This is a nice summary of many of the legal issues affecting early-stage startups.
Any entrepreneur or startup lawyer can take issue with any given issue but this does not detract from the overall value of this piece.
Points of difference and/or clarification:
1. LLCs often work fine for early-stage startups, offering an easy and inexpensive way for founders to get started in many cases (caution here: if there is an "always" to be said in these situations, always do an initial consultation with a knowledgeable startup lawyer to at least understand what trade-offs and compromises are involved in doing this sort of "simple" setup because it is not without risks - such a consultation is very inexpensive and well worth it for the knowledge gained - for a start on the main pluses and minuses of an LLC, see my comment here: http://news.ycombinator.com/item?id=1276805).
2. High on the list should be to make sure that IP assignments are done in connection with any equity grant made to founders for work performed before the company is formed. If you don't do this, all such IP will normally belong separately to the founders who did the work and not to the company, even if they do get a fat stock grant at the start. A formality, but a very important one.
3. I am not dogmatic about Delaware and, indeed, have pointed out that Delaware is more VC-friendly than it is founder-friendly (http://grellas.com/faq_business_startup_002.html) - therefore, think very carefully before making this decision. Delaware can be a good pick and may be the best - it just should not be automatic in my view.
4. Vesting for founders is not always required. It normally is when you have a founding team of relatively equal founders (for the reasons stated in this piece - you don't want someone casually walking away with a big piece of the company). If one founder is dominant in relation to others being brought in for more secondary roles (and for comparatively small equity pieces), there is no need necessarily for the primary founder to make his shares subject to vesting at inception. Of course, if the company gets funding, investors likely will insist that vesting apply but not all startups look to fund in this manner. At the start, (1) all founders can have their stock subject 100% to pro rata vesting; (2) none of them need do so; (3) some may be subject to vesting while others are not; (4) any given founder can have his equity grant partly vested immediately while the balance is subject to vesting; (5) such vesting as is used may vary widely, from one to four years or more, with or without cliff (usually not for founders); or (6) any of all sorts of variations on the foregoing. Hence, there is no dogmatic rule here. It all depends on what the founders needs are and how much value they have built up before starting the company (this is relevant because vesting necessarily raises the risk of forfeiture and no one wants to forfeit that which has already been made valuable prior to the start). Collateral issues: accelerated vesting on certain events, such as termination without cause and acquisition - each of these has a variety of issues associated with it and investors in particular will often object to any liberal forms of acceleration.
5. Tax is often a huge issue at the start if the company formation is mangled - that is, if founders take their "cheap" stock at or about the same time as investors pay large dollars for theirs, there may be a serious risk of service income being attributed to the founders on which they must pay tax.
6. Concerning 83(b), this is also huge but irrelevant if there is no vesting and no risk of forfeiture connected with the grants made to founders (it is virtually mandatory if stock is granted as restricted stock, with its attendant risk of forfeiture, but not otherwise). It also is not needed for stock options unless there is an early exercise provision which is exercised at the start.
Any entrepreneur or startup lawyer can take issue with any given issue but this does not detract from the overall value of this piece.
Points of difference and/or clarification:
1. LLCs often work fine for early-stage startups, offering an easy and inexpensive way for founders to get started in many cases (caution here: if there is an "always" to be said in these situations, always do an initial consultation with a knowledgeable startup lawyer to at least understand what trade-offs and compromises are involved in doing this sort of "simple" setup because it is not without risks - such a consultation is very inexpensive and well worth it for the knowledge gained - for a start on the main pluses and minuses of an LLC, see my comment here: http://news.ycombinator.com/item?id=1276805).
2. High on the list should be to make sure that IP assignments are done in connection with any equity grant made to founders for work performed before the company is formed. If you don't do this, all such IP will normally belong separately to the founders who did the work and not to the company, even if they do get a fat stock grant at the start. A formality, but a very important one.
3. I am not dogmatic about Delaware and, indeed, have pointed out that Delaware is more VC-friendly than it is founder-friendly (http://grellas.com/faq_business_startup_002.html) - therefore, think very carefully before making this decision. Delaware can be a good pick and may be the best - it just should not be automatic in my view.
4. Vesting for founders is not always required. It normally is when you have a founding team of relatively equal founders (for the reasons stated in this piece - you don't want someone casually walking away with a big piece of the company). If one founder is dominant in relation to others being brought in for more secondary roles (and for comparatively small equity pieces), there is no need necessarily for the primary founder to make his shares subject to vesting at inception. Of course, if the company gets funding, investors likely will insist that vesting apply but not all startups look to fund in this manner. At the start, (1) all founders can have their stock subject 100% to pro rata vesting; (2) none of them need do so; (3) some may be subject to vesting while others are not; (4) any given founder can have his equity grant partly vested immediately while the balance is subject to vesting; (5) such vesting as is used may vary widely, from one to four years or more, with or without cliff (usually not for founders); or (6) any of all sorts of variations on the foregoing. Hence, there is no dogmatic rule here. It all depends on what the founders needs are and how much value they have built up before starting the company (this is relevant because vesting necessarily raises the risk of forfeiture and no one wants to forfeit that which has already been made valuable prior to the start). Collateral issues: accelerated vesting on certain events, such as termination without cause and acquisition - each of these has a variety of issues associated with it and investors in particular will often object to any liberal forms of acceleration.
5. Tax is often a huge issue at the start if the company formation is mangled - that is, if founders take their "cheap" stock at or about the same time as investors pay large dollars for theirs, there may be a serious risk of service income being attributed to the founders on which they must pay tax.
6. Concerning 83(b), this is also huge but irrelevant if there is no vesting and no risk of forfeiture connected with the grants made to founders (it is virtually mandatory if stock is granted as restricted stock, with its attendant risk of forfeiture, but not otherwise). It also is not needed for stock options unless there is an early exercise provision which is exercised at the start.
A nice checklist for going through legal issues at the start, with related HN commentary, may be found here: http://news.ycombinator.com/item?id=1198968.