There is a tried and true structure for capitalizing a technology startup: conventional common stock to the founders, conventional common stock reserved for employees in a stock option pool, and preferred stock to investors.
The federal Department of Labor (“DOL”), the agency charged with enforcing the Fair Labor Standards Act (“FLSA”), recently published an Administrative Interpretation clarifying the test businesses must apply to determine whether workers are properly classified as independent contractors or if they are, in fact, employees.
In most jurisdictions, all you need to do to legally incorporate is submit your articles of incorporation to the Secretary of State of the jurisdiction in which you want to incorporate and adopt a set of bylaws, and many online companies (and attorneys) will take care of these two things for you for a nominal price.
In the world of convertible debt, arguably the single most important term for both the startup and the investor is the provision concerning when and how the investor’s convertible promissory note converts into equity.
Founders of technology startups often believe that their interests are aligned with those of their investors, and that belief is generally true. However, there are many situations where the interests of the founders and other shareholders differ from those of the outside investors.
Par value. It’s a concept that many entrepreneurs see in their corporate documents, but few truly understand. What is par value? What does it mean when you see it in your documents?
I had a professor in law school who could spend days discussing all the nuances of fiduciary duties for directors in privately held corporations. We literally spent 8 weeks of a 10-week quarter primarily talking about all the ins and outs of this dry (yet important) subject.