Forming a Delaware Inc: Founder Shares, Vesting and the 83(b) Deadline

The Inc is the American corporation, called a C Corporation in tax law. It is the entity startups use to issue shares to founders, employees and investors, and the one investors know from funding rounds. This page shows how an Inc is formed in Delaware, how founder shares, vesting and the 83(b) election fit together, how the Delaware franchise tax is calculated and what obligations come with a foreign shareholder. You can order the formation on our Delaware C Corporation page; here we cover what you should know beforehand.

1The Inc and what it is built for

A corporation is a taxpayer in its own right. It pays federal tax of 21 percent on its profit under 26 U.S.C. § 11(b), plus, where applicable, tax in the state where it does business. When it distributes profit, the US taxes the dividend a second time at shareholder level; for a shareholder abroad this usually happens through a 30 percent withholding tax, which a tax treaty can reduce. The details are on our page on taxation of the US corporation.

The LLC works differently. Without a special election, its profits are taxed at member level, and it has membership interests instead of shares. For a business that is growing and keeping profits in the company, that is often impractical, and funding rounds with preferred stock, employee option plans and multiple investors are built around the corporation. If you start with an LLC, you can switch later; see converting an LLC to a C Corp.

One variant is off the table for most readers. The S Corporation, whose profits are taxed at shareholder level like a partnership's, may not have a nonresident alien as a shareholder under 26 U.S.C. § 1361(b)(1)(C). As long as even one shareholder is not a US resident, the Inc remains a C Corporation.

2Formation in Delaware

The Inc comes into existence when the Certificate of Incorporation is filed with the Delaware Division of Corporations. 8 Del. C. § 102(a) sets out what it must contain:

• the name, including a designation such as “Incorporated”, “Corporation”, “Company” or “Limited” or an abbreviation of one,
• the address of the registered office in Delaware and the name of the Registered Agent,
• the purpose; it is enough to state that the company may engage in any lawful activity,
• the number of shares the company is authorized to issue and their par value, or a statement that they have none, for each class if there are several,
• the name and address of the incorporator, the person who files the formation.

Under the fee schedule of 1 August 2026, the state fee is at least $109 and rises with the number of authorized shares. For an extra charge Delaware works faster: $50 for 24 hours, $100 for same day, up to one-hour processing for $1,000.

The shareholders are not named in the Certificate of Incorporation, and Delaware keeps no shareholder register. Beneficial ownership reporting to the federal agency FinCEN is no longer required for companies formed in the US; FinCEN exempted them with a 2025 rule.

If the Inc plans an office or employees in another state, Texas for example, it must also register there. Our Foreign Qualification page explains how; the rules for corporations are the same as for LLCs, only the forms and fees differ.

3Board, officers and bylaws

The Inc has two levels. Under 8 Del. C. § 141(a), the board of directors manages the company's business or has it managed under its direction. It consists of one or more natural persons, who need not be shareholders. The officers run day-to-day operations; under § 142 their titles and duties are set by the bylaws or a board resolution. One person may hold several or all offices at once, and one of the officers keeps the minutes of shareholder and board meetings. A sole founder can therefore be sole director, president, secretary and only shareholder.

The bylaws are the company's internal rulebook: how the board is elected, how it makes decisions, which offices exist and how shares are transferred. They are not filed. Under § 109, they are first adopted by the incorporator or the initial directors; once the company has received payment for shares, the power lies with the shareholders, unless the Certificate of Incorporation also grants it to the board.

For a subsidiary of a European company, the question is who leads it in the US. At first, a managing director of the parent company can take this on. For the permanent establishment the company builds in the US, though, you will in the long run need someone on the ground who actually runs the business.

4Issuing founder shares the right way

The Certificate of Incorporation sets how many shares the company may issue. That does not mean they are issued. That only happens by board resolution, and under 8 Del. C. § 152 the board also determines what consideration the company receives: cash, tangible or intangible assets, or any other benefit to the company. If a founder contributes rights to software, trademarks or know-how, this is set out in a separate agreement so the rights genuinely belong to the company.

Authorizing a large pool of shares with a very low par value, say several million shares at a fraction of a cent, leaves room for future investors and an option plan and keeps the price per founder share low. But that number has a franchise tax consequence you should know before you set it; more on that shortly.

Shares do not have to be issued on paper. Under § 158, the board may decide that some or all shares are uncertificated; the company then keeps its own stock ledger or has it kept electronically.

5Vesting and reverse vesting

When several people found a company together, one question comes up early: what happens if one of them leaves after six months? One answer is vesting, which for founder shares takes the form of reverse vesting. The founder receives the shares immediately and is a voting shareholder from day one. But the company has the right to buy back part of them, for example at the original issue price, if the founder leaves before an agreed period ends. With each month or year, another portion is released.

