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Guides
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 allOpen 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.
Investors prefer balanced and fair structures that reflect commitment and discourage disputes. Unequal or poorly documented splits can raise red flags.
Vesting ensures equity is earned over time, protecting the company if a founder leaves early and keeping incentives aligned with long-term success.
Not necessarily. Equal splits can help maintain alignment, but contribution-based allocations may be appropriate if founders bring significantly different resources or commitments.
Most early-stage startups reserve 10%–20% for employee incentives, with flexibility depending on hiring plans and growth stage.
Percentages can shift as new shares are issued. Defining equity in terms of actual share counts provides more accuracy and avoids misunderstandings.
Not always. Equity is more common in early-stage startups and higher-level roles, though many growing companies expand equity participation to create a stronger ownership culture.
Equity value depends on company valuation, which changes with funding rounds, revenue growth, and market conditions. Clear communication from leadership helps employees understand potential value.
Vesting ensures employees earn equity over time, rewarding commitment and protecting the company if someone leaves early.
Stock options remain the most common, but RSAs and RSUs are increasingly popular depending on company stage and employee needs.
Risks include tax consequences, restructuring ownership rights, and compliance burdens. Without proper planning, these can create legal or financial complications.
If done correctly, conversion preserves continuity, meaning contracts, tax IDs, and operating history typically remain intact.
This is common when raising venture capital, preparing for an IPO, or offering equity compensation, since investors typically require the C-Corp structure.
Corporate conversion is the legal process of changing your business from one entity type to another, such as from an LLC to a C-Corporation, without dissolving and starting over.