Distinctive legal aspects of forming a startup business with a founding team.

Introduction

Attributes of a Typical Startup Business

Startups Generally Need a Corporate as Opposed to an LLC Setup

Restricted Stock Grants – Rare for Small Business – Are the Norm for Startups with Founding Teams

The Risk of Forfeiture Is the Defining Element of Restricted Stock

Restricted Stock Can Be Mixed and Matched to Meet the Needs of a Startup

Restricted Stock Requires an 83(b) Election in Most Cases

Restricted Stock Grants Are Complex and Do Not Lend Themselves to Legal Self-Help

Startups Also Use Other Equity Incentives Besides Restricted Stock

Make Sure to Capture the IP for the Company

Don’t Forget the Tax Risks

Conclusion

All in all then, a startup has very distinctive setup features – from forfeiture incentives to IP issues to tax traps. It typically differs significantly from a conventional small business in the way it is set up. The issues touched upon here illustrate some of the important differences. There are others as well. If you are a founder, don’t make the mistake of thinking you can use a do-it-yourself kit to handle this type of setup. Take care to get a good startup business lawyer and do the setup right.