The (Crypto) Startup Guide

Chapter II: Forming Your Company

March 30, 2026

This chapter addresses the foundational legal question every founder must confront: how to structure, form, and maintain a corporate entity. The stakes here are not merely administrative. Entity selection and incorporation decisions shape your tax posture, your ability to attract capital, your exposure to personal liability, and your regulatory footprint. I would hope that this goes without saying, but if you are new here, please THIS GUIDE DOES NOT TAKE THE PLACE OF ENGAGING COMPETENT LEGAL COUNSEL. It is important for all businesses, but particularly for those building on the edge of new and emerging technology and regulaation, to consult with legal counsel early and often. The easiest way to solve a problem is to avoid it in the first place (I promise).

Choosing Your Entity

Businesses can take many forms, from sole proprietorships and general partnerships to limited partnerships and joint ventures. For a crypto startup seeking to raise capital, attract institutional investors, and manage regulatory exposure, the practical choice narrows quickly to two options: the corporation (typically a C-Corporation) or the limited liability company (LLC). Each has structural advantages that may suit different stages and business models, but for most venture-backed crypto startups, the corporation remains the default—and for good reason.

The Case for Incorporation

Incorporating your business creates a separate legal entity, which provides three critical benefits. First, limited liability: the corporation’s debts and obligations are not your personal debts. In an industry where regulatory actions, smart contract exploits, and market volatility can generate sudden, catastrophic liabilities, this protection is not theoretical—it is essential. Second, perpetual existence: the entity survives changes in ownership, management transitions, and even the death of founders. Third, transferability: equity in a corporation can be divided, transferred, and restructured through well-settled mechanisms that investors, counterparties, and regulators understand.

It is the combination of these features that makes the corporate form attractive to institutional capital. Without limited liability, founders and their co-owners bear personal exposure to every claim against the enterprise. In an industry subject to heightened regulatory scrutiny and evolving enforcement priorities, proceeding without the corporate form is difficult to justify.

Corporations vs. LLCs

The most common entities are the LLC and the C-Corporation. Understanding how they differ across four dimensions (taxation, investor engagement, governance, and signaling) is essential.

Taxation

C-Corporations are taxed under Subchapter C of the Internal Revenue Code. The corporation files its own return (Form 1120) and pays tax on its income at the entity level. When the corporation distributes dividends to shareholders, those shareholders pay personal income tax on the distribution. This “double taxation” is the most frequently cited disadvantage of the C-Corp form.

S-Corporations offer a pass-through alternative: by filing Form 2553 and meeting eligibility requirements, a corporation can avoid entity-level taxation. However, S-Corp status requires 100 or fewer shareholders, a single class of stock, and shareholders who are U.S. citizens or residents. These constraints are fundamentally incompatible with the capital structures most crypto startups pursue—particularly those seeking global investor bases, multiple equity classes, and institutional participation.

LLCs are treated as pass-through entities by default. Single-member LLCs are disregarded for tax purposes; multi-member LLCs are taxed as partnerships. While LLCs may elect corporate tax treatment by filing Form 8832, the flexibility cuts both ways: the pass-through default can create unexpected tax liabilities for investors who prefer the certainty of corporate-level taxation before distributions reach their hands.

Investor Engagement

Raising and managing capital is structurally easier in a corporation. The pass-through status of LLCs makes many institutional investors uncomfortable: under certain circumstances, LLC income reported on an investor’s K-1 creates tax obligations the investor did not anticipate or want. Moreover, transferring ownership interests in an LLC is more cumbersome than transferring shares of stock, even where resale restrictions apply. Institutional investors—venture capital funds, in particular—overwhelmingly prefer to invest in C-Corporations and may decline to participate in rounds structured through LLCs.

Governance

Corporations have statutorily mandated governance structures: a board of directors, officers, and shareholders with defined rights. This clarity is a feature, not a bug. Investors prize predictability, and the well-developed body of corporate law (particularly in Delaware) provides it. LLCs, by contrast, are governed by operating agreements that can be drafted with considerable flexibility—but that flexibility introduces uncertainty. Without a board, without officers, and without statutory defaults, LLC governance can become nebulous, particularly in disputes.

Intent to Scale

Entity selection sends a signal. Founders who organize as C-Corporations signal their intent to pursue venture capital, scale aggressively, and position the company for an exit through acquisition, merger, or IPO. The factors described above—standardized governance, ease of equity transfer, investor familiarity—make the corporation the preferred vehicle for these outcomes. Most accelerators, incubators, and venture platforms either recommend or require Delaware C-Corp status.

International Considerations

Crypto companies routinely operate across borders. Before filing incorporation papers, founders should assess how their geographic footprint exposes them to international regulatory and tax regimes. Three scenarios deserve attention.

