Legal basics for startups, complete DIY guide: Vesting

#1

Post by dsplatonov » Thu, Jul 03, 2014, 7:38 PM UTC

Legal basics for startups, complete DIY guide: Vesting
blog.staply.co

Re: Legal basics for startups, complete DIY guide: Vesting

#2

Post by gingerlime » Thu, Jul 03, 2014, 8:14 PM UTC

I guess I lived in a cave for too long, but what is "Zuckerberg's case" exactly?

Re: Legal basics for startups, complete DIY guide: Vesting

#3

Post by dsplatonov » Thu, Jul 03, 2014, 8:18 PM UTC

gingerlime wrote: post #2

I guess I lived in a cave for too long, but what is "Zuckerberg's case" exactly?

Check this link - http://foundersolutions.wordpress.com/2014/01/12/what-it-tak...

Re: Legal basics for startups, complete DIY guide: Vesting

#4

Post by wooster » Thu, Jul 03, 2014, 8:26 PM UTC

I'm flagging this post because it contains bad advice.

For information on this topic from someone who actually knows what they're doing, please read "An Introduction to Stock and Options" by David Weekly:

http://www.amazon.com/Introduction-Stock-Options-David-Weekl...

Re: Legal basics for startups, complete DIY guide: Vesting

#5

Post by dsplatonov » Thu, Jul 03, 2014, 8:31 PM UTC

wooster wrote: post #4

I'm flagging this post because it contains bad advice. For information on this topic from someone who actually knows what they're doing, please read "An Introduction to Stock and Options" by David Weekly: http://www.amazon.com/Introduction-Stock-Options-David-Weekl...

Please specify with what you disagree

Re: Legal basics for startups, complete DIY guide: Vesting

#6

Post by mynewwork » Thu, Jul 03, 2014, 9:22 PM UTC

Dumb question: what is the status of the un-owned (un-vested) portion of shares in the first years?

Suppose two people, A and B, are equal partners each vesting towards 50% ownership in 3 years. After the first year, they both have vested ownership of 16.6%, what is the status of the other 66% of the company? Does the corporation as an entity own 66% of itself? Do they both really own 50% of the company, with an agreement that new shares will be created in a year and distributed to them? It seems to me like this scenario would mean they both own 50% of shares outstanding, and each year new shares are created which dilute their original holding's equity, but the shares then go to them (so they initially hold ie 10,000 shares of 20,000, then later hold 20,000 of 40,000).

Re: Legal basics for startups, complete DIY guide: Vesting

#7

Post by gamblor956 » Thu, Jul 03, 2014, 9:27 PM UTC

mynewwork wrote: post #6

Dumb question: what is the status of the un-owned (un-vested) portion of shares in the first years? Suppose two people, A and B, are equal partners each vesting towards 50% ownership in 3 years. After the first year, they both have vested ownership of 16.6%, what is the status of the other 66% of the company? Does the corporation as an entity own 66% of itself? Do they both really own 50% of the company, with an agre…

Corporate ownership is determined by shares outstanding. Reserve shares retained by the company do not figure into ownership calculations.

A company cannot directly own itself, but it can indirectly, if it contributes some of its shares to another company that it wholly or partially owns. (This is not permissible in all jurisdictions, such as the U.K.)

Re: Legal basics for startups, complete DIY guide: Vesting

#8

Post by wooster » Thu, Jul 03, 2014, 9:30 PM UTC

mynewwork wrote: post #6

Dumb question: what is the status of the un-owned (un-vested) portion of shares in the first years? Suppose two people, A and B, are equal partners each vesting towards 50% ownership in 3 years. After the first year, they both have vested ownership of 16.6%, what is the status of the other 66% of the company? Does the corporation as an entity own 66% of itself? Do they both really own 50% of the company, with an agre…

This isn't how vesting works for founders.

Typically, in US startups, the stock is sold to the founders up front, with the company having a repurchase option corresponding to the vesting period.

Re: Legal basics for startups, complete DIY guide: Vesting

#9

Post by gamblor956 » Thu, Jul 03, 2014, 9:35 PM UTC

I've said this before, and I'll say it again: people who are not lawyers should not give legal advice because they usually get it wrong. (Yes, I know that one of the Staply founders was a "legal counsel" in Finland. In most of Europe, a law degree is a 2-year undergraduate degree and licensing requirements are very permissive.)

This blog post is filled with legal mistakes, assuming it is intended to apply to startups generally and not just Finnish startups. By the way--where's the warning that this information doesn't apply outside of Finland?

If you want legal advice, at the very least get it from a blog from a licensed lawyer practicing in your jurisdiction. Grellas, for example, has a very good selection of articles. MoFo and other firms also provide legal templates targeted at startups.

Re: Legal basics for startups, complete DIY guide: Vesting

#10

Post by wooster » Thu, Jul 03, 2014, 9:35 PM UTC

dsplatonov wrote: post #5

wooster wrote: post #4

I'm flagging this post because it contains bad advice. For information on this topic from someone who actually knows what they're doing, please read "An Introduction to Stock and Options" by David Weekly: http://www.amazon.com/Introduction-Stock-Options-David-Weekl...

Please specify with what you disagree

This isn't how vesting is typically set up for founders at a startup in the US. You'd do well to read the eBook I linked to, as well as Grellas' series of posts: http://www.grellas.com/faq_business_startup.html Pay particular attention to the stuff about 83(b) elections.