This document provides an overview of legal and accounting basics for startups. It discusses entity formation, equity allocation and vesting, fundraising logistics and investor requests, hiring and firing employees, and maintaining legitimacy as a company. Key recommendations include keeping entity formation simple, being fair about equity distribution and using vesting, understanding financing terms and diligence, properly employing and compensating founders and employees, and following corporate procedures.

1. Legal & Accounting
Basics for Startups

2. Carolynn
Levy
Kirsty
Nathoo

3. What kind of entity?
• Delaware Corporation
• Keep it Simple
FORMATION

4. Be Organized
• Future due diligence requirements
• Humdrum reality of running a startup
FORMATION

5. EQUITY
Allocation
Purchasing
Vesting

6. Allocation
• Execution > Idea (ideas = 0)
• How much equity for each founder?
• Look forward, not backwards.
EQUITY

7. Purchasing
EQUITY
• Paperwork Alert!
• 2-Sided Transactions

8. Vesting
• Vesting is earning the right to
permanent ownership of the shares
over time.
EQUITY

9. Vesting
• Standard vesting = 4 years w/ 1 year cliff
• If founder leaves, company can
repurchase unvested shares.
EQUITY

10. Vesting
• Why have vesting?
• Single founders should have it too.
EQUITY

11. FUNDRAISING
Logistics
Investor Requests
Company Expenses

12. Logistics
• Priced vs. Non-priced Rounds
• Paperwork Alert!
• Potential Dilution
FUNDRAISING

13. Investor Requests
FUNDRAISING
• Board seat
• Advisors
• Pro rata rights
• Information rights

14. Company Expenses
• What is a business expense?
• Keeping track of expenses.
FUNDRAISING

15. DOING BUSINESS
Founder Employment
Hiring & Firing
Legitimacy

16. Founder Employment
• Founders are employees of the company
and must be paid wages / salary.
• Founder Breakups
DOING BUSINESS

17. Hiring Employees
• Paperwork alert!
• Consultant vs. Employee
• Equity for Employees
DOING BUSINESS

18. Firing Employees
• Fire quickly.
• Communicate effectively.
• Pay wages / salary up to point
of termination.
DOING BUSINESS

19. Firing Employees
• Eliminate access.
• Repurchase unvested stock.
DOING BUSINESS

20. Legitimacy
• Know your key metrics.
• Balance Sheet & Income Statements
• Tax Returns
DOING BUSINESS

21. Legitimacy
• Register as a foreign corporation.
• Financials, Tax Returns, Payroll Taxes
• “Following the corporate form” = Board
meetings, management structure
DOING BUSINESS

22. Legitimacy
• Proper Contracting
• Insurance
DOING BUSINESS

23. Biggest Take-Aways
• During formation keep it simple, use the
standard, and stay organized.
• Be fair and forward-looking about equity
ownership. Have Vesting!
• Stock doesn’t buy itself.

24. Biggest Take-Aways
• Be savvy about financing instruments,
terms, and common investor requests.
• Founders need to get paid.
• Employees must sign documents to
assign IP to the company.

25. Biggest Take-Aways
• If an employee must be fired, do it quickly
and professionally.
• Know your key metrics.
• Be a legitimate corporation by following the
rules and taking it seriously.