Resources for insight and
inspiration
Guides
Insights
Startup Shares 101: Navigating the Complexities of Share Calculations
In the intricate world of startup finance, understanding share calculations is crucial. What seems like a straightforward counting exercise quickly becomes a nuanced exploration of different share types and calculation methods. Let's break down the three key ways startups measure their shares.
Startup Equity Compensation: The Basics
For startup founders and entrepreneurs, equity compensation is more than a recruitment tool. It builds an ownership culture, attracts top talent, and aligns employee incentives with company growth. Understanding the fundamentals of equity plans helps you design a structure that supports long-term success.
Corporate Conversion: Navigating Business Structure Transitions
As your business evolves, the legal structure that worked in your startup phase may no longer be the best fit. Corporate conversion - the process of transitioning from one entity type to another - can help align your company’s structure with your growth, funding, and succession goals.
Foreign Qualification: An Overview
Determining where your startup needs to qualify to do business can be a complex challenge, especially in an era of remote work and digital commerce. This memo provides critical guidance on understanding when and where your startup may need to qualify to do business.
FAQs
Open allWhen should a startup use RSAs instead of RSUs?
RSAs are generally more effective for very early-stage startups with low valuations, since they allow employees and founders to lock in minimal tax liability through an 83(b) election.
How do I know if I should file an 83(b)?
The best approach is to consult with a tax advisor. They will assess your grant type, company valuation, and personal tax situation.
Is the 83(b) election always beneficial?
Not always. It only makes sense if the stock is likely to increase in value. If the company fails, you cannot recoup the taxes you paid upfront.
Does an 83(b) election apply to stock options?
Yes, but only if you receive early-exercised options or restricted stock. Standard vested options are taxed differently.
What happens if I miss the 30-day 83(b) deadline?
You lose the ability to elect early taxation and will be taxed on the value of your equity as it vests, potentially resulting in higher taxes.
Do unusual stock structures affect fundraising?
Yes. Investors prefer simplicity and transparency. Complex or founder-heavy structures may deter investment unless clearly justified and carefully limited.
Is par value required in every state?
Most states require corporations to specify a par value in their certificate of incorporation, though the exact rules vary.
What happens if my company sets par value too high?
It could make early equity grants more expensive and limit flexibility in future financings. That’s why startups typically choose a very low number.
Why do most startups set such a low par value?
To allow founders and employees to receive stock at minimal cost while leaving room for significant increases in value during future fundraising rounds.
What happens if founders disagree about equity distribution?
Open communication, clear documentation, and the guidance of legal or financial advisors can help resolve disputes. In many cases, accelerators or mentors recommend starting with an equal split and adjusting only when necessary.
How do investors view founder equity splits?
Investors prefer balanced and fair structures that reflect commitment and discourage disputes. Unequal or poorly documented splits can raise red flags.