This Week in Startups Common First-Time Founder Mistakes with Becki DeGraw | Wilson Sonsini Startup Legal Basics
Mar 26, 2021
Becki DeGraw, a legal expert from Wilson Sonsini, shares invaluable insights for first-time founders. She breaks down common legal, financial, and HR mistakes that can derail startups. The discussion highlights the critical 83B election for stock, emphasizing its tax implications. Becki also clarifies the importance of corporate appointments and the nuances of signing authority. They delve into the rise of secondary shares in Series B funding and the significant considerations surrounding business structures for growing companies.
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83(b) Election
- File an 83(b) election within 30 days of buying company stock to prepay taxes on the potential future value.
- This avoids higher taxes later if the stock value increases, potentially resulting in zero tax if done correctly.
Formalize Stock Ownership
- Ensure founders and investors actually purchase their stock after incorporating the company.
- Complete the necessary steps: appointing directors, officers, issuing stock, and buying it to avoid ownership issues.
Incorporate Early
- Incorporate your company early, even before funding, to control stock valuation.
- Waiting until funding can significantly increase the cost of founder stock due to the implied valuation.