Questions

I've been at a startup for 4 years, & promised equity but never received it. Company now profitable. What pitfalls should I avoid when pushing for it?

3answers

You might be somewhat in trouble. You'll want to consult a lawyer, not to be adversarial, but rather to ensure you do things that are legal and are best from a tax-consequence perspective.

You can't back-date option grants or stock grants, for example. There are recent scandals reinforcing that statement. And if you don't back-date, your stock (or options) is worth something now, and might even have to get a 409A to ensure it's valued properly. (That's a 3rd-party stock valuation report, typically costs $10k-$30k, which companies with ESOPs are required by law to do annually, but I wouldn't be surprised if this company hasn't yet.)

There's all sort of other boogers which you couldn't even know about. For example, if an outside party made an informal written offer to buy the company, even if it went nowhere after that, that will change the 409A valuation.

So this is why, in short, I'm giving you the unsatisfactory answer that you'll have to use a lawyer to make sure everything is done properly.

This is, sadly, a object lesson in getting paperwork done properly from the start. I'm sorry to be the bearer of bad news!


Answered 8 years ago

You're likely out of luck. If you think that it really was an oversight, have an adult conversation with the people and see if there's some kind of mutually beneficial resolution possible, recognizing that back-dating shouldn't be done. Perhaps there's some kind of adjustment to be made to the amount of equity you get today or something along those lines.


Answered 8 years ago

Keep in mind a few notable pitfalls:
1. Not Having the Right Legal Counsel: In a misguided effort to save on expenses, start-up businesses often hire inexperienced legal counsel, including lawyers who are friends or relatives, or those who offer steep fee discounts. In doing so, the founders deny themselves the advice of experienced legal counsel who can help avoid many legal problems.

2. Not Carefully Considering Intellectual Property Issues: Both the company’s founders and its investors have a stake in ensuring that the company protects its intellectual property and avoids infringing the intellectual property rights of third parties. Another potential intellectual property issue arises when a founder starts a new company while employed elsewhere.

3. Not Coming Up with a Great Contract: Most companies should have standard form contracts for dealing with customers or clients.

4. A good privacy policy will cover the following: The company must also consider the myriad of privacy data protection laws being enacted, including the GDPR and the California CCPA.

5. Not Using a Good Form of Employment Agreement or Offer Letter When Hiring Employees: Companies should ensure that the employee and the company sign the letter and anyfirst-day paperwork. For a good sample employee offer letter.

6. Not Requiring All Employees to Sign a Confidentiality and Invention Assignment Agreement: Employees have access to a good deal of their company’s confidential information, which can be unbelievably valuable, especially in technology companies. One basic way to protect proprietary company information is using a confidentiality and invention assignment agreement.

7. Asking Interview Questions That Are Prohibited by Law: Asking the wrong questions could lead to a discrimination claim against the company, even if decisions are not made on that basis.

8. Not Taking the Proper Steps Prior to Firing an Employee: Terminating an employee, even an “at will” employee, entails legal risk if not properly handled and documented.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath


Answered a year ago

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