Resources for insight and
inspiration
Guides
Insights
NSOs v. ISOs: Strategic Equity Decisions for Startups
For startup founders, choosing between Non-Qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) isn't just a matter of tax implications—it's a strategic decision that affects your ability to attract talent, manage company finances, and create the right incentives. Let's explore both options to help you make informed equity decisions for your venture.
Stock Options: An Overview
For startup employees, stock options represent more than just potential future wealth - they are a key part of compensation and long-term financial planning. Understanding how stock options work, and the differences between option types, can help you make informed decisions that align with your career and financial goals.
Stock Warrants in Startup Funding: Strategic Tools for Capital Raises
In the complex landscape of startup financing, stock warrants are often misunderstood but highly effective tools. Warrants give investors, lenders, or partners the right - but not the obligation - to buy shares at a set price in the future. When used strategically, warrants can provide flexibility in capital raising while aligning investor and company interests.
Common vs. Preferred Stock: A Startup's Guide to Equity Fundamentals
In the intricate world of startup financing, understanding the difference between common and preferred stock is crucial. These two types of equity are not just legal distinctions—they represent fundamentally different approaches to ownership, risk, and reward.
FAQs
Open allDoes the state of incorporation affect federal taxes?
No. Federal tax treatment is the same regardless of where you incorporate. Only state-level taxes and franchise fees differ.
Is incorporating in my home state a good idea?
Yes, if you are not immediately seeking outside funding, your home state often provides lower costs and simpler compliance.
Why do most startups incorporate in Delaware?
Delaware offers a specialized court system, predictable legal outcomes, and corporate governance flexibility that investors prefer.
What type of business structure should I choose for a startup?
Many startups begin as LLCs or C-corporations. The right choice depends on factors like your fundraising goals, tax strategy, and management style. A business attorney can help determine the best structure for your situation.
Can I wait to incorporate until after launching my product?
While you can wait, incorporating earlier protects you from personal liability and establishes credibility with customers and partners.
Do I need to incorporate before seeking investors?
Yes. Most investors require a legal entity with clear IP ownership and equity structures in place before they will invest.
When is the best time to incorporate my startup?
You should consider incorporation when you have created intellectual property, added co-founders, prepared for a product launch, started hiring employees, or plan to raise outside funding.
How do I change my registered agent?
You can change your registered agent by filing a form with your state’s Secretary of State, paying the required fee, and officially designating the new agent.
Can I serve as my own registered agent?
Yes, but it is not recommended. Acting as your own registered agent means your personal address becomes public, and you must be available during business hours to receive legal documents. Most founders choose professional registered agent services for privacy and reliability.
What happens if my business does not have a registered agent?
Without a registered agent, your business may lose good standing with the state, incur fines, or even face administrative dissolution. You may also miss critical legal documents.
Can founders or directors of a non-profit get paid?
Yes. Founders and directors can receive reasonable salaries for the work they perform, but excessive compensation or private benefit is prohibited under IRS rules.
Do non-profits pay taxes?
Most non-profits are exempt from federal income tax on mission-related income, but they must still pay taxes on unrelated business income. State and local exemptions may also apply.
How long does it take to get 501(c)(3) tax-exempt status?
The IRS typically takes 3 to 12 months to review and approve an application, depending on the complexity of your activities and the completeness of your filing.
What is the first step in starting a non-profit organization?
The first step is defining a clear mission and purpose. This ensures your organization qualifies for IRS tax-exempt status and guides your governance structure.
Can a Multi-Member LLC continue if one member leaves?
Yes. With a properly drafted operating agreement, the LLC can continue operating even if members withdraw, pass away, or transfer ownership interests.