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Insights
Management Rights Letter: Granting Institutional Investors Oversight Access
When startups take money from venture capital funds subject to ERISA or similar regulations, those funds need a special document: the Management Rights Letter (MRL). This short but powerful agreement ensures the investor has sufficient rights to “manage” their investment, helping them comply with legal requirements.
Indemnification Agreement: Personal Protection for Startup Directors and Officers
When startup leaders make tough calls - hiring, spending, pivoting - they expose themselves to personal liability. The Indemnification Agreement serves as a legal shield, protecting directors and officers against lawsuits, claims, and costs incurred while serving the company.
ROFR and Co-Sale Agreement: Managing Share Transfers While Preserving Cap Table Control
In venture-backed startups, control of the cap table is critical. The Right of First Refusal and Co-Sale Agreement (ROFR/Co-Sale) helps founders and investors maintain that control by regulating how shares are transferred - particularly when founders, early employees, or other major holders want to sell.
Voting Agreement: Aligning Shareholder Power in Key Company Decisions
While founders often assume they’ll control their company post-funding, the Voting Agreement tells a more nuanced story. This document outlines how shareholders agree to vote their shares on critical company matters, including board elections and future financing approvals.
FAQs
Open allYou risk IRS penalties, employee tax liabilities, and potential challenges to the legitimacy of your equity compensation program.
Investor valuations reflect potential future value, while 409A valuations reflect the fair market value of common stock today.
At least once every 12 months, and sooner if there are major business or funding events.
It ensures your stock options are priced at fair market value, protecting employees and the company from IRS penalties.
Both create dilution, but investors often prefer structures that are clearly documented and aligned with the company’s stage. RSAs may be easier at incorporation, while RSUs are common once valuation increases.
It depends on company stage. RSAs can be advantageous early on, while RSUs may be more predictable in later-stage or pre-IPO companies with higher valuations.
No. Only RSAs (and certain stock options) are eligible for the 83(b) election. RSUs are taxed when delivered, typically at ordinary income rates.
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.
The best approach is to consult with a tax advisor. They will assess your grant type, company valuation, and personal tax situation.
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.
Yes, but only if you receive early-exercised options or restricted stock. Standard vested options are taxed differently.
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.
Yes. Investors prefer simplicity and transparency. Complex or founder-heavy structures may deter investment unless clearly justified and carefully limited.
Most states require corporations to specify a par value in their certificate of incorporation, though the exact rules vary.
It could make early equity grants more expensive and limit flexibility in future financings. That’s why startups typically choose a very low number.
To allow founders and employees to receive stock at minimal cost while leaving room for significant increases in value during future fundraising rounds.