> ## Documentation Index
> Fetch the complete documentation index at: https://docs.talcottforge.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Entity Formation

> Entity formation for Nexus 401(k): why ROBS requires a C-Corporation, sequencing, and jurisdiction considerations.

## Why a C-Corporation?

ROBS requires a C-Corp because the 401(k) plan must purchase **qualifying employer securities** - stock - which only C-Corporations issue in the way required under IRC 401(a). LLCs, S-Corps, and sole proprietorships cannot be used.

<Note>
  If you haven't formed your entity yet, that's fine. Nexus coordinates entity formation as part of the ROBS setup process. Don't form your entity before starting the ROBS process - the plan and entity need to be set up in the correct sequence.
</Note>

## Choosing a Jurisdiction

The right jurisdiction depends on where the business will operate, whether outside investors are likely, and how much state-level complexity you want to carry.

<Tabs>
  <Tab title="Delaware">
    **Best for:** Most companies that may eventually raise outside capital or want the most familiar corporate-law framework.

    **Advantages:**

    * Most developed corporate law in the U.S. (Court of Chancery)
    * Standard for venture-backed companies
    * Flexible corporate governance statutes
    * Well-understood by investors, attorneys, and regulators

    **Considerations:**

    * Annual franchise tax (\$400 minimum for small companies)
    * If you operate in another state, you'll also register as a foreign corporation there
  </Tab>

  <Tab title="Home State">
    **Best for:** Many Nexus customers whose business will primarily operate in one state.

    **Advantages:**

    * Avoids unnecessary foreign-registration filings
    * Usually easier for banking, licenses, payroll, and state tax setup
    * Reduces administrative complexity

    **Considerations:**

    * State-specific fees, taxes, and reporting rules vary
    * Some investors prefer Delaware if outside financing becomes important
  </Tab>
</Tabs>

## Formation Sequence

The order of operations matters in ROBS. Here's the correct sequence:

<Steps>
  <Step title="Form the C-Corporation">
    File articles of incorporation with the state. Obtain your Certificate of Incorporation.
  </Step>

  <Step title="Obtain an EIN">
    Apply for an Employer Identification Number from the IRS. Required for the 401(k) plan and business operations.
  </Step>

  <Step title="Adopt Corporate Governance">
    Bylaws, initial board action, officer appointments, and share authorization. Nexus generates these documents.
  </Step>

  <Step title="Establish the 401(k) Plan">
    The C-Corp adopts the 401(k) plan. Plan documents (Adoption Agreement, Trust Agreement) are generated.
  </Step>

  <Step title="Roll Over Retirement Funds">
    Your existing retirement funds transfer to the new 401(k) plan.
  </Step>

  <Step title="Purchase Stock">
    The 401(k) plan purchases C-Corp stock. The corporation now has working capital.
  </Step>
</Steps>

## Stock Structure

For a new ROBS company, stock is typically issued with a low **par value**. The share purchase price is set based on your total rollover amount and the number of shares authorized.

**Example:** If you're rolling over \$150,000 and the company authorizes 150,000 shares, the 401(k) plan purchases 150,000 shares at \$1.00/share. The C-Corp receives \$150,000 in working capital. The par value (\$0.0001) is a legal minimum - the actual purchase price per share is determined by the capitalization structure.

Nexus performs an initial fair-market valuation for the qualifying employer securities purchased by the plan trust. Appraisals become more relevant in Year 2+ for ongoing plan valuations and for acquisitions or operating businesses with assets, revenue, or other valuation inputs.

<Card title="Start the Process" icon="arrow-right" href="/robs/eligibility">
  Check your ROBS eligibility to get started.
</Card>