Is there a deadline for completing the post-incorporation setup?
There is no hard deadline for completing the post-incorporation setup. However, it is generally recommended that you complete the post-incorporation setup promptly after incorporating because the tax holding period for a founder's shares does not begin until the corporation formally issues the shares.
In addition, it is important to complete the post-incorporation setup before your company conducts business or enters into contracts for the following reasons:
- The corporation does not have directors and officers to act or sign documents on the corporation's behalf until the post-incorporation setup is complete. Prior to the post-incorporation setup, some or all of the founders may be personally liable for actions or contracts entered into by the company.
- Under the doctrine of "piercing the corporate veil", founders and other people acting on behalf of the corporation are exposed to personal liability for the corporation’s activities if a corporation does not properly observe corporate formalities.
- The corporation may not own the intellectual property created by founders until the post-incorporation setup is complete. IP is often at the heart of a startup’s value, so it’s important to make sure that the company can use the IP without any restrictions, even after a founder departs.
- The post-incorporation setup is a prerequisite for qualifying to do business in your state. Consequences for conducting business before foreign qualifying vary from state to state. For example, possible consequences if a Delaware corporation conducts business in California before foreign qualifying:
- Civil penalties and sanctions
- Corporate criminal liability
- Criminal liability for founders or other individuals acting on the company’s behalf
Consult an attorney if you have questions about your specific circumstances.