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How soon after incorporating do founders need to issue their stock?

83(b)TaxFormationEquity

No statute says when a new corporation has to issue founder stock, adopt bylaws or hold its first board action. The deadline that matters is the one attached to the 83(b) election: it must be filed with the IRS no later than 30 days after the stock is transferred to you, and the statute allows no extension and no revocation without the IRS's consent. So the practical rule is to issue founder stock at or immediately after formation, while the shares are worth par value, and file the election inside the window that opens on that date.

What the election does

Founder shares vest, and the tax code's default is to tax each installment as ordinary income when it vests, at whatever the shares are worth by then. The 83(b) election changes the taxable moment to the issuance, on the difference between the shares' value and what you paid. At formation that difference is usually zero, so the election reports no income and every later increase in value is taxed as capital gain when you sell. Miss the 30 days and you are back on the default, paying income tax on a rising number every month for four years.

Why waiting to issue is expensive

The clock is the smaller problem. The larger one is that a company that ships a product, signs customers or raises money before issuing founder stock has stock that is worth more than par. Issuing it at par then means the founders receive shares below value, which is taxable compensation, and the company needs a valuation it can defend. Until the shares are issued, the founders also still own the code and the name personally, and every investor's diligence checklist asks about that gap.

Arabella's Delaware formation packet issues founder stock as part of formation and produces a signed 83(b) election for each founder with mailing instructions. The 30 days still run from the issuance date, and the filing is yours to post.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.