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...
The introduction of a disruptive technology leads to the collapse of sales of recorded music. Does this refer to the impact of legal and illegal digital music downloads on CD sales? Certainly.
Advisory boards are powerful tools used by companies at all stages of development. Advisory boards are generally comprised of business leaders, scientists, professionals or other persons of influence. Advisory boards can have general duties, such as providing critical advice and introductions, or they can be more issue-focused, such as advising on specific industry sectors or particular products, transactions or other critical strategic decisions.
Entrepreneurs think big, with visions of iconoclastic products and services that transcend markets. To help these lofty goals, entrepreneurs must learn lessons from innovators in other industries. Today, we turn to the freewheelin' Bob Dylan for some unconventional startup advice.
It is essential for start-up companies to properly characterize their service providers who are individuals (i.e., natural persons) as either employees or independent contractors (i.e., consultants). Among other matters, a company is required to pay payroll taxes and comply with minimum wage and hour laws for its California-based employees but not its contractors.
Starting a company has many challenges—the biggest being how to attract top talent when you are cash-strapped. Many companies solve this by offering equity for services.
On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (aka the JOBS Act), which included the cleverly titled Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act, or "CROWDFUND Act." The CROWDFUND Act established a securities law exemption (codified at Section 4(a)(6) of the Securities Act) allowing startups to raise funds under conditions that would have previously been considered a general solicitation.
There is no required minimum or maximum number of shares by law that must be issued to founders or reserved in the equity incentive (stock option) pool in a startup. Of course, what does matter is the percentage of the company each individual stockholding represents. A startup may issue 100 shares or 100 million shares at formation, and 50 shares in the former or 50 million shares in the latter still represents 50% of the equity of the startup. A typical equity pool is between 10% and 20% of the total number of shares issued and reserved for issuance.
Perhaps few times for an emerging growth company present more risk than the transition of a founder/CEO to "employee" status. This often happens later in the startup life cycle, when a company has funding and/or sales traction. The difference between a smooth and rocky transition can represent the difference between success and failure of the company.