The founders of an early stage company are typically compensated in some combination of cash and stock. In so much as most early stage companies have more of the latter than the former, frequently founders will only be compensated with stock of the company for a period of time, and that’s usually done under a founder restricted stock agreement.
Your partners are all in agreement, you’ve filed your paperwork with the state, you’ve paid your fee, and you’re up and running. You’ve probably fulfilled all the technical requirements of founding an LLC, but you should still draft and sign an operating agreement (even if it’s just you). Here’s why:
Last week in Part 1 of this two-part post I discussed what an 83(b) election is and walked through one particular situation in which someone should make that election (hint: if the company is currently valued at or close to nothing). In this installment, I’ll go through an example in which it doesn’t make good financial sense to make that 83(b) election. In a world where many founders, entrepreneurs, and contractors working for equity are told to automatically file the election, this is the scenario to really pay attention to. [Read more…]
One of the most common questions I’ve heard from people thinking about incorporating their business is, “Should I incorporate in Delaware? I’ve heard it’s better.” Typically, the individual doesn’t have any information beyond that, “I’ve heard it’s better,” but everyone seems to have heard that. So the question is, what’s the advantage of incorporating in Delaware, and is that a reason for you to do it?
While there are myriad potential advantages to incorporating in Delaware, the big one is probably not what you’d think: The Delaware Court of Chancery. [Read more…]