Legal & Accounting Basics for Startups Carolynn Kirsty Levy Nathoo What kind of entity? • Delaware Corporation • Keep it Simple FORMATION Be Organized • Future due diligence requirements • Humdrum reality of running a startup FORMATION EQUITY Allocation Purchasing Vesting Allocation • Execution > Idea (ideas = 0) • How much equity for each founder? • Look forward, not backwards. EQUITY Purchasing • Paperwork Alert! • 2-Sided Transactions EQUITY Vesting • Vesting is earning the right to permanent ownership of the shares over time. EQUITY Vesting • Standard vesting = 4 years w/ 1 year cliff • If founder leaves, company can repurchase unvested shares. EQUITY Vesting • Why have vesting? • Single founders should have it too. EQUITY FUNDRAISING Logistics Investor Requests Company Expenses Logistics • Priced vs. Non-priced Rounds • Paperwork Alert! • Potential Dilution FUNDRAISING Investor Requests • Board seat • Pro rata rights • Advisors • Information rights FUNDRAISING Company Expenses • What is a business expense? • Keeping track of expenses. FUNDRAISING DOING BUSINESS Founder Employment Hiring & Firing Legitimacy Founder Employment • Founders are employees of the company and must be paid wages / salary. • Founder Breakups DOING BUSINESS Hiring Employees • Paperwork alert! • Consultant vs. Employee • Equity for Employees DOING BUSINESS Firing Employees • Fire quickly. • Communicate effectively. • Pay wages / salary up to point of termination. DOING BUSINESS Firing Employees • Eliminate access. • Repurchase unvested stock. DOING BUSINESS Legitimacy • Know your
