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Drag-Along Rights in Startup Financing: Streamlining Exits While Balancing Stakeholder Interests
When negotiating startup financing, founders often focus on valuation, equity splits, and immediate ownership. But long-term provisions in term sheets can be just as important, especially when it comes to company exits. One of the most impactful is the drag-along right.
Anti-Dilution Rights in Startup Funding: The Price Protection Mechanisms That Safeguard Investor Value
When structuring venture capital deals, founders often focus on valuation, investment size, and ownership splits. But within preferred stock agreements are provisions that can significantly reshape economics if future fundraising happens at lower valuations. Chief among these are anti-dilution protections.
Liquidation Preferences in Startup Funding: Critical Terms That Shape Exit Outcomes
When negotiating startup financing rounds, founders often focus on valuation, investment size, and ownership percentages. However, hidden within term sheets are provisions that can dramatically impact how exit proceeds are distributed. One of the most important of these provisions is the liquidation preference.
SAFEs: Streamlining Early-Stage Startup Investments
In today’s fast-moving startup ecosystem, the Simple Agreement for Future Equity (SAFE) has reshaped how early-stage companies raise capital. Introduced by Y Combinator in 2013, SAFEs were created to simplify fundraising while balancing the needs of both founders and investors.
FAQs
Open allYou may face fines, be barred from bringing lawsuits in that state, and raise red flags with investors during due diligence.
It allows states to require sales tax collection from businesses with no physical presence, if sales exceed state-specific thresholds.
Yes. Even one employee working from another state may create a tax or registration obligation in that state.
It means registering your company to legally operate in a state other than your state of incorporation.
Online applications are processed immediately. If you file by mail, it may take up to four weeks.
You should incorporate first. The IRS requires your legal entity details from your incorporation certificate to process your EIN application.
Yes. Even without employees, most banks, investors, and credit providers require an EIN to recognize your business as a separate legal entity.
Failing to complete essential post-incorporation documents can create legal disputes, ownership confusion, and tax complications. It may also discourage investors who expect proper documentation to be in place.
Yes. Employees, contractors, and consultants who contribute to product development or intellectual property should sign a CIIAA to ensure the company owns all IP rights.
The 83(b) election allows founders to pay taxes on stock at the time of grant, which can save significant money if the company’s valuation increases in the future.
Bylaws are critical because they establish how the corporation is governed and how decisions are made. However, other documents like stock purchase agreements and the 83(b) election are equally important for founder protection.
Yes. If your startup is registered to do business in multiple states, you must appoint a registered agent in each jurisdiction.
No. Federal tax treatment is the same regardless of where you incorporate. Only state-level taxes and franchise fees differ.
Yes, if you are not immediately seeking outside funding, your home state often provides lower costs and simpler compliance.
Delaware offers a specialized court system, predictable legal outcomes, and corporate governance flexibility that investors prefer.
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.
While you can wait, incorporating earlier protects you from personal liability and establishes credibility with customers and partners.
Yes. Most investors require a legal entity with clear IP ownership and equity structures in place before they will invest.
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.