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Equity

Glossary Term

In a corporation, “equity” is often used to refer to the corporation’s outstanding stock and stock options.

Confusion about your ownership structure, or a poorly planned structure, can create unnecessary administrative hassle and legal expense, and in certain situations can ward off investors. Here are some matters to consider as you establish the ownership structure (capitalization) of your company.

PBC Incorporation Package (Delaware)

Document Generator

Download the core set of documents that our Delaware public benefit corporation startup clients generally need in connection with their initial incorporation, including a certificate of incorporation, bylaws, stock purchase documents, and more.

Series FF Stock

Glossary Term

Series FF Stock is a hybrid between Common Stock and Preferred Stock, and is typically issued to founders at the time of incorporation

Public Offering

Glossary Term

A public offering is a sale or equity shares or debt shares by an organization to the public in order to raise funds for the company.

KISS

Glossary Term

KISS (“Keep It Simple Security”) is a term used by 500 Startups that describe short “open source” documents that have been drafted for use in early-stage private company financing deals.

Offer Letter

Glossary Term

An offer letter is a letter given by a company to an potential employee that provides key terms of the propsective employee’s employment.

Option pool

Glossary Term

An option pool is a number of shares of stock reserved for issuance to service providers of a company pursuant to options and other equity incentives.

Post-Money Valuation

Glossary Term

Post-money valuation is a term used widely in private equity and venture capital financing negotiations, and refers to the valuation of the company following a financing transaction.

Pre-Money Valuation

Glossary Term

Pre-money valuation is a term used widely in private equity and venture capital financing negotiations, and refers to the valuation of the company prior to a financing transaction.

Fully Diluted Shares

Glossary Term

“Fully diluted” shares are the total common shares of a company counting all currently issued and outstanding, plus shares that could be issued through the conversion of convertible preferred stock or through the exercise of outstanding options and warrants.

Discount Shares

Glossary Term

“Discount shares” is a term sometimes used to describe the shares issued upon conversion of a convertible note or SAFE in respect of the portion attributable to the discount rate/conversion price discount.

Cap Table

Glossary Term

A cap table is a list of your company’s equity securities, including stock, options and warrants, that identifies how many shares are outstanding and who owns those securities

Common Stock

Glossary Term

Units of equity ownership in a corporation entitling their holder to a share of the corporation’s success through dividends and/or capital appreciation.

Liquidity Transaction

Glossary Term

A company-sponsored liquidity transaction occurs when a private company buys its employees’ equity in the company. It has become more common in recent years as many startups choose to stay in private hands longer.

Conversion Price Cap

Glossary Term

A conversion price cap is the maximum valuation at which convertible debt or SAFEs convert at the time of the financing resulting in the conversion, regardless of the valuation agreed to by the company and the new equity investors.

Convertible Note

Glossary Term

A convertible note is an investment vehicle often used to facilitate investing in a company without establishing a valuation. Convertible notes are loans that generally later convert into equity.

Buy-out

Glossary Term

A buy-out is a contractual clause in which the company or other investors can buy out the equity of another stock holder.

409A

Glossary Term

Section 409A of the Internal Revenue Code is a complex and often counterintuitive set of tax rules applicable to deferred compensation.

Section 83(b) Election

Glossary Term

A Section 83(b) election is a letter you send to the IRS letting them know you want to be taxed on your unvested equity, such as shares of restricted stock, on the date you acquired the equity rather than on the date the equity vests.

Acceleration

Glossary Term

If certain events occur (specified by contract), stock vesting can be accelerated so that the stockholder actually owns more equity than the normal vesting schedule would dictate.

An important step when selling your company is determining the structure of the transaction. You may have heard the terms “merger”, “stock purchase” and “asset sale”. Click here for a quick primer and summary of some of the advantages and disadvantages of each of these transaction types.
A serious buyer for your company is likely to present you with heads of terms (also known as a letter of intent, memoranda of understanding or term sheet) covering the basic terms on which it proposes to buy your company.