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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 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.
Yes. Each state requires a registered agent with a physical address in that state if your business is registered there.
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.
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.
Yes. Founders and directors can receive reasonable salaries for the work they perform, but excessive compensation or private benefit is prohibited under IRS rules.
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.
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.
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.
Yes. With a properly drafted operating agreement, the LLC can continue operating even if members withdraw, pass away, or transfer ownership interests.
Multi-Member LLCs must file IRS Form 1065 (partnership tax return) and provide Schedule K-1 forms to each member. Each member then reports profits or losses on their personal tax return.
Yes. Even if your state does not legally require it, a written operating agreement is essential for outlining ownership, voting rights, profit distribution, and dispute resolution.
A Single-Member LLC has only one owner and is taxed as a disregarded entity by default, while a Multi-Member LLC has two or more owners and is taxed as a partnership unless corporate tax treatment is elected.
Yes. You can elect S Corporation status for tax purposes by filing Form 2553 with the IRS.
As an SMLLC taxed as a disregarded entity, you generally take owner’s draws instead of a salary. If you elect corporate tax treatment, you can pay yourself a salary.
It’s not always required, but it’s strongly recommended to show business formalities and strengthen liability protection.
No. While both are owned by one person, an SMLLC offers limited liability protection, unlike a sole proprietorship.
A PBC operates like a C-Corp but has a legal obligation to consider social and environmental impact alongside shareholder returns.
Yes. Many startups begin as LLCs for simplicity and later convert to C-Corps to raise capital. However, conversions carry legal and tax implications. It’s usually easier and cheaper to start as a C-Corp if you know you’ll need it, but conversion is always an option.
Venture capitalists often prefer C-Corps because they allow multiple stock classes, unlimited shareholders, and a clear exit path through public offerings or acquisitions.
An LLC is often the most flexible option for early-stage businesses, offering pass-through taxation and fewer compliance requirements.