LEGAL/CORPORATE STUFF - The 411 On Startups (tm)

When an Eight-Figure IPO Windfall Can Mean a Zero-Digit Tax Bill

Aug

2019

Shares are eligible for Qualified Small Business Stock (QSBS) if they’re issued when a company has gross assets of $50 million or less. If you hold on to the stock for at least five years, you can avoid taxes on $10 million of any gains when you sell. But that $10 million is only a ...

Investment Return Illustration: LLC vs. C Corp | CTAN

Mar

2017

Investment Return Illustration: LLC vs. C Corp First, it is not unlikely that an acquirer will insist on buying the assets of the company rather than the stock. Thus, they buy what is INSIDE the company (i.e. the “assets”), but not the stock of the Company itself. The Company receives the sales proceeds directly from ...

CTAN’s Thoughts on LLC’s vs. C Corp vs. S Corp Legal Structures

Mar

2017

While CTAN will consider investing in any form of legal entity, the two most commonly seen are Limited Liability Companies (“LLC’s”) which are electing to be taxed as a partnership and therefore pay no tax at the Company level, and C Corps which are Corporations subject to the Corporate taxation regime in addition to any ...

SEC OKs Equity Crowdfunding, So Anyone Can Invest In Private Companies | TechCrunch

May

2015

Earlier this week, the Securities and Exchange Commission (SEC) announced a new set of rules implementing Title IV of the JOBS Act. These changes affect Regulation A small public offerings, and are colloquially referred to as “Reg A+”. The release of these final rules further advances one of the core principles and goals of the ...

Stock Options versus Stock Warrants – What’s the Difference?

May

2013

I frequently hear clients and some of their advisers talk about “stock options” and “stock warrants” and there is often considerable confusion between the two. In this post, I’ll briefly describe the major distinctions between these instruments and how each can be used in a privately held company. Stock options are issued to key employees, ...

Valuation and Option Pool — Understand the trade off

May

2012

One of the more contentious things in the negotiation between an entrepreneur and a VC over a financing, particularly an early stage financing, is the inclusion of an option pool in the pre-money valuation. As my friend Mark Pincus likes to say, “it’s just another way to lower the price”. I’ll accept that critique. And ...

Vesting Calculator for Restricted Stock and Stock Options

May

2012

Options and restricted stock in a startup are subject to vesting. This is done to associate the rewards of equity ownership with the time and effort put into creating value for the company. Although vesting schedules can be infinitely flexible in theory, in practice they don’t vary that much. You’ll find that the majority of ...

5 ‘IP’ Mistakes Start-ups Should Avoid

May

2012

Venture capitalists, angel investors and start-up lawyers these days tend to be obsessed with “intellectual property,” or IP. And for good reason: In the information economy, the core assets of a new venture are likely to be talented people, the IP they create, and little else. To maximize future value, founders should try to lay ...

Option Pool, Post-Money and True Pre-Money. Trade Pool for Valuation.

May

2012

One of the common areas of misunderstanding, and therefore conflict, in financing negotiations has to do with the relationship between the pre-money valuation and the option pool. Investors want the company to have an adequate option pool for future hiring and it is customary to include the pool in the pre-money valuation. Some entrepreneurs see ...

Splitting the Founders Stock — Amount Depends on Contribution

Apr

2012

One of the first tough decisions that have to make is how to allocate or split the equity among co-founders. The easy answer of splitting it equally among all co-founders, since there is minimal value at that point, is usually the worst possible answer, and often results in a later startup failure due to an ...