I developed a web application prototype (with 70% functionality) and validated it with some potential customers. I've around 2-3 investors who are willing to invest to take the application to the next level (complete the remaining 30%, go to market, etc). So should I register a C-Corp and issues shares to them OR should I make them part of the company as co-founders? FYI, they will invest money and I've to take care of the execution.
Definitely a C-Corp in Delaware. You can use the SAFE (Simple Agreement for Future Equity). That's a better version of the convertible note, made by Paul Graham from Y Combinator. You can find it on his personal website.
You should buy the best seller book THE ART OF STARTUP FUNDRAISING by Alejandro Cremades. You can find it on Amazon.
If they invest money in the early stage of your business, this is a great opportunity to put a "market" value on your business. One of the hardest thing for any startup who only have a protype with no revenue is put a value on your business. For eg. One of the company I raised early funding for, we secured 2 lots of $150k for 10% each. So that equates a market valuation of $1.2m. Your accountant can help you set this up and create a CAP table to keep track of equity dilution.
If they are truly just investors and not contributing as founders I would suggest structuring it as an investment. This does mean registering as a corporation. Registering your company is not all that difficult to do on your own.
If your concerned about the legal fees associated with properly setting up investors I would suggest checking out a SAFE (simple agreement for future equity). The SAFE is investment tool developed by Y Combinator, you can find more info at https://www.ycombinator.com/documents/#safe
As a disclaimer, it's always a good thing to speak with a Corporate Attorney before making any agreements or taking on investments.
