Legal & AccountingBasics for Startups
Carolynn Levy
Kirsty Nathoo
What kind of entity?
FORMATION
• Delaware Corporation
• Keep it Simple
Be Organized• Future due diligence requirements
• Humdrum reality of running a startup
FORMATION
EQUITY
Allocation Purchasing Vesting
Allocation
EQUITY
• Execution > Idea (ideas = 0)
• How much equity for each founder?
• Look forward, not backwards.
Purchasing
EQUITY
• Paperwork Alert!
• 2-Sided Transactions
Vesting
EQUITY
• Vesting is earning the right to permanent ownership of the shares over time.
Vesting
EQUITY
• Standard vesting = 4 years w/ 1 year cliff
• If founder leaves, company can repurchase unvested shares.
Vesting
EQUITY
• Why have vesting?
• Single founders should have it too.
FUNDRAISING
Logistics Investor Requests Company Expenses
Logistics
FUNDRAISING
• Priced vs. Non-priced Rounds
• Paperwork Alert!
• Potential Dilution
Investor Requests
FUNDRAISING
• Board seat
• Advisors
• Pro rata rights
• Information rights
Company Expenses
FUNDRAISING
• What is a business expense?
• Keeping track of expenses.
DOING BUSINESS
Founder Employment Hiring & Firing Legitimacy
Founder Employment
DOING BUSINESS
• Founders are employees of the company and must be paid wages / salary.
• Founder Breakups
Hiring Employees
DOING BUSINESS
• Paperwork alert!
• Consultant vs. Employee
• Equity for Employees
Firing Employees
DOING BUSINESS
• Fire quickly.
• Communicate effectively.
• Pay wages / salary up to point of termination.
Firing Employees
DOING BUSINESS
• Eliminate access.
• Repurchase unvested stock.
Legitimacy
DOING BUSINESS
• Know your key metrics.
• Balance Sheet & Income Statements
• Tax Returns
Legitimacy
DOING BUSINESS
• Register as a foreign corporation.
• Financials, Tax Returns, Payroll Taxes
• “Following the corporate form” = Board meetings, management structure
Legitimacy
DOING BUSINESS
• Proper Contracting
• Insurance
Biggest Take-Aways• During formation keep it simple, use the
standard, and stay organized.
• Be fair and forward-looking about equity ownership. Have Vesting!
• Stock doesn’t buy itself.
Biggest Take-Aways• Be savvy about financing instruments,
terms, and common investor requests.
• Founders need to get paid.
• Employees must sign documents to assign IP to the company.
Biggest Take-Aways• If an employee must be fired, do it quickly
and professionally.
• Know your key metrics.
• Be a legitimate corporation by following the rules and taking it seriously.
Top Related