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Amazing. Thank you for doing this. I hope comprehensive useful content as marketing continues to become more popular. Question: When is the earliest a founder

by arikr 10y ago

Amazing. Thank you for doing this. I hope comprehensive useful content as marketing continues to become more popular. Question: When is the earliest a founder can think about super-voting shares, a la Facebook/Alphabet? What's the process here?

swampthing 10y ago
Great question - there's nothing stopping you from doing it at incorporation. But it's pretty rare. Very few companies will have enough negotiating leverage to keep it when they raise money. So rather than complicate things from the start, I think the majority view amongst startup attorneys (there are differing opinions on this) is to go with the standard setup, then add in super-voting later on if the company is in a strong position.
- arikr 10y ago
  Noted! Thanks. Additional question added with an edit: If someone wants to start a company with the goal of never going public (i.e. Bill Gates has talked about regretting going public and only did so because they needed better liquidity for employee options and I believe they were coming close to the shareholder cap) -- what should someone be thinking about nice and early? 2nd additional question: I've heard of unique corporate structures, like where an LLC owns a C-Corp. Any suggested resources for learning some basics there? One well known startup that I won't name has this setup 3rd additional question: If you a friend of yours was starting a company and you were almost certain that they'd eventually be doing $10s of billions in net income, what special things from a legal sense should they look into setting up early that are hard to change later on? (e.g. incorporation in Ireland or things like this)
  - swampthing 10y ago
    Ah sorry, I wrote my first answer before seeing your edits. I'll just number my responses here for convenience. 2. It shouldn't change much early on... it would probably be premature optimization to think about it early on, to be honest. The shareholder limits can lead a company to go public, but I think the laws have changed since Microsoft's time to make this less of an issue. Of course, you still have the issue of shareholder liquidity, so I suppose you will want to plan to be able to buy back people's equity :) Also, VCs will usually have demand registration rights that can force the company to go public at some point (never seen those negotiated away though). 3. Usually startups are more forced into more exotic corporate structures due to having some pre-existing business that is hard to convert into a DE C-corporation. So it's usually not something they sought out. I don't know of any good resources for these types of setups unfortunately - in general, the less standard something is, the more I think an attorney should be involved. I would only recommend DIY approaches in areas where there is a ton of standardization. 4. It sounds counter-intuitive, but for startups, I don't consider there to be any special things to look for. VC backed startups are all setting up to be massive successes - if there were any significant issues with respect to highly profitable companies, they would have likely been addressed. Which is not to say that you won't need to change things later on - but the optimizations that are not done up-front are skipped because the opportunity cost in the early stages is not worth it. Many startups do not get off the ground because too much time was spent on hyper-optimizing legal / tax up front. It's usually better to just go with the beaten path on the legal front, and focus on the business. But yes, ultimately, there will probably be some off-shoring involved in optimizing that kind of massive success.
    - arikr 10y ago
      Thank you so much. Really appreciate you taking the time and giving direct answers. Will share the guide wherever relevant, I think it's an awesome initiative and I hope it pays for itself in leads.
      - swampthing 10y ago
        Glad to help! The handbook will pay for itself just as a support resource for us :)
danieltillett 10y ago
I am not a lawyer, but getting something like this in requires that you have a very strong hand in your negotiation position with potential investors. If you have dozens of investors all competeting to put money into your startup and you don't need the best valuation, then you are in a position to ask for this, otherwise it is just going to be another reason for investors to pass. Very few startups are in a position to negotiate super-voting shares - it is a bit like a group of teenagers in new punk band worrying about what they are going to do with all the millions they will make when they release their first record.
deleted 10y ago
[deleted]

by arikr 10y ago

swampthing 10y ago

Great question - there's nothing stopping you from doing it at incorporation. But it's pretty rare. Very few companies will have enough negotiating leverage to keep it when they raise money. So rather than complicate things from the start, I think the majority view amongst startup attorneys (there are differing opinions on this) is to go with the standard setup, then add in super-voting later on if the company is in a strong position.

arikr 10y ago
Noted! Thanks. Additional question added with an edit: If someone wants to start a company with the goal of never going public (i.e. Bill Gates has talked about regretting going public and only did so because they needed better liquidity for employee options and I believe they were coming close to the shareholder cap) -- what should someone be thinking about nice and early? 2nd additional question: I've heard of unique corporate structures, like where an LLC owns a C-Corp. Any suggested resources for learning some basics there? One well known startup that I won't name has this setup 3rd additional question: If you a friend of yours was starting a company and you were almost certain that they'd eventually be doing $10s of billions in net income, what special things from a legal sense should they look into setting up early that are hard to change later on? (e.g. incorporation in Ireland or things like this)
- swampthing 10y ago
  Ah sorry, I wrote my first answer before seeing your edits. I'll just number my responses here for convenience. 2. It shouldn't change much early on... it would probably be premature optimization to think about it early on, to be honest. The shareholder limits can lead a company to go public, but I think the laws have changed since Microsoft's time to make this less of an issue. Of course, you still have the issue of shareholder liquidity, so I suppose you will want to plan to be able to buy back people's equity :) Also, VCs will usually have demand registration rights that can force the company to go public at some point (never seen those negotiated away though). 3. Usually startups are more forced into more exotic corporate structures due to having some pre-existing business that is hard to convert into a DE C-corporation. So it's usually not something they sought out. I don't know of any good resources for these types of setups unfortunately - in general, the less standard something is, the more I think an attorney should be involved. I would only recommend DIY approaches in areas where there is a ton of standardization. 4. It sounds counter-intuitive, but for startups, I don't consider there to be any special things to look for. VC backed startups are all setting up to be massive successes - if there were any significant issues with respect to highly profitable companies, they would have likely been addressed. Which is not to say that you won't need to change things later on - but the optimizations that are not done up-front are skipped because the opportunity cost in the early stages is not worth it. Many startups do not get off the ground because too much time was spent on hyper-optimizing legal / tax up front. It's usually better to just go with the beaten path on the legal front, and focus on the business. But yes, ultimately, there will probably be some off-shoring involved in optimizing that kind of massive success.
  - arikr 10y ago
    Thank you so much. Really appreciate you taking the time and giving direct answers. Will share the guide wherever relevant, I think it's an awesome initiative and I hope it pays for itself in leads.
    - swampthing 10y ago
      Glad to help! The handbook will pay for itself just as a support resource for us :)

danieltillett 10y ago

I am not a lawyer, but getting something like this in requires that you have a very strong hand in your negotiation position with potential investors. If you have dozens of investors all competeting to put money into your startup and you don't need the best valuation, then you are in a position to ask for this, otherwise it is just going to be another reason for investors to pass. Very few startups are in a position to negotiate super-voting shares - it is a bit like a group of teenagers in new punk band worrying about what they are going to do with all the millions they will make when they release their first record.

deleted 10y ago

[deleted]