Crowdfunding founders, take note! You don’t want hundreds or thousands of individual investors cluttering your cap table. The SEC’s Form C gives you the option to raise funds through a Special Purpose Vehicle (SPV), so only the SPV appears on your cap table, simplifying things for your business.
When it comes to repurchase rights in VC firms, the key is fairness. If you’re granting the company the option to buy out a departing partner’s equity, make sure the valuation is based on fair market value to protect all parties involved. Remember, one day, you could be the one leaving!
When reviewing restricted stock agreements, it’s important to avoid unnecessary obligations that could backfire later. A common mistake is writing an obligation for the company to buy back unvested shares at par value, which is often so minimal it’s not worth the hassle.
ESOP vs. EIP: Don’t Mix Them Up
Founders often confuse ESOPs and EIPs. ESOPs are complex and costly best for mature companies. EIPs are startup-friendly, offering affordable equity options. Choosing the wrong one can cost you.
Key Elements Every Founder’s Agreement Needs
Don’t skip the basics include restricted equity terms, defined founder roles, and deadlock resolution. A solid Founder’s Agreement protects your startup from disputes and founder fallout.
There are many types of businesses, but if you own a lifestyle business like a boutique fitness studio, a family-run restaurant, or an online coaching service you should consider setting up your company as an S Corp. This can help you save on taxes, allowing you to keep more of your hard-earned income. Making the right choice now can make a big difference in your business’s financial health down the road.
S Corps limit growth with restrictions on shareholder citizenship, stock classes, and investor count. If you’re raising venture capital, choose a structure that supports flexibility and scale don’t risk turning away investors.
Don’t let the majority member change your operating agreement without your consent! As a minority investor or partner, this protection can save you time and headaches, ensuring your interests are safeguarded.
Avoid these costly missteps:
Issuing Certificated Shares
Using a Corporate Seal
Appointing Unnecessary Officers
Why it matters:
Improperly authorized actions can delay fundraising or acquisitions and cost thousands to fix. Clean governance now avoids expensive cleanup later.
