Every week we hear the same myths from founders who learned legal strategy from Twitter threads and podcast guests. Here's what's actually true — and what it costs when you get it wrong.
Myth: "LLC vs. C-Corp doesn't really matter"
This one costs founders real money. If you're planning to raise institutional capital, an LLC creates immediate friction. Most VCs won't invest in LLCs because of tax complications — they'll require you to convert, which means legal fees, potential tax events, and delays right when you need to close.
The reality: If you're building to raise, start with a Delaware C-Corp. If you're bootstrapping or building a lifestyle business, an LLC might be right. The choice matters — make it intentionally.
Myth: "Founder agreements are for when you don't trust each other"
Actually, founder agreements are for when you do trust each other. When things are good, you can have rational conversations about equity splits, vesting schedules, and what happens if someone leaves. Try having that conversation during a dispute.
The reality: A founder agreement with vesting protects everyone. It ensures that equity is earned over time and that a departing founder doesn't walk away with 50% after 3 months of work.
Myth: "Templates are enough"
Templates are a starting point, not a finish line. They work fine until you need them to actually work — in a dispute, during diligence, or when an investor's lawyer starts asking questions. Generic language creates generic problems.
The reality: Templates save time on structure. But the specifics — IP assignments, confidentiality carve-outs, termination triggers — need to match your actual situation. That's where the value lives.
The Cost of Getting It Wrong
We've seen founders lose months of runway cleaning up entity structure issues during a raise. We've watched co-founder disputes destroy companies that could have been saved with a $2,000 agreement upfront. We've reviewed "template" contracts that left IP ownership genuinely ambiguous.
The pattern is always the same: save money on legal now, spend 10x fixing it later.
Talk to counsel early. Not because lawyers love billable hours, but because prevention is genuinely cheaper than cleanup. A $3,000 formation done right beats a $30,000 restructuring every time.