Defines a company as a legal entity, formed for profit or not for profit, with its own rights and obligations. Company types differ in the rules, practices and processes used to direct them, which are set out in the charter (certificate or articles of incorporation) and the bylaws.

The separation is the point: the entity, not Maya or Daniel, signs clinic contracts and BAAs, owns the code and issues shares. The charter fixes authorized shares and share classes; the bylaws set how directors are elected and how meetings and approvals work. Every later financing amends one or both.

Formation is usually triggered by economic or legal concerns; until then founders are by default operating as a sole proprietorship (or, with two or more owners, a general partnership). Triggers include limiting personal liability, paying people or allocating equity, launching a paid product, raising money (even crowdfunding), sorting out IP, tax planning such as an expected acquisition, and building business credit.

Relay crossed several triggers at once: the pre-seed SAFE in month 2, founder equity, and paid pilots handling patient data, which raises liability and makes a BAA counterparty necessary. Two founders working together without an entity may be treated as a general partnership, with personal liability. That is a reason not to delay.

A checklist of obstacles: an invention assignment agreement with a current or former employer, infringement of others' IP, non-compete and non-disclosure agreements, an employer that bars the work, co-founders with the same restrictions, and non-solicitation ('antipiracy') clauses that bar hiring former colleagues. It also notes the value of staying in stealth.

This is Relay's diligence list. Daniel built SMS and scheduling systems at a health-tech company: his invention assignment and confidentiality terms decide whether any Relay code or design overlaps. Maya's former PT group may have non-solicit terms covering its clinics and staff. Enforceability of non-competes varies by state and changes; counsel must check current law and the actual agreements.

Advice to hire counsel early for incorporation, contracts, IP, equity and tax advice and investor introductions. Hire a person rather than a firm, distinguish startup, IP, corporate and tax specialists, interview several and check references with other founders, understand fees, and remember that company counsel represents the company, not any one founder. It cites about $5,000-10,000 for a Delaware C-corp formation in Silicon Valley.

The point that company counsel is not each founder's advocate matters when Maya and Daniel negotiate 52/48 and vesting; either may want independent advice. The fee figure is historical; current fees vary widely, and many firms defer fees or use fixed packages.

The governance agenda at incorporation: legal form, state of incorporation, charter and bylaws, equity structure (founder, common and preferred stock, vesting, acceleration), IP ownership, and agreements for non-founder employees.

Use it as a checklist for Relay's formation brief. Each item connects to another lesson: vesting and acceleration (L24), IP assignment (L26), preferred stock (L30-L32).

A table comparing sole proprietorship, LLC, S-corp and C-corp on limited liability, tax, paperwork and share sale. A note says VC-backed companies should be Delaware C-corps and no VC will consider an LLC. It also states the IRS rule that an LLC is not available if more than two of four corporate characteristics apply.

The direction is right for Relay: venture funds generally prefer C-corps because of preferred stock, option plans, QSBS and fund-investor tax issues. 'No VC will consider an LLC' overstates it. The IRS four-characteristic test is obsolete: since the 1997 check-the-box regulations, a domestic LLC defaults to partnership (or disregarded) treatment and can elect to be taxed as a corporation.

LLCs are flexible, inexpensive to form and run, and protect members from liability beyond their investment. Members hold units rather than shares, which the slide says makes LLCs unsuitable for issuing investor shares or going public. An LLC is formed by filing a certificate of formation and adopting an operating agreement.

An LLC suits a cash-flowing services firm or a holding vehicle. For Relay, pass-through losses would flow to the founders, but investors would face partnership tax issues, standard option plans and preferred stock templates would not fit, and QSBS would be unavailable, since it applies only to C-corporation stock. Converting later is possible but costs time and money.

A table across management, limited liability, separate taxation, capital sources, multiple stock classes, entity owners, non-US owners, owner limits and administration. S-corps are capped at 100 shareholders, allow one class of stock, and bar entity and non-US owners; C-corps allow all of these, but both the entity and shareholders are taxed.

The S-corp rows rule it out for Relay: a venture fund (an entity) cannot hold S-corp stock, and preferred stock would be a second class. The 'double tax' on C-corps matters less for a loss-making startup that reinvests and plans an exit. Rules change; confirm the current position.

The Court of Chancery specializes in corporate disputes, sits without juries, and its judges are appointed rather than elected. Delaware has the deepest body of case law on how corporate law applies to startups and large companies. The slide calls the law pro-management, making shareholder suits harder, and notes that filings at a financing are processed quickly.

Investors and lawyers value predictability: standard financing documents are written for Delaware, which lowers legal cost for Relay's seed and Series A. Delaware amended its corporation law in March 2025 (SB 21) after some companies moved to Nevada or Texas; the choice is still the default for venture-backed startups, but it is not static.

Delaware permits a one-person board, whereas some states such as California have required more directors. The slide lists low-cost automated filings, an annual filing fee ($50 domestic, $125 foreign), a franchise tax of about $350 for a startup with no value, and $90 to incorporate.

Several figures are dated. Delaware's current minimum franchise tax is $175 under the authorized shares method and $400 under the assumed par value capital method, plus the $50 annual report fee, due March 1. A startup with millions of authorized shares gets a very large bill under the default authorized shares method and must recalculate under the assumed par value capital method. Relay, operating in Austin, must also register in Texas as a foreign corporation.