Stock Options Archives

29Jun 2022 by bhandlaw

Does My Startup Need a 409A Valuation for a SAFE?

Equity Incentives, Startup Finance, Stock Options

Startup founders seeking their first infusion of non-”friends and family” capital will often seek out or entertain offers from investors in the form of a SAFE (“simple agreement for future equity”). Occasionally, I’m asked by startup founders considering a SAFE whether or not a “409” valuation is required before accepting such an investment. What is a 409A? No, we're not talking about your and my favorite tub and shower cleaner. The short version is a 409A valuation (so named after the specific section of the Internal Revenue Code) is an independent, usually third-party appraisal of your company that, in turn, will end up setting a value on its shares. Why would you want to do that? If your company is listed on a public stock exchange (e.g., NYSE, Nasdaq), the…

03Dec 2020 by bhandlaw

Demistifying Authorized vs. Issued Shares in Your Startup

Corporations, Entity Formation, Start-Up, Stock Options

Historical Stock Securities by pictavio via Pixabay There is often a misconception among startup founders that the number of shares of stock authorized by the company is the same thing as the total number of shares issued. However, what shares are “authorized” and which are “issued and outstanding” are actually two very different things. What are authorized shares? When I say the words “authorized shares” to my founder clients, what I'm referring to is the number of shares the corporation is allowed (i.e., authorized!) to issue under its articles of incorporation (which may also be described as a certificate of or charter of incorporation, depending on the state the company is incorporated in). In most instances, particularly with our technology startup clients, we incorporate the company with anywhere from 10…

09Sep 2020 by bhandlaw

How Many Shares Should My Startup Authorize when Forming?

Business Formation, Corporations, Start-Up, Stock Options

Historical Stock Securities by pictavio via Pixabay As a Phoenix attorney that has represented a number of local and out of state startups, I can tell you that one of the Top 10 questions I get is some variation of, “How many shares should the startup company authorize at formation?” How many shares is my Startup required to authorize? First off, at least here in Arizona where I practice at least, there is no law or regulation that requires a startup to have a minimum or maximum number of shares that need to be authorized or to founders or set aside in an equity incentive program. With that said, there are practical and operational limits, which we explore in this post. Typically, with technology-oriented startups at least, I recommend that…

27Jun 2018 by bhandlaw

Should I Exchange Equity for Freelancer or Contractor Services?

Entity Formation, Equity Incentives, Start-Up, Stock Options

As a Phoenix emerging business attorney, I am often asked by startup founders whether it is a good idea or not to give equity in exchange for the services of a freelance developer, designer, or [insert type of vendor here] or to just pay for their services outright? I have been asked this question enough that I finally found it to be blog-worthy. While every situation is different and must be examined individually, the following are my accumulated thoughts on the subject from both the legal and business perspective. All things being equal, I almost always recommend finding a way to pay the services and own any deliverables outright in order to preserve your equity. I say this for a number of reasons: Newton's First Law of Startup Companies OK,…