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.