Founding a company can be an overwhelming experience, but for those founders looking to raise capital from angel or venture capital investors, deciding where to incorporate and selecting an entity type are two choices that deserve careful consideration.
Many startup owners, in the early days as the sole owner, may feel tempted to run “sort of” personal expenses through their corporation on the theory that they have no other owners to harm.
Negotiating a lease for your company’s office or facility can be precarious. Real estate is not your core business, and you do not want to spend tremendous time (or expense) finalizing the lease document. In addition, start-ups and emerging companies without strong financials do not enjoy significant leverage in strong real estate markets.
Sometimes, about January, I get an urgent call from a founder telling me that his or her corporation has received a franchise tax bill from the State of Delaware for tens of thousands of dollars.
The vast majority of technology startups are capitalized in the same manner: common stock to the founders, common stock reserved in an option pool for employees and consultants, and preferred stock (Series A, Series B, etc.) sold to investors. However, a small but probably growing percentage of startups consider a more complicated stock structure that includes, in addition to the types of equity above, a special class of common stock reserved for founders.
Founders often seek advice regarding the amount of capital to be raised. The conventional wisdom is to raise sufficient capital to permit the company to achieve a milestone that will result in a material increase in the company’s value. The milestone might be…
For a start-up company, noncompetition agreements typically arise in one of the following contexts; a founder or new employee entered into a confidential information and inventions assignment agreement (or similar agreement) with his or her former employer that prohibits competing with the former employer, the start-up company wants to prohibit a terminated employee from competing with the company, or in an acquisition, the buyer demands a founder and/or key employee sign a noncompetition agreement.
As a founder of a start-up company, you will likely be spending the bulk of your time refining your business plan, pitching your ideas to VCs and looking for talented and experienced employees to fill out your team. Admittedly, in the early days, you probably won’t have much time for anything else, including attending to corporate formalities. However, giving some early attention to establishing and maintaining good corporate hygiene will pay dividends down the road that far exceed the fairly nominal investment required up front, especially when it comes to raising money or gearing up for an ultimate exit, such as a sale of the company or IPO. Here are a few fairly simple things that every start-up should do early in its lifecycle.
We find ourselves explaining 83(b) elections several times a week, so we thought it would be a good blog topic.
In the start-up world, the opportunity to file of an 83(b) election generally arises in the context of a founder purchasing low-priced “founder” common stock of a start-up company that is subject to vesting, or an employee, director or other service provider of such a company “early exercising” an option for stock that is subject to vesting. Such stock is sometimes also referred to as “unvested” stock or stock subject to “reverse vesting.” All this means is that…