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.
If your technology startup is a corporation incorporated in Delaware or Washington, then it must have a board of directors.
Founders of technology startups typically pay for their shares at incorporation by contributing intellectual property (“IP”) they have developed and that relates to the business of the startup.
You hear a lot of jargon in the world of technology startups and venture capital, and “fully-diluted capitalization” or “on a fully-diluted basis” are some of those terms that get thrown around a lot, but often times are not fully understood.
After a technology startup has been legally formed as a corporation, shares of its capital stock need to be authorized and issued to its founders.
If the shares of stock you acquire in your startup are subject to vesting (or a “substantial risk of forfeiture” as the IRS calls it), then you typically want to make what is called an 83(b) election.
When founders launch their new startup, optimism is typically running rampant. However, it is not uncommon for one or more founders to leave the very startups they launch within the first few years.