Legal basics for startups, complete DIY guide: Vesting | Hacker News Reader

Legal basics for startups, complete DIY guide: Vesting

blog.staply.co

17 pointsdsplatonov12 comments

I've said this before, and I'll say it again: people who are not lawyers should not give legal advice because they usually get it wrong. (Yes, I know that one of the Staply founders was a "legal counsel" in Finland. In most of Europe, a law degree is a 2-year undergraduate degree and licensing requirements are very permissive.)

This blog post is filled with legal mistakes, assuming it is intended to apply to startups generally and not just Finnish startups. By the way--where's the warning that this information doesn't apply outside of Finland?

If you want legal advice, at the very least get it from a blog from a licensed lawyer practicing in your jurisdiction. Grellas, for example, has a very good selection of articles. MoFo and other firms also provide legal templates targeted at startups.

I'm flagging this post because it contains bad advice.

For information on this topic from someone who actually knows what they're doing, please read "An Introduction to Stock and Options" by David Weekly:

http://www.amazon.com/Introduction-Stock-Options-David-Weekl...

Please specify with what you disagree

This isn't how vesting is typically set up for founders at a startup in the US. You'd do well to read the eBook I linked to, as well as Grellas' series of posts: http://www.grellas.com/faq_business_startup.html Pay particular attention to the stuff about 83(b) elections.

Pretty much all of it is contrary to the advice you'd get from any U.S.-based law firm (and based on my experience, from U.K. firms as well).

Your advice may be appropriate to Finnish startups, but you don't mention any geographic restrictions on your advice.

Dumb question: what is the status of the un-owned (un-vested) portion of shares in the first years?

Suppose two people, A and B, are equal partners each vesting towards 50% ownership in 3 years. After the first year, they both have vested ownership of 16.6%, what is the status of the other 66% of the company? Does the corporation as an entity own 66% of itself? Do they both really own 50% of the company, with an agreement that new shares will be created in a year and distributed to them? It seems to me like this scenario would mean they both own 50% of shares outstanding, and each year new shares are created which dilute their original holding's equity, but the shares then go to them (so they initially hold ie 10,000 shares of 20,000, then later hold 20,000 of 40,000).

Corporate ownership is determined by shares outstanding. Reserve shares retained by the company do not figure into ownership calculations.

A company cannot directly own itself, but it can indirectly, if it contributes some of its shares to another company that it wholly or partially owns. (This is not permissible in all jurisdictions, such as the U.K.)

This isn't how vesting works for founders.

Typically, in US startups, the stock is sold to the founders up front, with the company having a repurchase option corresponding to the vesting period.

this is a good question. basically the total amount of shares are reserved for you (in the example - 50%)-no new shares are issued. in the article I provided our(Staply) vesting procedure-if I or my partner leaves the company, he gets a certain percentage of the total amount of shares in accordance with Vesting, other shares destroyed, so the stake of each remaining shareholder increases proportionally to the amount of destroyed shares. in the article you can find example of the statements. however, vesting is quite flexible procedure and you can easily put the procedure, described in your comment

I guess I lived in a cave for too long, but what is "Zuckerberg's case" exactly?

Check this link - http://foundersolutions.wordpress.com/2014/01/12/what-it-tak...

I wondered this too. From the link provided by dsplatonov:

"On founder equity (we couldn’t miss this one!): All founders must be on vesting schedule. Mark heard nothing about vesting at the time when they started the company. They just divided equity, and then his co-founder Eduardo left."

Reply on news.ycombinator.com