The biggest mistake a company can make when issuing stock
Whether issuing stock to a consultant in exchange for services or selling stock to an investor, never use percentage ownership without explicitly tying the percentage to a date or, better yet, a specific number of shares.
Let’s say your company hires a consultant and agrees that he’ll receive a 3% ownership stake in the company in [...]
Legal Basics: Vesting
When companies issue equity – particularly when it is to employees or other service providers – they sometimes subject the equity to various restrictions that lapse either (a) over time (so long as the person continues to work for the company) or (b) upon the occurrence of specified events. “Vesting” occurs when the restrictions lapse [...]
Common Contract Terms: Assignment & Change of Control
Assignment and Change of Control provisions address when a party may transfer its obligations under a contract to someone else, either directly, as when a party to the contract assigns its obligations to a third party, or indirectly, as when a party to the contract is acquired by a third party. Many contracts prohibit either [...]
Getting More Bang for Your Buck: Help your lawyer out
A simple thing entrepreneurs can sometimes do to help reduce legal costs is locate “precedents” their lawyer can use when drafting a document. This is particularly important if the work is being done at the lawyer’s hourly billing rate, instead of for a fixed fee.
Legal Basics: Fully-Diluted Capital
When discussing a company’s capital structure, investors typically talk in terms of “fully-diluted capital” (a/k/a capitalization on a “fully-diluted basis”), rather than authorized or issued capital, because fully-diluted capital provides a more accurate picture of the company’s overall capitalization. Fully-diluted capital expresses the entire capitalization of a company in terms of shares of the company’s [...]
Anatomy of a Term Sheet: Index
Index to entries in our Anatomy of a Term Sheet series
Anatomy of a Term Sheet: Key Takeaways and Other Resources
In our very first post we said that our purpose in undertaking this Anatomy of a Term Sheet series was to give our readers the ability to better evaluate financing term sheets. We sincerely hope we’ve been able to shed at least a little light on the subject and we welcome your questions on any topic that is still a mystery.
Anatomy of a Term Sheet: No Shop and Confidentiality
Way back in the second post of this series, we noted that the No Shop/Confidentiality provision is one of the two provisions in the term sheet that is usually “binding” on the company and the investors – meaning it is enforceable even if the rest of the contemplated financing is never completed.
Anatomy of a Term Sheet: Vesting of Founders’ Stock
Investors often want at least a portion of the stock owned by each founder of a company to be subject to vesting and a corresponding company buyback right if the founder ceases to be employed by the company within a certain period of time after a financing.