Startup Mechanics: The Practical Side of Building a Business

This is the part most founders don’t post about on social. It’s the unsexy, behind-the-scenes work that keeps your business standing: incorporation, equity, vesting, legal filings, and everything in between. If ignored, these things can cost you serious time, energy, and money later.

The good news?

You don’t have to be a lawyer or accountant to lay a strong foundation. You just need to start early and stay organized.

Why Formation Matters

Forming a legal entity creates a clear separation between you and your business. It allows the company to pay taxes, sign contracts, open a bank account, and own assets (and liabilities). It also protects you from being personally liable. Choosing the right structure matters. It impacts your taxes, ability to raise capital, and how you're protected legally.

Which Incorporation to Choose?

If you're planning to raise venture capital or aim for a big exit, a C Corporation is usually the right fit since most investors will only fund C Corps. Most startups incorporate in Delaware since it offers legal flexibility, privacy protections, and is familiar to investors and lawyers.

If you’re not planning to raise institutional capital right away, it may still make sense to incorporate in your home state. Just make sure you understand the compliance requirements.

For other types of small businesses—like solopreneurs, service providers, or those not seeking outside funding—an LLC or S Corporation might be a better fit due to simpler tax treatment and easier setup. The key is to choose what matches your growth goals and revisit it as your business evolves.

When to Incorporate? If you’re still in the idea stage, thinking of this as a side project, or unsure if you’ll commit long-term, it's too soon to incorporate. If you’re building real IP, collecting payments, or bringing on partners or co-founders. That’s when formalizing your structure becomes essential.

Equity and Ownership

If you’re working with a co-founder or early collaborators, discuss equity early. Get everything in writing. Resentment over unclear splits is one of the top reasons founding teams fall apart. Equity should reflect the work ahead not just the work already done. Use a basic cap table and stock purchase agreement to document who owns what. Even if it’s just you right now, get in the habit of documenting equity decisions.

Vesting and 83(b) Elections

Vesting helps protect the company and everyone involved. The standard vesting schedule is four years with a one-year cliff. Without vesting, a co-founder could leave early and still walk away with the same equity as someone who stayed. That’s a recipe for long-term issues. If shares are subject to vesting, you’ll need to file an 83(b) election with the IRS within 30 days of receiving them. This can’t be fixed later so don’t skip this step.

Fundraising Basics

Raising money can open new doors, but it also brings pressure, expectations, and complexity. Whether you’re exploring funding to build a tech product, expand your team, or fuel growth, it’s important to understand your options. Knowing how and when to raise, and what structure fits your business stage, will help you avoid missteps and stay in control of your company’s future.

Types of Funding Rounds

There are two primary ways startups typically raise capital. In a priced round, your company’s valuation is set up front, and investors purchase shares at a fixed price. This structure tends to be more formal and requires legal oversight, but it also gives everyone clarity on ownership from the start. Unpriced rounds, like SAFEs (Simple Agreements for Future Equity), allow investors to give money now and receive shares later, often with a valuation cap or discount. These rounds are popular for early-stage companies because they’re simpler and faster to close, though you’ll still need to understand the legal implications.

Dilution

Think of your company like a pie. As you raise money, you give away slices. Your slice may shrink, but the whole pie grows. Dilution isn’t a bad thing if your company is growing. But raise strategically, not out of panic.

Hiring and Building Your Team

Hiring isn't just about bringing people on board, it's about setting up the right structure to support your growth. In the early stages, your team may be small, scrappy, and wearing multiple hats. But even then, how you define roles and relationships (legally and operationally) matters. Whether you’re building a scalable startup or a lean service-based business, getting this right early will save you time, stress, and costly corrections down the line.

Contractors

Most early-stage teams start with contractors because they're more flexible, require less overhead, and are easier to manage. If a contractor is creating anything proprietary— branding, product designs, or content—make sure your agreement includes clear IP assignment to the business.

Employees

Once you start hiring employees, things get more complex: payroll taxes, benefits, and labor laws all come into play. If you’re hiring across state lines, those requirements can multiply. Stay informed, use trusted tools, and make sure you're staying compliant at each stage of growth.

Compensating Employees with Equity

Can’t pay market salaries yet? Some founders use equity to compensate early employees. A good rule of thumb: Set aside ~10% of your company for your first 10 employees, on a sliding scale. Structure this with a stock plan and standard vesting. Just make sure employees understand what they’re receiving, how much it’s worth, and how it fits into the bigger picture.

Don't Skip the Back-End Work

These decisions may not feel urgent right now, but they will catch up with you if left unaddressed. Keep all legal and financial documents organized, especially if you’re planning to raise money, sell, or grow significantly. And be sure to steward your investors’ money wisely. It’s not just about fiduciary duty, it’s about earning long-term trust. Spend where it matters. Build with intention. Stay focused. You’ve got this.