The Startup Team: How Founder Equity (Founder Shares) Works

Founder equity (startup equity or founder shares) in either an LLC or C-corp is often the primary or even only compensation for a founding team in the very early stages of a company. In this video, we discuss the mechanics of how and why founders equity is usually purchased, some of the tax issues, the declining buy-back right approach to founder vesting to protect the company against a founder leaving the company early with a substantial amount of company ownership, and the importance of the 83b election for tax reasons.

[@joaq9790]

Congratulations Steve! You are absolutely amazing! Your videos are a testament to your vast practical knowledge and expertise, and I have gained an immense amount of knowledge from them. Thank you for all that you do!

[@clubiot4321]

StartupSOS is the most underrated channel. Amazing content 👏👍

[@afhamfareez]

Thank you for the knowledge. This channel will very useful for startup founder!

[@itsJDarts]

This has been very informative. thanks!

[@althafrahman1268]

Really informative and thank you 😃

[@Nirleponshishprapanc]

Thanks, Guru. You have answers to all. What would be the cash price of share at buy back. The price has to be convincing to all parties. May I think next fund raise pre-money val, but that means shares were earning without him. Last raise valuation may seem unfair.

[@vijirajamani6048]

Can other founders purchase stock from leaving founders stock unvested at original issue price ?

[@justingiovanetti]

What constitutes “leaving”? If you just stop working does that mean you left? Why would anyone leave if it means getting less money?

[@NicholasPadula]

1. thank you, you are amazing. 2. I've watched a few of your videos but when it comes to stocks specifically, what is and isn't relevant for a single founder? I just registered as an inc and am not sure if I need to buy, file an 83b, etc. Any insight or videos you think cover this well?

[@Startupsos]

Since, as a single founder, your stock doesn't vest, there's no need for an 83b. The 83b is only needed if there is some type of vesting of shares, in which case you need to tell the IRS "even through my shares vest, I paid for them up front so tax all of my shares up front at fair market value" - which is what the 83b does.

[@ayubshah3618]

Thanks. So I have a question. All of this stuff that u are talking about. What field does it come in for example is it finance or law for corporate. If someone wants to learn all there is in a startup laws where can I learn. Please let me know.

[@Startupsos]

Equity compensation is really a combination of finance, taxes, and emerging-business law, which is why it can get complicated - and why it's a good idea to work with an emerging business attorney that knows this stuff!

[@ErnestBondarenko]

Great content, thank you!

[@NicholasPadula]

Thank you for replying to my last comment about single founder! One more, sorry! Is this something I can re-visit without an issue say - 30-90 days in the future if a co-founder is…found?

[@Startupsos]

Certainly. If you bring on a co-founder, I would suggest you do have their stock vest (and they should sign an 83b). But that doesn't mean that you have to vest your shares. If an investor requires you to vest your shares at some point in the future, then I'd suggest talking to an accountant about how to handle that. In that scenario, you are getting into a vesting arrangement more than 30 days after you purchased your shares - and figuring out how that works with an 83b would require some accounting advice!

[@NicholasPadula]

@@Startupsos you are a BLESSING. Thank you, this was literally the specific simple paragraph I been spending hours trying to find. How else can I support you outside of this channel?

[@m.dinfinix2043]

Bless uuuu