Incentive stock options are a way that people used to draw employees and partners in over time in a startup company when you do not have enough money to pay them. They are really good and they work, but there are negative tax consequences that can come from it. Usually when you exercise your options, you’ll buy the stock and resell it right away because you can’t afford to buy it otherwise. There are someRead More…
Going out for equity financing in a start-up business is a brand new task for most people unless you have done it before. Try to get somebody involved in your company who knows how to do it, rather than going through the learning curve yourself. There are a lot of books written on how to do it. Everyone has a different perspective on how to get your money, which documents to prepare, what kind ofRead More…
The time to use an LLC is when you’re probably going after only one round of financing. When you have one or two investors lined up, when the investors want to get the significant tax benefits of the LLC, or when you want to get an LLC as a holding company with subsidiaries underneath it. The decision to use an LLC really needs to be thought through because there are some limitations associated with theRead More…
We are often approached by people who would like to form a nonprofit corporation. Nonprofit corporations in California are regulated by the Attorney General’s Office. The rules in California require you to have a majority of your board of directors totally disinterested in the activities of the nonprofit. This means they cannot receive any money from the nonprofit directly or indirectly. The members in your board of directors cannot make a profit or have aRead More…
Putting together a term sheet when raising money for your capital is a very important issue because you start a trend that leads to how you’re going to raise your money and how somebody thinks about you. Very often when you are dealing with various investors or investment groups or venture capital groups, what happens is they give you their sample term sheet which will state exactly what they want. You have to look veryRead More…
People talk about seed capital for new companies all the time. It actually breaks into three categories. First, there is pre-seed. This is when you have a great idea, but not much has been done yet. The second category is the seed. This is where you have got an idea, you have a business plan and you need to seed it and get it started. Then the third and final category is what I callRead More…
We often have people who come to us and say, “I want to go out and meet as many people as I can because every x number of people that I meet is going to be a client for me.” Whether it is for selling insurance or for investing in their company, that’s not really quite how it works. I have always seen it this way: you have a small group of people that youRead More…
When filing articles of incorporation, you are authorizing the level of stock you believe will be issued over the next three years. Citron and Deutsch authorized 30 million common shares and 20 million preferred shares. Out of the 30 million common shares, we issued to the founders about 10 million shares of stock. There are several reasons to do this. The first reason is evaluation. Generally, a setup company is lower (for example, two millionRead More…
When issuing stock in a company you must consider not only the investor’s state’s laws but also your own. On top of this, there are federal laws to abide by. Understanding these laws as a novice is nearly impossible. For this reason, we recommend hiring an attorney who’s familiar with security laws to look over who the investor is, what kind of investment is being made, and what kind of information has been given toRead More…
When a company starts becoming successful, conflict will often arise among the founders over what each founder deserves to have. This may happen six months to a year after the company was started. To avoid this issue, we recommend you sit down with your partner(s) to figure out what everyone expects from the company upfront. Some important things to cover would include: what kind of time commitments they are willing to make, what kinds ofRead More…
