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Employment Agreements vs. Independent Contractor Agreements: What Founders Should Know
Startups often rely on both employees and independent contractors. But these are legally distinct relationships - and using the wrong type of agreement can create serious legal and financial risks. Misclassification can lead to tax penalties, lawsuits, and regulatory violations, especially in strict states like California and New York.
Offer Letters for Startups: What Founders Need to Know
Hiring your first employees is an exciting milestone. But it’s not enough to agree on salary with a handshake. A clear, well-drafted offer letter sets expectations, outlines key terms, and helps reduce the risk of misunderstandings later.
Fired or Quit? Why It Matters Legally for Your Startup
When someone leaves your company, founders often want to just “move on” - but whether the departure was voluntary or involuntary has lasting legal and financial consequences. From unemployment claims to final pay rules, the details matter.
FAQs
Open allNo. It usually excludes fraud, bad faith, or gross negligence. Coverage applies only when actions are taken in good faith within the scope of duties.
Founders, directors, executive officers, and sometimes key advisors.
Yes, but selectively. While ROFR and co-sale rights are often more about governance than daily use, they remain an important safety net for investors.
Yes. Founders often negotiate carve-outs for estate planning transfers, gifts, or small private sales.
ROFR gives the company or investors the right to buy shares before outsiders. Co-sale rights let investors “tag along” and sell their shares alongside a selling shareholder.
Yes. They can include sunset provisions or be amended in later financing rounds to reflect shifts in ownership or company maturity.
Not always. Negotiated terms often leave founders with meaningful board representation, though investors usually gain at least one seat and sometimes an independent director.
It works alongside the Investor Rights Agreement, ROFR and Co-Sale Agreement, and SPA to create a complete governance framework.
Founders, major investors, and sometimes key employees sign the Voting Agreement as part of a priced equity round.
Yes. Founders can negotiate reporting frequency, pro rata thresholds, and board seat limits to ensure rights are appropriate for the company’s stage.
Registration rights only come into play if the company goes public. They give investors the right to sell their shares in the IPO or subsequent offerings.
The SPA governs the actual purchase of shares, while the IRA governs post-investment rights like information access, pro rata participation, and registration rights.
Not usually. Most rights are limited to “major investors” who meet certain thresholds, preventing administrative complexity from smaller shareholders.
Yes. Some SPAs allow staged investments or additional closings if investors commit to fund in tranches.
If misstatements are discovered, investors may have indemnification claims, meaning the company (or founders in some cases) could be liable.
Yes, all participating investors sign the SPA, along with the company. It governs the purchase of shares in that financing round.
The term sheet is a non-binding summary of key deal points. The SPA is the binding agreement that formalizes the transaction and contains detailed legal terms.
Seed-stage caps often fall between $3M and $10M, but terms vary widely depending on market conditions, industry, and company traction.
Low caps can create significant dilution when notes or SAFEs convert, especially if the company grows rapidly before a priced round.