October 13, 2026
Founders often spend their own money before the company exists, on domains, hosting, formation costs or a prototype. That money can be repaid, but only if you keep the records and the company formally takes on the obligation after it’s formed. Keep every receipt, have the company’s first board consent ratify the pre-incorporation expenses and authorize repayment, then reimburse when the company has cash. Larger or ongoing founder funding should be papered as a loan or, once the company exists, a SAFE on the same terms other investors get.
Key takeaways
Expenses the company would have paid itself if it had existed: formation and legal fees, domain names, hosting and software, equipment used for the business, prototype or design work, and business travel. Personal expenses don’t qualify just because the business was on your mind at the time.
How the company treats these costs for tax purposes is a separate question. The tax code treats costs incurred before a business starts operating as start-up costs, lets the company deduct a limited amount in its first year and spreads the rest over many years. Business meals are only partly deductible and entertainment generally isn’t deductible at all. Ask your accountant or tax advisor how this applies to your expenses before you file the company’s first return.
A two-founder company doesn’t need an expense-report process. It needs one spreadsheet with the date, vendor, amount, business purpose and who paid, plus a copy of every receipt. Keep it current from the first dollar. Reconstructing a year of credit card statements later is painful, and expenses you can’t support shouldn’t be repaid.
If a founder signed contracts in their own name before incorporation, such as a domain registration, a software subscription or a contractor agreement, have the company take them over. The board consent can adopt them, and contractor work should be assigned to the company in writing. See Who Owns Startup IP?
The initial board consent, signed when the company is formed, should include a short resolution ratifying the founders’ pre-incorporation expenses and authorizing the company to reimburse them. The simplest version attaches the spreadsheet as an exhibit, approves reimbursement of the listed amounts, and lets the officers decide when to pay based on the company’s cash. That record is what lets the company repay the founder as a business expense rather than a gift or a distribution. See Startup Board Consent and Delaware C Corp Incorporation Documents.
Because a founder who sits on the board is approving their own repayment, disclose it in the consent. If you have an independent director, have that director approve it too.
It depends on how much money is involved and whether it keeps coming.
| Situation | Usual approach | Document |
|---|---|---|
| Hundreds or a few thousand dollars of setup costs | Reimburse when the company has cash | Expense log and board consent ratifying the expenses |
| Larger amounts, or a founder who keeps funding the company | Founder loan | Promissory note from the company, approved by the board |
| A founder who wants to invest alongside outside investors | Founder SAFE | SAFE dated when the money goes in, on the same terms as other investors |
A founder loan is a promissory note from the company to the founder, with a repayment date and interest. The IRS expects related-party loans to carry at least a minimum interest rate, so ask your tax advisor what rate to use. Unsecured notes are normal. Investors will see the note in diligence, and some will ask that it be repaid only after the round, converted, or subordinated, so keep the amount reasonable and the paperwork clean. See Convertible Notes.
A founder SAFE treats the founder like any other investor: the founder pays cash to the company and gets a SAFE that converts in the next priced round. Use the same terms outside investors get, so no one later questions whether the founder gave themselves a better deal. See SAFE.
No. A SAFE or note should be dated when it’s signed and the money goes in. Money spent before the company existed gets ratified and reimbursed, or the company can agree to treat the reimbursement amount as a loan going forward. If a founder wants to roll what they’re owed into the next round instead of taking cash, document that with a written agreement at the time, on the same terms as the round.
Don’t. Founders buy their stock at formation at par value, which is fair market value for a new company. Issuing extra shares to the founder who spent more skews the ownership split the founders agreed to and creates valuation questions later. Repay the money as money. See Founder Equity.
Decide what it was. If a relative gave money to the founder personally, it’s the founder’s money, and the founder can then lend or invest it in the company once it exists. If the relative meant to invest in the business, paper it once the company exists, with a SAFE or note dated when signed, and make sure the relative understands they’re investing in a risky startup. See What Do I Tell My Friends and Family Interested in Investing in My Startup?
We recommend against it. Founders who aren’t being paid should set their salary to zero in writing rather than accrue a deferred salary the company owes them. Accrued salary sits on the books as a liability investors will ask about, and it can raise wage-law and tax issues. See Startup Founder Salary.
For more, see I Just Incorporated My Startup. Do I Need to Do Anything Else? and When Should I Incorporate My Startup? If you’d like help papering founder expenses or a founder loan or SAFE, contact us.
