Corporate Finance & Securities

New Law Makes Resale of Private Stock Easier

Congress recently passed a new securities law exemption (Section 4(a)(7) of the Securities Act of 1933) that eases the limitations and restrictions surrounding the resale of private stock.  Prior to the new law, there were several regulatory hurdles that made the resale of private stock in a company difficult. As we’ve highlighted in prior posts, securities regulations require any sale of stock to be registered with the SEC (a time-consuming, expensive process), unless the sale is “exempt”—which means that the sale falls within one of the exemptions provided for in the securities regulations. (Check out one of our prior posts on securities exemptions and Rule 144 for more background on the regulations specifically surrounding selling stock in private companies as they applied...

Read More

Corporate Finance & Securities

What is a Cap Table?

A cap table (or capitalization table) is a spreadsheet listing all of your company’s securities (stock, options, etc.) and who owns those securities. Cap tables provide a basic look into the “total pie” and each shareholder and option holder’s piece of that pie (basically who owns what). More detailed cap tables will include formulas that allow the company to model future transactions. 

There’s no one-size-fits-all way to structure your cap table. Some provide only a general summary of the breakdown of ownership in a company, while others include extensive details about the individual holder, the type of securities held, issue dates, ownership percentages on a fully diluted basis, and other granular details.

When’s the Right Time to Build a Cap Table?

It’s relatively...

Read More

Corporate Finance & Securities

Amendment to Stock Legend Guidance for Restricted Securities

Recently, the Securities Division of Washington’s Department of Financial Institutions  adopted amendments to WAC 460-44A-502 to provide stock legend guidance for restricted securities.

The adopted amendments remove a reference to an outdated North American Securities Administrators Association (“NASAA”) guideline and instead provide the suggested language for the legends in the text itself. A “legend” on a stock certificate is a statement noting restrictions on the transfer of the stock, often due to SEC and state requirements for unregistered securities.

The new suggested legend language in Washington state is as follows:

(d) A written disclosure or legend will be deemed to comply with the provisions of WAC 460-44A-502 (4)(b) or (c) if it states:

“(i) These securities have not been registered under the Securities Act of...

Read More

Corporate Finance & Securities

Things to Know When Bringing on Startup Advisors

Startup advisors can be an extremely valuable resource for early-stage companies. Typically advisors bring startup experience, a large network of entrepreneurs, investors and other types of advisors, and sound business advice for growing your company. In today’s post, we’ve highlighted some of the key considerations to have in mind when considering hiring advisors for your startup:

Are They the Right Fit?

Perhaps the most important consideration is finding a person that understands your business and goals and finding someone that has industry experience and contacts that you can leverage strategically for the benefit of your business. They should also be someone you trust and that you know will give you reliable advice. It also helps if you get along with and enjoy...

Read More

Corporate Finance & Securities

Employee Equity Compensation Plan: How to Slice the Pie?

Startup founders will often wonder how much employee equity they should give.  While there is no bright line rule for how to allocate equity in your equity compensation plan, there are a number of factors to consider to craft the appropriate equity compensation plan for your startup.

Types of equity to grant

Equity can be broken up into common stock and preferred stock. It’s unusual for a startup to issue preferred stock to anyone but an investor in the company, so we’ll focus on common stock. Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the...

Read More

Business Startup

Why a Repurchase Option Matters to Startups

Most founders are concerned about making sure each of the co-founders are invested in the company. Founders often ask about protecting against a co-founder leaving the company, taking his or her equity, and sharing in the potential future upside value of the startup without continuing to work for that right. To protect against this, startups often have a “repurchase option” to buy back shares from the departing founder.

When Can the Company Exercise the Repurchase Option?

While terms can vary, the shares issued to the founders are often subject to a vesting schedule that requires the founder fulfill certain obligations—e.g. to stay with the company a period of time, achieve certain milestones, or any other creative requirements the founders agree on— in...

Read More

Corporate Finance & Securities

Issuing Restricted Stock and Stock Options under SEC Rule 701

It’s time to grow your startup company, and because you’d prefer to retain the limited cash flow you have, you’ve decided to compensate new employees with stock in order to incentivize joining your team and working hard to create a valuable company. You’re not alone. It’s very common for startups to issue equity compensation in form of stock options or restricted stock to employees. And luckily for you, there’s a federal securities law exemption for issuing equity to employees. Today’s post highlights the exemption under Rule 701, and what you need to know in order to make sure your securities offering complies with the rule.

SEC Rule 701

As we’ve discussed in previous posts, anytime you issue securities in your company you...

Read More

Corporate Finance & Securities

Issuing Restricted Stock to Founders

One of the common questions we hear from startups is whether the stock issued to the founders should be restricted. There are some important issues to consider when deciding whether to create a vesting schedule for founders. Today’s post highlights some of these issues and the main reasons for issuing restricted stock.

What is restricted stock? First things first, let’s explore what exactly restricted stock is. Restricted stock is stock that is subject to forfeiture to the company, either for compensation or for no additional compensation. Restricted stock is generally subject to forfeiture until the stock “vests” (see below for a discussion of vesting). For example, an early stage company may issue stock to its founders, but the founders are only entitled...

Read More

Corporate Finance & Securities

Recent Cases Affirm Difficulty in Challenging Board Decisions on Executive Compensation

Two recent Delaware cases confirm that the Court of Chancery will not substitute its judgment for that of a disinterested and informed board on executive compensation decisions, including severance, so long as there is a rational basis for the board’s decision. Reaffirming its reliance on the business judgment rule, the court decided in favor of the board’s decision in two recent derivative actions challenging severance/retirement packages for departing employees.

Zucker v. Andreessen In Zucker, the court granted defendant Hewlett-Packard’s motion to dismiss on claims that HP’s directors committed corporate waste by approving a $40mm severance package for its former CEO, Mark Hurd. In ruling, the court found that there was some rational basis for the board of directors to decide that the...

Read More

146 N Canal Street, Suite 350   |   team@invigorlaw.com