Forming a U.S. Subsidiary

If you have an existing international entity, you may need to form a U.S. subsidiary for domestic operations. The decision should be driven by equity and governance considerations. If you want the equity of the new entity to mirror the parent, or if third parties will hold equity in the new venture, forming a separate entity may be preferable. If the parent will retain full ownership, a subsidiary is the cleaner path.

Before forming a subsidiary, review the governing documents of the parent entity carefully. Covenants, approval requirements, and secured creditor consent obligations may constrain your ability to form a subsidiary without advance authorization.

No International Affiliation

If you have no existing international entity, the decision is straightforward: incorporate in the United States in the jurisdiction best suited to your business model and capital formation strategy. Don’t try to get cute.

Selecting Your Jurisdiction

Delaware

Delaware remains the dominant jurisdiction for venture-backed startups, including those in the crypto space. The state is home to the majority of Fortune 500 companies and offers several structural advantages: a well-developed body of corporate case law, the specialized Court of Chancery, relaxed fiduciary duty standards, and broad familiarity among investors and counsel nationwide. Most accelerators and venture platforms recommend—or require—incorporation in Delaware.

Founders should be aware that Delaware periodically amends the Delaware General Corporation Law (DGCL). Recent amendments have addressed topics including officer exculpation (permitting charter provisions that limit officer liability for certain breaches of the duty of care) and stockholder ratification procedures. Staying current on DGCL developments is part of good corporate hygiene for any Delaware entity.

Wyoming and DAO-Friendly Jurisdictions

Wyoming has emerged as a leader in crafting accommodating legal frameworks for crypto and digital asset companies. In 2024, Wyoming enacted the Decentralized Unincorporated Nonprofit Association (DUNA) Act, which provides DAOs with a legal structure that grants separate legal personality, limited liability for members, and the ability to use distributed ledger technology for governance and operations. To qualify, a DAO must maintain at least 100 members. The DUNA framework represents a significant improvement over Wyoming’s earlier DAO LLC supplement from 2021, which grafted DAO governance onto the existing LLC framework with mixed results.

Other states—including Nevada, Texas, and Vermont—have explored or adopted DAO-friendly structures, though none has matched Wyoming’s comprehensiveness. Founders considering DAO governance should evaluate whether the operational and regulatory benefits of these newer frameworks justify incorporating outside Delaware, particularly given the trade-offs in investor familiarity and judicial precedent.

Offshore Jurisdictions

Some crypto projects incorporate in jurisdictions like the Cayman Islands, the British Virgin Islands, or Singapore for regulatory or tax reasons. While offshore structures can offer advantages for certain business models, they introduce complexity in U.S. regulatory compliance, tax reporting, and investor due diligence. U.S. founders pursuing offshore incorporation should do so with experienced international counsel, not as an attempt to evade U.S. regulatory obligations.

The Incorporation Process

The mechanics of incorporation are well-trodden, but attention to detail at this stage avoids compounding errors later. The following steps apply to a typical Delaware C-Corporation; other jurisdictions follow similar patterns with state-specific variations.

Complete the Certificate of Incorporation

The certificate is filed with the Delaware Secretary of State. It must include the corporation’s name, the name and address of the registered agent, a statement of authorized capital (including the number and classes of shares), and the name of the incorporator. Delaware allows broad statements of business purpose, and most certificates use generic language covering all lawful business activities.

Select and Appoint a Registered Agent

Every Delaware corporation must maintain a registered agent with a physical address in the state. The registered agent receives service of process and official correspondence on behalf of the corporation. Numerous third-party service providers offer registered agent services, which is particularly useful for founders who do not have a physical presence in Delaware.

File with the Secretary of State

Submit the certificate and pay the requisite filing fee. Approval establishes the legal existence of the corporation. Expedited processing is available for an additional fee.

Adopt Bylaws and Organizational Resolutions

After incorporation, the board of directors must adopt bylaws governing the corporation’s internal operations and approve organizational resolutions that, among other things, authorize the issuance of stock, appoint officers, designate a fiscal year, and approve the opening of bank accounts.

Draft and Execute an Operating or Stockholders’ Agreement

While bylaws govern the corporation’s internal mechanics, a stockholders’ agreement (or, for LLCs, an operating agreement) governs the relationships among equity holders. This document should address transfer restrictions, voting arrangements, board composition, drag-along and tag-along rights, and any other terms negotiated among the founding team.

After Incorporation

Filing the certificate is the beginning, not the end. The following post-incorporation tasks should be completed promptly.

Obtain a Federal EIN

Every U.S. business needs an Employer Identification Number (EIN) for tax filings and banking. Apply online through the IRS (Form SS-4) or via mail. Banks will not open business accounts without an EIN, and many third-party service providers require one before onboarding.

