

2. Evidence#

Setting up is now quick and cheap. Running a company is the bigger cost.

Ongoing compliance starts on day one. In India, for example, failing to appoint a statutory auditor within 30 days of incorporation is a common, penalty-attracting oversight. Annual returns and financial statements follow every year (4.18).

Why earlier can be better:

  • Cheap founder shares. Founders can buy shares at nominal value before there is any value, so there is no tax on the difference (3.06, 3.09).
  • Clocks start running. Vesting, and in the US the five-year QSBS holding period, start when shares are issued.
  • A clear owner for IP. A company is the place to put founder IP (4.05). Many university licences and most grants and investors need one.

Why later can be better:

  • Fewer wasted filings. You avoid paying for compliance on a company that may never trade, or that sits in the wrong country.
  • Room to re-cut. You keep flexibility while the founding team and university terms are still changing (2.10, 3.03).
  • Grant timing. Some schemes favour individuals or pre-company teams, such as fellowships (1.10) and NSF I-Corps. Others need a company of a certain age, for example DPIIT recognition (4.04).

3. Method#

Step 1: Check the triggers#

Incorporate now if any of these will happen in the next 4 to 8 weeks:

  • A licence, option or material transfer agreement with a university or lab
  • Money in, from angels, a SAFE, an accelerator or a grant that needs a company Someone other than the founders building IP: a contractor, intern or first hire
  • A paid pilot, purchase order or customer contract
  • A co-founder ready to commit, with an agreed split (3.05)

If none applies, keep working as a project. Do write a short founders' memo covering who is in, the intended split, and that all work done is for the future company. This protects everyone in the meantime.

Step 2: Decide where and what before filing#

  1. Where will the parent company sit? Think about where your investors, customers and likely exit are (3.15, 4.03). Setting up the right parent on day one is much cheaper than flipping later.
  2. Which entity? For venture-backed deeptech, this is almost always an Indian private limited company, a Delaware C-corporation or a UK private limited company (4.02). An LLP or US LLC rarely suits companies raising equity.
  3. Is your institution involved? Check the university's or employer's IP and conflict rules before filing (1.15, 2.01).

Step 3: Incorporate with the essentials in place#

Incorporate with these done at the same time, not later:

  • founder shares issued at nominal value, with vesting (3.06), plus an 83(b) election in the US within 30 days;
  • an IP assignment from each founder to the company (4.05);
  • a founders' agreement or shareholders' agreement (3.07, 4.06);
  • a bank account, and a compliance calendar (4.18).

Step 4: Avoid the in-between traps#

  • Don't take money into a personal account "for the company".
  • Don't sign contracts in a founder's name for company work.
  • Don't promise equity to helpers before there are shares to give. Use a written note of intent instead.

Worked example (illustrative)#

Two IIT Madras researchers are developing a sensor. They have no co-founder agreement yet, and the institute's IP cell is assessing their invention disclosure.

  • Months 1 to 4: they stay a project and write a one-page founders' memo. They apply for a fellowship in their own names.
  • Month 5: the IP cell offers a licence term sheet, and an angel offers ₹50 lakh on a SAFE-style instrument. Both need a company.
  • Month 5, week 1: they choose an Indian private limited company, because their customers and investors are Indian, and file through SPICe+. The shares are issued at face value with reverse vesting in the shareholders' agreement, and the founders sign IP assignments.
  • Month 5, week 3: the company is incorporated and the bank account opened. The licence and the angel round close in month 6, both into the company.

4. India, US and UK differences#

India (private limited) US (Delaware C-corp) UK (private limited)
How SPICe+ on the MCA
portal. Directors need
digital signature
certificates.		 Certificate of
incorporation filed in
Delaware, often
through a lawyer or a
service such as Stripe
Atlas or Clerky		 Online at Companies
House
Time About 1 to 3 weeks About 1 to 3 days Usually within 24 hours
Set-up
cost		 About₹7,000 to₹25,000
all-in, depending on state
stamp duty and fees		 State fee about $109,
plus registered agent
and documents		 £100 online
People 2 directors (one resident
in India) and 2
shareholders		 1 director and officer is
possible		 1 director and 1
shareholder
Early
must-
dos		 Appoint an auditor within
30 days. File a
commencement-of-
business declaration
(INC-20A) within 180
days. Open a bank
account and deposit the
subscription money.		 File 83(b) elections
within 30 days. Get an
EIN. Adopt bylaws and
record board consents.		 Register for
corporation tax. Set up
a PAYE scheme before
paying anyone.
Directors must verify
their identity with
Companies House.
Annual
costs		 Statutory audit, annual
return and financial
statements filed with the
registrar		 Delaware franchise tax
and annual report, US
tax returns, registered
agent		 Confirmation
statement (£50),
accounts, corporation
tax return

Points specific to deeptech:

  • India: DPIIT recognition (4.04) and many grants such as BIRAC BIG and incubator seed funds (Area 13) need a company, and some set an age limit. Incorporating too early can use up an age window.
  • US: if a US parent will own an Indian or UK subsidiary, decide this before any IP is created (3.15, 4.03). SBIR awards need a for-profit US small business, majority USowned.
  • UK: SEIS has a company-age limit for the first trade. Check the current rules with your accountant before you start trading, if you plan an SEIS round.

Scripts#

To a co-founder, agreeing to wait:

"Let's not incorporate until the licence terms or the first money are real. Until then, here's a one-page memo saying who's in, the split we intend, and that everything we build belongs to the company we'll form."

To an angel who wants to invest before you've incorporated:

"Thank you. We'll incorporate within three weeks so your money goes into the company, not a personal account. Can we sign the term sheet now and close once the company exists?"

To the university IP office:

"We're ready to incorporate. Before we file, can you confirm the licence will be granted to the new company, and whether you need anything in its articles?"

Common mistakes#

  1. Taking money personally. Funds for the company in a founder's account create tax and ownership problems.
  2. Incorporating in the wrong country. A reverse flip later can be very expensive (3.15, 4.03).
  3. Shares without vesting or IP assignment. Investors will ask for both, and fixing it later costs more.
  4. Missing the first filings. In India, the auditor appointment and the commencement declaration have early deadlines. In the US, the 83(b) deadline is 30 days and cannot be extended.
  5. Promising equity before shares exist. Informal promises become disputes later.
  6. Incorporating years early "to be ready". You pay compliance costs, and may use up grant or tax windows for nothing.
  • 1.04 The minus-one stage, before you incorporate
  • 1.15 Employer IP clauses and turning a side project into a company
  • 3.05 Splitting founder equity
  • 3.06 Founder vesting, cliffs and acceleration
  • 3.15 Co-founding across countries and time zones
  • 4.02 Choosing an entity
  • 4.03 Flipping to a Delaware holding company
  • 4.05 Assigning founder IP to the company
  • 4.18 Compliance calendar

Sources#

This playbook is general information, not legal or tax advice. Fees and filing rules change, so check current figures with a company secretary, lawyer or accountant. Last checked November 2026.

← 3.18 Running reference checks on a potential co-founder4.02 Choosing an entity: Indian Pvt Ltd vs LLP; US Delaware C-corp →