LEGAL
Governance & Compliance
Startup Tax & Compliance Basics
Startups face tax obligations from day one—local, state, federal, and sometimes international. Missing deadlines or misclassifying expenses can lead to fines, audits, or legal complications.
Why it Matters
Taxes and compliance may not be glamorous, but missing filings, registrations, or deadlines can lead to penalties, legal issues, or investor hesitation. Getting the basics right keeps your startup in good standing and your books clean.
Founders Checklist
File federal, state, and franchise taxes annually (or quarterly if required)
Stay in “good standing” in Delaware and your home state
Register for foreign qualification if operating outside your state of incorporation
Issue correct W-2s (employees) and 1099s (contractors) by January 31
Use a payroll system that auto-calculates withholding and compliance
Founder Fails
Missed Delaware tax deadline > status “voided,” couldn’t close round
Didn’t issue 1099s > IRS penalties + confused contractors
Failed to register in operating state > barred from court enforcement
When to ask for Help
When incorporating or registering in multiple states
Before issuing equity, paying bonuses, or hiring employees
During your first funding round or 409A valuation
If you’re unclear on sales tax, R&D credits, or international revenue
At year-end or when choosing accounting systems
Frequently Asked Questions
Q: What’s a Delaware franchise tax and when is it due?
A: It’s a yearly fee paid by Delaware C Corps to maintain corporate status. It’s based on your share structure or assets and is due March 1 every year.
Q: What’s “foreign qualification”?
A: If you incorporate in Delaware but operate in another state (e.g. California, New York), you must register there as a foreign entity and pay local taxes.
Q: Do I need a CPA or can I DIY?
A: Early on, you can use tools like Pilot, Bench, or QuickBooks. As soon as you start handling payroll, cap table complexity, or investor reporting, bring in a startup-focused CPA.