When you form a new startup, very few people want to be on the board of directors except for the principals who are involved in the company. There is liability for being on the board of directors as well as a potential liability for being an officer in the company. What we often do is what we call the “Directors and Officers Liability Insurance.” It is not inexpensive (thousands of dollars or more per year).Read More…
What do you give to advisors in your company? Generally speaking, you do not give them money because you are a start-up and you cannot afford a lot. We give between a quarter and a half percent of stock to an advisor with an agreement that they will work with you for 12 months and that the stock vests over 12 months. If after 6 months they haven’t worked with you, you can stop theRead More…
When you form a new entity, you have requirements for documentation and filing on an annual basis. You have to do annual minutes for the board of directors’ meeting and for the shareholders’ meeting. You have a filing with the state telling them who your officers are every year and you have your tax returns in many states that have to be filed on a quarterly or annual basis. If you don’t make these filings,Read More…
People often talk about a company going public. There are two ways to go public. One is an initial public offering (IPO). The other is through a reverse merger where you find a company that is already public and you fold your company into that company. The reverse merger has its own issues that you have to think through very carefully before you do it. The IPO is a really neat way to bring moneyRead More…
When you first start a company, people ask, “Do we need to enter into employment agreements with ourselves?” Generally speaking, the answer is no. You can come to an agreement on how much compensation you are going to make, when you are going to make it, how much capital you are going to raise, and what is going to happen when you raise that capital. You set your expectations properly, but there is no needRead More…
When you are preparing to raise money for your company, there are a whole series of things that can be red flags to investors: – Not having your documentation in place – Not having filed for patents or trademarks – Not having employment agreements in place where you know that the relationships each of the people involved in your company are to the company itself When you put your documents together, making sure that theyRead More…
The concept of issuing stock to someone versus giving them stock options in your company has major tax consequences. When you receive stock options, you do not exercise those options probably until you can sell the stock. Then you won’t have held the stock for 12 months, which means you are going to pay ordinary income taxes at a top bracket of about 40% federal estate taxes for California. If however you have held theRead More…
When you put your company up for sale, there are two ways a transaction can occur: a sale of stock or a sale of assets. A sale of stock is a relatively simple transaction. As long as you have held your stock for 12 months, you are going to get capital gains treatment on the entire purchase price on your stock. A sale of assets is a different kind of transaction, and there are significantRead More…
We’re often asked “What do you do when you put someone on the board of advisors for your company? How much stock do they get? What do you expect from them?” For most board of advisors, getting 25%-50% of the stock of the company is enough for them to get heavily involved in your company. If they get more involved, you give them more stock. They earn that stock in 12-18 months in most startups.Read More…
Often when people are starting a new company, they have trouble coming up with a valuation for that company. When they go to sell stock, they may want a valuation that is much higher than what investors are willing to pay. The solution for that is a convertible note, where somebody invests the money as a promissory note and then when you raise your money, they convert their note into stock usually at a discountRead More…