Par value is the minimum issue price for a share of stock. It is always best to use a low par value, even though no par value stock is allowed. The selection of par value will oftentimes be based on how much the founders plan to invest to initially capitalize the corporation. For a pure startup, the […]
Corporation or LLC?
Look at the end game when deciding whether to structure your startup as a corporation or LLC. You’re probably starting a business to make money. How will you get your money out of the corporation or LLC? If you take on investors, how will they get their money out of the corporation or LLC? These […]
When to Form an S Corporation
The S corporation is a corporation, and for state law purposes is identical to a C corporation. The only difference is in the federal taxation of the business. S corporations, like LLCs taxed as partnerships, are pass-through entities, meaning that the profits and losses of the business pass through to the owners of the business. […]
When to Form a C Corporation
The corporation is the structure of choice for growth companies. Growth companies will often times need to invest large sums of money on research and development. They create losses, which are a great tax shelter for future profits called “net operating losses” that can carry forward from year to year. If there are profits, they […]
When to Form an LLC
LLCs have become very popular, principally because of pass-through taxation (federal taxation as a partnership instead of as a corporation). Pass-through taxation means that the profits and losses of the business pass through to the personal tax return(s) of the owner(s). The business does not pay tax on profits, the owner(s) do. This is important […]
3 Reasons Why Crowdfunding Needs to be with Corporations, not LLCs
LLCs are the rage these days, but when it comes to crowdfunding, the corporation provides the better structure. First, the overwhelming advantage to forming a LLC over a corporation is the pass-through taxation. While I’ve seen it done, it doesn’t normally make a lot of sense to form a LLC if it is going to […]
Don’t Ask Investors for an NDA
If you want to send your executive summary to an investor, don’t ask for a non-disclosure agreement. I was trying to help a company get in front of an investor and we asked for a non-disclosure agreement (investor is not only an investor but operates companies too, and also really more of a PE investor […]
What is “Warrant Coverage” in a Convertible Note Financing
Convertible note financings will oftentimes include an equity “kicker” structured as a warrant for the investors. This may be in lieu of a conversion discount on the notes and is intended to provide investors with extra compensation for taking the risk of investing early in the company. The trend these days in Silicon Valley and […]
Is Submitting Offering Materials Solicitation
SEC Rule 506(c) does not make soliciting investors through a database of pre-screened investors a general solicitation. If soliciting investors through these services has not been a general solicitation in the past, soliciting investors through these services (assuming they don’t change) will not be a general solicitation going forward because of the adoption of Rule […]
Closing Procedures for a Preferred Stock Financing
In order to sell shares of preferred stock, you first have to create the preferred stock. This can be accomplished only by amending the issuing corporation’s Certificate of Incorporation (The VentureDocs system produces an Amended and Restated Certificate of Incorporation in our Preferred Stock Financing legal document generator), and to do this, except in the […]
Will All Offerings Now Involve General Solicitation?
It may be virtually impossible for startups to avoid general solicitation when selling preferred stock, convertible notes or common stock. Many activities that companies are already doing constitute general solicitation. Demo Day Events are Often a General Solicitation. Companies pitch all the time at “pitch” and “demo” day events. Rule 502(c)(2) says that a pitch at […]