Vesting is not a statutory term but an arrangement in the stock purchase agreement. How long it runs, whether there is a minimum period before the first portion vests (a cliff) and what happens on a sale of the company are negotiated by the founders, and often renegotiated later at the investors' request.

6The 83(b) election: 30 days you should not miss

US tax law gives special treatment under 26 U.S.C. § 83 to shares someone receives in connection with work for a company that can still be bought back. Without any further election, taxable income arises only when a portion vests, in the amount of its value at that time. If the business grows, each vesting portion can mean higher income, without any cash changing hands.

The 83(b) election reverses this. If you make it, you are taxed on the difference between value and price paid at the time of issue. For founder shares bought at their low value, that difference is often zero. Later gains are then only captured on a sale. The price of the election: if some shares are forfeited because the founder leaves early, there is no deduction for them.

The deadline is strict. Under § 83(b)(2), the election must be made no later than 30 days after the shares are issued and can only be revoked with IRS consent. The IRS has issued Form 15620 for this, in the April 2025 version. The signed form goes by mail to the IRS office where the founder files their tax return; the company receives a copy.

Whether you need the election depends on whether you are, or may become, taxable in the US on these shares, for example because you move to the US on a visa and work there for the company. How your country of residence treats founder shares subject to repurchase is a separate question. Settle both before the shares are issued, because after 30 days the decision is final.

7Calculating the Delaware franchise tax correctly

Every Delaware corporation files its annual report and pays the franchise tax by March 1 each year. The filing fee for the report is $50. Late filers pay a $200 penalty plus 1.5 percent interest per month on the unpaid tax. The tax has no link to profit; it is based on shares.

Delaware has two methods, and the company pays the lower amount. Under the authorized shares method, up to 5,000 shares cost $175, 5,001 to 10,000 shares cost $250, and each additional 10,000 shares or part thereof cost $85 more. Under the assumed par value capital method, you divide gross assets as shown on the Form 1120 balance sheet by the number of issued shares, use that to calculate an assumed par value for all authorized shares, and pay $400 per million or part of a million of that value, with a minimum of $400. Under both methods the cap is $200,000.

For a startup with ten million authorized shares, this makes a huge difference. Under the first method, $85,165 would be due. Under the second, with modest assets, it is $400. The second method requires the annual report to state the number of issued shares and gross assets. A company paying $5,000 or more makes estimated payments spread over the year.

8Investors and foreign shareholders

For investors, the Inc offers exactly the tool they need. Under 8 Del. C. § 151, a corporation can issue multiple classes and series of stock with different voting rights, preferences and special rights, as set out in the Certificate of Incorporation. A preferred stock financing round therefore usually means amending the Certificate of Incorporation; under the fee schedule, the state fee for that starts at $214.

If a foreign person owns at least 25 percent of the Inc, the company files Form 5472 every year alongside its tax return on Form 1120, reporting its transactions with that foreign shareholder. Form 1120 is due on the 15th day of the fourth month after the end of the tax year, so April 15 for a calendar year; Form 7004 extends the deadline.

If the Inc is the subsidiary of a company at home, the structure between parent and subsidiary is part of the planning: transfer pricing, licenses, loans and how profits flow to the parent. And if the whole business is to sit under a Delaware company instead of just a subsidiary, for example because US investors require it, that is a separate process, described on our page about the Delaware Flip.

9Where to order

You'll find the Inc formation with Registered Agent, EIN and bank account application on the Delaware C Corporation page, and the overview of all six states on the Form a US corporation page. If you plan to move to the USA later to run the company on site, build the visa into your plans from day one; that's what the visa roadmap for your formation is for. Visa decisions are made solely by the US authorities.

In short

• The Inc is a C Corporation: it pays 21 percent federal tax on its own profits, can issue multiple classes of stock and is open to foreign shareholders.
• In Delaware, it comes into being with the Certificate of Incorporation; it is run by a board of at least one natural person, and one person may hold all offices at once.
• Founder shares with vesting are shares subject to a repurchase right. Anyone taxable in the USA decides within 30 days of issuance whether to make the 83(b) election on Form 15620.
• Delaware franchise tax has two calculation methods. With a large number of authorized shares, the Assumed Par Value Capital Method is often many times cheaper.
• The annual report and franchise tax are due every year by March 1, and Form 1120 is due to the IRS by the 15th day of the fourth month after the end of the tax year.

How we help you

• Form a CorporationThe US corporation (Inc) for growth, investors and your visa.
• Tax structureA clean structure between parent company and US subsidiary, or between you and your US company, coordinated with your accountant.
• Corporation tax returnForm 1120 and Form 5472 for your US corporation.
• Company formation consultationEntity type, state and tax consequences, before you commit.
• Visa Roadmap for Company FormationFormation and visa in one plan, so the company carries the visa.