Y Combinator Startup Class #18 : Legal and accounting basics for startups
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This document provides an overview of legal and accounting basics for startups. It discusses entity formation, equity allocation and vesting, fundraising logistics and investor requests, hiring and firing employees, and maintaining legitimacy as a company. Key recommendations include keeping entity formation simple, being fair about equity distribution and using vesting, understanding financing terms and diligence, properly employing and compensating founders and employees, and following corporate procedures.
Y Combinator Startup Class #18 : Legal and accounting basics for startups
- 1. Legal & Accounting Basics for Startups
- 2. Carolynn Levy Kirsty Nathoo
- 3. What kind of entity? • Delaware Corporation • Keep it Simple FORMATION
- 4. Be Organized • Future due diligence requirements • Humdrum reality of running a startup FORMATION
- 5. EQUITY Allocation Purchasing Vesting
- 6. Allocation • Execution > Idea (ideas = 0) • How much equity for each founder? • Look forward, not backwards. EQUITY
- 7. Purchasing EQUITY • Paperwork Alert! • 2-Sided Transactions
- 8. Vesting • Vesting is earning the right to permanent ownership of the shares over time. EQUITY
- 9. Vesting • Standard vesting = 4 years w/ 1 year cliff • If founder leaves, company can repurchase unvested shares. EQUITY
- 10. Vesting • Why have vesting? • Single founders should have it too. EQUITY
- 11. FUNDRAISING Logistics Investor Requests Company Expenses
- 12. Logistics • Priced vs. Non-priced Rounds • Paperwork Alert! • Potential Dilution FUNDRAISING
- 13. Investor Requests FUNDRAISING • Board seat • Advisors • Pro rata rights • Information rights
- 14. Company Expenses • What is a business expense? • Keeping track of expenses. FUNDRAISING
- 15. DOING BUSINESS Founder Employment Hiring & Firing Legitimacy
- 16. Founder Employment • Founders are employees of the company and must be paid wages / salary. • Founder Breakups DOING BUSINESS
- 17. Hiring Employees • Paperwork alert! • Consultant vs. Employee • Equity for Employees DOING BUSINESS
- 18. Firing Employees • Fire quickly. • Communicate effectively. • Pay wages / salary up to point of termination. DOING BUSINESS
- 19. Firing Employees • Eliminate access. • Repurchase unvested stock. DOING BUSINESS
- 20. Legitimacy • Know your key metrics. • Balance Sheet & Income Statements • Tax Returns DOING BUSINESS
- 21. Legitimacy • Register as a foreign corporation. • Financials, Tax Returns, Payroll Taxes • “Following the corporate form” = Board meetings, management structure DOING BUSINESS
- 22. Legitimacy • Proper Contracting • Insurance DOING BUSINESS
- 23. Biggest Take-Aways • During formation keep it simple, use the standard, and stay organized. • Be fair and forward-looking about equity ownership. Have Vesting! • Stock doesn’t buy itself.
- 24. Biggest Take-Aways • Be savvy about financing instruments, terms, and common investor requests. • Founders need to get paid. • Employees must sign documents to assign IP to the company.
- 25. Biggest Take-Aways • If an employee must be fired, do it quickly and professionally. • Know your key metrics. • Be a legitimate corporation by following the rules and taking it seriously.