Form A Company
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Congratulations - you have done it! You had an idea, you built a product, you figured out how you want to go to market, and you created a company. With that tedious process complete, you are ready to find your first customer, iron the bugs out of your product, and start making money.
One of the most difficult decisions entrepreneurs face when planning the growth of their start-up is determining how to distribute equity among the founders, the current (and/or future) management team and other employees and consultants. There is no one-size-fits-all model for determining to whom to give equity and how much to give them: this process requires an in-depth look at a number of factors pertaining to the company, generally, and the recipient of the equity, specifically.
By Lewis Geffen and Soobin Kim
Section 141(d) of the Delaware General Corporations Law (DGCL) allows the certificate of incorporation (COI) of a Delaware corporation to confer upon one or more directors voting powers greater than or less than those of other directors, thus resulting in “disproportionate voting” rights amongst the Directors. When VC funds, their portfolio companies and VC lawyers read or think about DGCL 141(d) and this disproportionate voting, they usually, and narrowly, have in mind only the question of whether certain directors may have more than or less than one vote per Director on matters voted on by the Board, or a committee of the Board.
Posted on Medium (Nov. 8, 2018)
Just about every emerging business/start-up lawyer could write a book (and many have!) on the topics of equity division, incorporation and the innumerable ‘other details’ founders need to keep in mind when starting a business! We think you can only properly address these issues with any specificity in a face-to-face or phone-to-phone conversation and, with that in mind, this writing focuses instead on some high level concepts and discussion points to cover with fellow founders in advance of your first sit-down with corporate legal counsel — a meeting we strongly recommend (and which, dare I say, many firms (big and small) will offer at no charge)!
By Michael Bill
In common usage, a founder is an individual who creates or helps create a company, but in legal terms, there is no such thing as a “founder” or “founder’s stock,” only early participants in a company’s organization and ownership of its initial equity capital. Why is this so? Because, for all practical purposes (from a startup’s point of view), there are two types of stock – common stock and preferred stock – and “founders” are just the initial holders of the company’s common stock, usually before any financing, in-licensing, or contribution of assets.
A public benefit corporation (PBC) is a statutorily designated type of corporation in Delaware that melds two concepts that are often seen as opposites: maximizing profit and providing public benefit. This choice of entity presents a compromise for those companies who are committed to operating in a responsible and sustainable manner, while acting as a for-profit entity.
Mintz attorneys are often asked as to why we don’t simply provide “forms” on our website that can be downloaded and used. After all, a number of law firms let you download term sheets and other forms such as SAFEs. Our simple answer is: THE FORM IS ALWAYS WRONG! Legal forms are merely starting points and most forms are typically only half an inch deep. A successful enterprise truly needs so much more depth than what is provided in a basic form.
By Amy Burkhoff
The Series limited liability company (the “Series LLC”) is more nuanced than an ordinary limited liability company, and for the right user, it provides flexibility that will streamline administration better than other alternative entities. Although there are some risks and uncertainties relating to the Series LLC, as discussed further below, the Series LLC is a useful tool to create a series of limited liability companies in a single vehicle, preserving limited liability and reducing the administrative expenses necessary to organize different lines of business or manage different properties.
In this discussion between Patrick Henry, CEO of QuestFusion, and Jeremy Glaser, partner and co-head of the Emerging Company and Venture Capital practice at Mintz Levin, we discuss the seven step process of creating a fundable startup found in Mr. Henry's book, PLAN COMMIT WIN: 90 Days to Creating a Fundable Startup.
When accepting money from outside investors, entrepreneurs are generally asked to give up some degree of control over their start-up, exchanging equity in their company for cash. In an effort to minimize the control they relinquish, upon formation of their company entrepreneurs can grant themselves equity that comes with special rights.