Assess Your Tax Footprint

Even if your team works remotely, physical presence and business contacts create nexus for state tax purposes. States are aggressive about capturing economic activity under their tax regimes. Consult a tax professional to determine where you have filing obligations, particularly if your operations, employees, or customers are distributed across multiple states.

State Tax Registrations

If your operations extend into multiple states, you may need state tax identification numbers and must file the requisite registration forms with each relevant state tax authority.

Licensing

Depending on your business model, you may need additional licenses. Money transmitter licenses are particularly relevant for crypto companies that facilitate payments, exchanges, or custody of digital assets. The licensing landscape varies dramatically by state and is an area where early consultation with counsel pays significant dividends.

Foreign Qualification

If your corporation is formed in Delaware but conducts business in other states, you may need to “foreign qualify” by filing with each additional state’s secretary of state. The threshold for what constitutes “doing business” varies by jurisdiction, but factors include maintaining an office, transacting a substantial amount of business, or manufacturing products within the state. Crypto companies should pay particular attention to this requirement: many states impose low thresholds on what qualifies as a substantial amount of ordinary business activity.

International Filing Requirements

If your company is a subsidiary of a non-U.S. parent, you must file a BE-13 survey with the Bureau of Economic Analysis within 45 days of incorporation. Failure to file can result in penalties.

Corporate Maintenance and Protection

Companies must comply with ongoing formalities to preserve the benefits of the corporate form. Failure to do so can result in penalties, loss of good standing, and—in extreme cases—personal liability for founders and directors.

Annual Filings and Tax Returns

Delaware requires an annual report and franchise tax payment. Separately, corporations must file federal income tax returns (Form 1120) by the fifteenth day of the fourth month following the close of each fiscal year (so, April 15 if you have year end as your end of fiscal year). State tax returns may also be required depending on your nexus analysis.

Corporate Formalities

Every state has its own requirements for maintaining corporate status. Common formalities include holding annual meetings of the board and stockholders (or acting by written consent in lieu of meetings), maintaining minutes or resolutions for all material corporate actions, and keeping corporate records current and accessible.

Piercing the Corporate Veil

If a corporation fails to observe requisite formalities, creditors may seek to “pierce the corporate veil” and hold individual shareholders personally liable for the entity’s obligations. Courts generally evaluate five factors: failure to adhere to corporate formalities, inadequate capitalization or insolvency, commingling of personal and corporate assets, fraudulent manipulation of liabilities, and misrepresentation to creditors. While veil-piercing is rarely successful, the risk is real—particularly for crypto founders who may have distributed teams, non-traditional asset bases, and novel capital structures.

Building a Compliance Program

A robust compliance program serves two purposes. Defensively, it demonstrates that the corporation operates as a separate legal entity, which is the best protection against veil-piercing claims. Offensively, it makes your business more attractive to investors. In an emerging market, investors expect detailed records covering organizational documents, capitalization information, regulatory communications, board and stockholder minutes, intellectual property filings, material contracts, and digital asset holdings.

The importance of compliance cannot be overstated in the current regulatory environment. Under the SEC’s evolving framework—including Chairman Atkins’ “Project Crypto” initiative and the principles underlying the GENIUS Act and CLARITY Act—companies that demonstrate good-faith compliance with existing rules position themselves favorably for the transition to fit-for-purpose regulatory frameworks. Regulators have consistently signaled that proactive compliance will be rewarded, whether through reduced enforcement exposure or preferential treatment under new safe harbor regimes.

Employment Considerations

Hiring and Employment Agreements

There is intense competition for crypto and Web3 talent. Finalizing employment agreements and offer letters should be a priority. Employment agreements should address compensation, equity incentives, termination provisions, and post-employment restrictions. Consult counsel to ensure that your agreements comply with applicable law in each jurisdiction where you hire.

Non-Compete Provisions

Non-compete clauses remain common in the tech and crypto industries, but enforceability varies dramatically by jurisdiction. The FTC’s proposed rule to ban most non-compete agreements was struck down in 2024, but several states—including California, which broadly prohibits non-competes—have their own restrictions. Founders should work with counsel to draft provisions that are enforceable in the relevant jurisdictions and proportionate to the legitimate business interests at stake.

Proprietary Information and Invention Assignment

Confidential Information and Invention Assignment Agreements (CIIAAs) are standard for crypto startups. These agreements typically require employees to refrain from using confidential information outside the scope of their employment, assign all inventions and intellectual property developed during employment to the company, and return confidential materials upon termination. In an industry built on proprietary technology, having enforceable CIIAAs in place from day one is non-negotiable.

Written by David Lopez Kurtz