• Great ﬂexibility of management structure and opera=on • Cons • Members instead of shareholders • No stock to issue • Complexity • Any new member/employee requires redo of opera=ng agreement • Member employees considered self-‐employed • Diﬃcult/expensive to grant equity op=ons • VCs/angels will generally not invest in LLCs
• Stock transferable just as with a regular corpora=on • Cons • Heavy restric=ons • Only domes=c corpora=ons • 100 shareholder maximum • Only natural individual persons can be shareholders • Only U.S. residents can be shareholders • Only one class of stock • No preferred Stock • VCs/angels will generally not invest in S Corpora=ons
• Rela=ve ﬂexibility in organiza=on and management • Subject only to New York regula=ons, fees, and taxes • Cons • Certain restric=ons on corporate forma=on, organiza=on, and governance • Delaware • Pros • Greatest ﬂexibility of organiza=on and management protec=on • Most developed and corporate-‐friendly courts and case law • Low corporate taxes • Angels and VC prefer and some=mes even require this jurisdic=on • Cons • Hire and pay resident Delaware agent • Fees to obtain and maintain license to do business as foreign corpora=on in New York • Subject to both Delaware and New York taxes, regula=ons, and fees
ﬁrst refusal”: Shareholder must ﬁrst oﬀer shares to corp and/or other shareholders at agreed-‐upon price before oﬀering to outsiders • Ves;ng Schedule • Each founder should execute then incorporate into Shareholders’ Agreement post-‐forma=on • First professional round of ﬁnancing (“Series A”) will usually require one regardless • Generally 25% of stock every year for four years on monthly basis • Some=mes good to have a one-‐year “cliﬀ”: founders don’t get their 25% un=l 12 months with the company have elapsed • Some=mes it may be appropriate to have some stock vest “up front”, i.e. immediately, based on founder contribu=ons • Grant the company the right to repurchase any unvested shares (at the ini=al purchase price) at the =me of the founder’s departure
best choice • Consider prior contribu=ons and expecta=ons going forward: • Have some founders brought in cash and/or IP? • Will some founders be part-‐=me or working less than others? • Have some founders put in more =me or actually started the venture? • Do some founders have or will take on more responsibility?
personal assets • Fully read and understand what you’re signing: • Understand completely what you are gefng or giving up under the contract • Determine what, if any, addi=onal payments that could be required under the contract (e.g. termina=on clauses) or if there are circumstances that limit what you get under the contract • Completely understand who owns what as the rela=onship persists, especially in the case of intellectual property. • Put everything in wri=ng