CONVERSION OF A CONVERTIBLE NOTE

Determining how much equity the convertible note holder receives is relatively complicated.  Assuming conversion is triggered by a Series A, the first factor is the valuation used for the Series A.  If the Series A investor buys 2,000 shares (and the company originally has 10,000 total issued and outstanding shares) for a $1,000,000 purchase price […]

UNDERSTANDING CONVERTIBLE NOTES

It is becoming less and less common for investors to invest in companies in exchange for equity ownership.  It is simply too difficult to value the average startup company that hasn’t even gotten its product or idea to market yet, let alone generated a profit.  Since virtually all the conventional valuation methods are based on […]

TOP 5 TIPS FOR RAISING VENTURE CAPITAL

In their infancy, most startup companies lack the requisite credit history and hard assets to obtain conventional bank financing.  As a result, if the business does not generate sufficient cash flow to maintain its operations, it may be necessary to seek out funds from angel investors or venture capital groups.  One disclaimer here is that […]

DRAFTING CORPORATE GOVERNANCE DOCUMENTS

Once you have formed a legal entity, you are not done yet.  You still need to prepare detailed organizational documents governing your business and its owners.  Below is a list of some common types of entities and the appropriate corporate governance documents: Limited Liability Company:  LLC’s are governed by an Operating Agreement.  Operating Agreements primarily […]

FORMATION: CHOICE OF ENTITY

The two most common types of legal entities are LLC’s and corporations.  The three main considerations in choosing between the two relate to corporate governance, taxation and flexibility. Corporate Governance: Corporations are typically required to have meetings, take meeting minutes and engage in other corporate formalities. Conversely, state laws regarding governance of LLC’s are far […]

FORMATION: WHY DO I NEED TO INCORPORATE MY BUSINESS

One of the first steps in starting a business is to choose the best type of legal entity.  There is no legal requirement to incorporate your business.  An individual can operate a business as a sole proprietorship and a group of individuals can operate a business as a partnership.  A sole proprietorship or a partnership […]