Can I hire an unpaid intern?

Working for a startup can be a great resume and experience builder. Given the abundance of eager and available student labor, can your startup hire an unpaid intern? For most startups, the practical answer is no. Although it is technically possible for a company to host an unpaid internship, there are strict conditions that must […]

What is at-will employment?

At-will employment means that an employer can alter or terminate an employment relationship at any time for any reason, provided the reason isn’t illegal, or even for no reason at all, without incurring liability to the impacted employee. Likewise, an employee can quit their job at any time for any reason or for no reason […]

What is a cap table?

A capitalization table, often referred to as a “cap table,” provides a snapshot of a company’s securities holders at a specific moment. The level of detail in a cap table can vary based on what information the company chooses to share and what the viewer needs. A basic cap table might display the total number […]

What is Rule 701?

In the United States, securities offered to a company’s employees, consultants, or advisors, such as restricted stock or stock options, must be registered with the Securities and Exchange Commission (SEC) or qualify for an exemption from registration. For this purpose, startups often use the federal exemption known as Rule 701 for securities offered to service […]

What are securities laws?

Securities laws are a complex set of U.S. federal and state laws, regulations, and court cases that govern the offering and sale of financial instruments known as securities. Many other countries have their own securities laws which govern securities transactions within those countries. Examples of securities include common stock, preferred stock, SAFEs, convertible notes, bonds, […]

What is a 409A valuation?

Section 409A of the Internal Revenue Code, and the Section 409A Treasury regulations, are U.S. federal tax laws and regulations that effectively require companies to grant stock options with an exercise (or strike) price at or above the underlying shares’ fair market value as of the grant date. If an option is granted with an exercise […]

What are stock options?

Many venture-backed startups incentivize employees by offering a portion of their compensation as equity. This allows employees to benefit from their contributions and share directly in the company’s growth. In early-stage companies, this equity compensation typically comes in the form of restricted stock or stock options. For restricted stock, an employee must either pay for […]

Can founders work for free? Can employees be paid with equity only?

Federal and state employment laws mandate that employees receive at least minimum wage in cash for hours worked. Payment in equity-only does not meet this requirement. Usually, a founder’s service to their company classifies them as an employee under these laws. While the federal Fair Labor Standards Act (FLSA) exempts executive employees who own at […]

What is qualified small business stock?

Qualified Small Business Stock (QSBS) refers to stock that qualifies for tax benefits under Section 1202 of the U.S. Internal Revenue Code. This section allows the seller of QSBS to exclude up to 100% of capital gain on the shares from federal income tax. As of May 2024, any QSBS acquired after September 27, 2010, […]

Understanding the 83(b) Election: Its Importance and Implications

Note: The following information is relevant only for U.S. taxpayers. You should consult with a personal tax advisor about whether an 83(b) election is appropriate for your own tax situation. The 83(b) election is a U.S. federal tax filing commonly utilized by startup founders and early employees when they acquire stock subject to a vesting […]