Ways To Keep Your Startup Out of Legal Trouble

http://venturebeat.com/2012/11/03/4-common-mistakes-that-can-get-your-startup-into-legal-trouble/

by mfaustman • 14 years ago

12 5 14 years ago

speedmax• 14 years ago

Founders need to pay attention to these details, you should get a lawyer friend or reputable adviser to go over these things.

rprasad2• 14 years ago

Putting vesting on an founder’s ownership means that the company has the right to repurchase part or all of a founder’s ownership should a founder choose to leave prior to a certain date.

No, it doesn't. Unvested stock does not belong to the putative shareholder, hence the company doesn't need to do anything to "repurchase" unvested stock. Essentially, unvested stock is stock "promised" to an employee/investor if they satisfy certain conditions. However, until such stock vests, it does not actually belong to the employee/investor (legally or otherwise). Normally, vesting conditions are simply length of employment (i.e., still be employed by the company X months from now). If the vesting conditions are met, the promised stock automatically "vests" and becomes the stock of the employee/investor.

A right of first refusal regarding the departing founder's vested stock is a very different legal provision which is also a good idea. A right of first refusal grants the company the first right to purchase the founder's shares before he attempts to sell them to a third party.

anticrastinator• 14 years ago

Article is correct. Founder stock is owned by the founder subject to repurchase right. Founder has legal and voting rights on the stock. Company must actually pay the original purchase price back to repurchase if the founder leaves. Note that this is different from options.

rprasad2• 14 years ago

Founder stock is owned by the founder subject to repurchase right.

A repurchase right is a legally different concept from vesting. Repurchase rights only apply to vested stock.

Stock actually owned by a shareholder is vested stock. Stock only owned upon the occurrence of certain conditions which have not yet occurred is "unvested" stock. Unvested stock is not yet owned by the shareholder, and the shareholder has no legal, voting, or other rights arising from such stock. Hence, the company does not need to purchase it from the shareholder if the shareholder leaves before the unvested stock has vested. Thus, the article is incorrect as to what vested stock is.

It is possible to have stock vesting, acceleration, and repurchase rights associated with a single grant of stock. Each of these is a separate legal concept and each has different consequences.

ankit_b• 14 years ago

Great article!

Ways To Keep Your Startup Out of Legal Trouble

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