Great post. I have a few questions regarding my venture. Sorry about the lengthy response.

I’m in the process of forming an LLC for a venture that I started. I brought-in a co-founder (personal friend) who serves as my technical arm. We have a customer and need to form the company asap.

Questions:

1. Should I form the LLC with a 100% stake first and then sign a MoU with the co-founder awarding him a stake with a vesting schedule? Or, should I include him as the member of the LLC at the time of formation? Are there pros/cons for either approach?

2. If I was to apply a vesting schedule for a stake, how does it work when the LLC is being formed? I’m planning to use legal zoom or Nolo to save on costs. Does LegalZoom or Nolo allow for setting-up memberships with a vesting schedule?

3. If one was to form the LLC with 100% stake, is it of any advantage to have your spouse be a stakeholder too irrespective of whether he/she is a contributing member of the company? For example, I start the LLC with the following:

T=0:
member 1 (co-founder 1): 89%
member 2 (co-founder 1′s spouse): 11%

T1=T+1 month:
member 1 (co-founder 1): 51%
member 2 (co-founder 1′s spouse who is not contributing): 8%
member 3 (co-founder 2): 41%

Assume at T2 we receive interest from a VC, and assuming we change the company from an LLC to a C-Corp., and the company is valued at $100K.

T2=T+1 year
member 1 (co-founder 1): 51% – value $51K
member 2 (co-founder 1′s spouse who is not contributing): 8% – value $8K
member 3 (co-founder 2): 41% – value $41K

Will the value of member2′s stake (per share) be perceived any lesser than the other members because of the fact that the member was not an active contributor within the company?

Usually, the VCs put a multiplication factor to buy-out the shares from the respective shareholders. Assuming the factor is 3x (average for a product company), will member2′s factor be any lesser because he/she is a passive stakeholder?

Any input is appreciated.

Thanks
Nate

I have a startup company, established last year with 20MM shares authorized and I have issued 3MM shares already. I like to raise $1MM for my project, I have few questions hopefully that you could shed some light to my confusion:

1) If I raise $1MM at $1.00 each. Hence I’m giving up about 25% of the company already. Is this a bad idea to start with, since I should own more shares from the beginning, let say 50-60% of authorized shares. If that is the case, what could I do to remedy the issue. Could I do the vesting schedule for more shares?

2) Which offering would be best Reg. A and SCOR or Reg. 504. I want to advertise publicly, since it’s easier to raise fund. Why not too many people using Reg. A as my understanding.

1. How is percentage of profit determined when all stock has not yet been vested? If a company turns a good profit in year 3, but stock has not yet fully vested, how is profit distributed?

2. If the company is acquired, is all stock distributed and paid out?

3. If a company has undergone funding, and a founder drops out, what happens to his/her stock? Does it get split between the founders at their ownership level to later vest to them? Do the investors now receive a portion of it relative to their stake?

Looking forward to your response…thanks.

With cliff vesting, what is the usual and customary method for creating the founder stock certificates.

Thanks

Thanks for all the great content. Quick question: who controls the founder’s shares while they’re being vested? Is there an escrow for that or does the attorney handle this?