Legal Concepts for Founders(handbook.clerky.com)
handbook.clerky.com
Legal Concepts for Founders
https://handbook.clerky.com
21 comments
Interesting read for a European. A lot of things started falling into places. thanks for a valuable resource.
Yeah, erm ... Europe != USA and the linked blog post is clearly written for the US audience.
The US does a lot of things differently to Europe, perhaps most famously employment. The US (unsurprisingly) takes the capitalist approach and sides firmly on the side of the company. Europe stands firmly on the side of the employee. Employment Law in Europe is a very complex topic indeed. There are tons of things you can do as a US employer that in Europe would be guaranteed to put you infront of an Employment Tribunal with expensive results.
Therefore I would strongly caution about trying to transpose an article about US company formation and operation to an EU context. You are likely to be wasting your time, frankly, as the nature is so very different.
The US does a lot of things differently to Europe, perhaps most famously employment. The US (unsurprisingly) takes the capitalist approach and sides firmly on the side of the company. Europe stands firmly on the side of the employee. Employment Law in Europe is a very complex topic indeed. There are tons of things you can do as a US employer that in Europe would be guaranteed to put you infront of an Employment Tribunal with expensive results.
Therefore I would strongly caution about trying to transpose an article about US company formation and operation to an EU context. You are likely to be wasting your time, frankly, as the nature is so very different.
two reasons why it would be an interesting read for European -
oh that's how it works over there, that's why I always hear people say X which up until now made absolutely no sense!
As a European living and working in the U.S I now know about starting a company here, thanks.
oh that's how it works over there, that's why I always hear people say X which up until now made absolutely no sense!
As a European living and working in the U.S I now know about starting a company here, thanks.
I grant you point one, fair enough.
However your second point makes no sense. Why, in that context, would you say "Interesting read for a European" ?
If you're looking at it from the eyes of somebody living in the US wishing to establish a company in the US then you are no longer reading it as "a European".
However your second point makes no sense. Why, in that context, would you say "Interesting read for a European" ?
If you're looking at it from the eyes of somebody living in the US wishing to establish a company in the US then you are no longer reading it as "a European".
You sound like a typical antisocial pedant.
Off topic; I really liked the design and typography. Seems to be hosted on Gitbook (if case anybody was wondering the same thing).
Seems like basic legal definitions. How do I structure my equity so that it isn't diluted by braindead investors? What do I need to know to convince investors that they're absolute mongrels who have no idea how to run a business, they just exist to give me their money because they lack real ideas?
I worked on this handbook quite a bit — thanks to OP for posting it on HN! A pleasant surprise :)
To answer your first question, dilution has little to do with how you structure the equity and more to do with the price at which you sell it (and how much of it you sell). The more your company is worth, the less you will need to sell to raise the same amount of money.
To answer your first question, dilution has little to do with how you structure the equity and more to do with the price at which you sell it (and how much of it you sell). The more your company is worth, the less you will need to sell to raise the same amount of money.
There's different types of equity that you need to use to frame your answer. Nonvoting equity is colloquially not seen as diluting your ownership because you retain the reigns. How to actually try to set such a thing up, especially when you're still private but wanting to transition to public, is extremely useful to founders and something I've not managed to find good information on myself.
A bunch of older threads on here went down the path of "you're going to get fleeced by your VC, just accept it because they have infinite lawyers."
A bunch of older threads on here went down the path of "you're going to get fleeced by your VC, just accept it because they have infinite lawyers."
There’s close to zero chance you can sell investors non-voting shares as an early-stage startup. There is non-voting equity that can convert into shares, but they will certainly dilute you even if they don’t convert and those shares will almost always have voting rights.
If you’re anywhere close to taking your company public, you should have attorneys that can help you with preparing for that and point you to whatever information you’re looking for.
At the time of investment, good VCs typically don’t care about any one investment enough to put much effort into fleecing you. My experience is that good startups aren’t at any significant disadvantage in terms of attorneys. Just make sure to get a good one that has done a lot of financings.
If you’re anywhere close to taking your company public, you should have attorneys that can help you with preparing for that and point you to whatever information you’re looking for.
At the time of investment, good VCs typically don’t care about any one investment enough to put much effort into fleecing you. My experience is that good startups aren’t at any significant disadvantage in terms of attorneys. Just make sure to get a good one that has done a lot of financings.
The problem I've encountered in a lot of legal adjacent areas is most attorneys just are not very good. I have no idea if any given attorney is keeping up with the state of the art. Also, a lot of legal curricula are very pro-business, which means many attorneys have a inbuilt anti-worker and anti-founder bias.
I know nonvoting shares are usually a hard sell, but I've seen people pull it off. It's worth reminding investors that they are giving you their money on loan because they do not have business ideas, you do.
I know nonvoting shares are usually a hard sell, but I've seen people pull it off. It's worth reminding investors that they are giving you their money on loan because they do not have business ideas, you do.
Big thank you to the authors. What a fantastic resource. It's very refreshing to see these concepts broken down in short and concise language, packed with information and no BS.
Thank you for the resource, especially for someone who launched their first LLC almost a year ago.
> Forming a corporation helps protect the founders from personal liability. If the corporation is sued, the assets of its founders are more likely to be protected.
Hmm... I guess this means that by forming a corporation, there's no guarantee that a founder's assets will be protected.
> Forming a corporation helps protect the founders from personal liability. If the corporation is sued, the assets of its founders are more likely to be protected.
Hmm... I guess this means that by forming a corporation, there's no guarantee that a founder's assets will be protected.
It can happen, but it's rare. Read up on 'piercing the corporate veil' if you're interested. It generally happens in cases of fraud, gross misconduct, criminal behavior, etc. In a more common scenario of a company going bankrupt through the normal course of business the founder's assets will be protected.
One notable exception: bank loans, especially for new companies banks tend to ask for private guarantees to back up those loans.
That’s not really an exception. The banks aren’t piecing the corporate veil there, they’re simply asking a natural human to be party to the loan contract, as a condition of leading.
Anyone can do that. You’re just forming a contract between both a corporate entity and a natural person, with clauses requiring the natural person to cover the obligations the corporate entity, if the corporation fails to fulfil its obligations.
The natural person in this cases doesn’t have be a founder, or company owner. It could even be another larger corporate entity that’s less likely to vanish overnight.
But none of this changes the protections a corporation gives its owners, it’s just that the owner are choosing to sign contracts that make them personally liable for failures of the corporation.
Anyone can do that. You’re just forming a contract between both a corporate entity and a natural person, with clauses requiring the natural person to cover the obligations the corporate entity, if the corporation fails to fulfil its obligations.
The natural person in this cases doesn’t have be a founder, or company owner. It could even be another larger corporate entity that’s less likely to vanish overnight.
But none of this changes the protections a corporation gives its owners, it’s just that the owner are choosing to sign contracts that make them personally liable for failures of the corporation.
You are absolutely right. Because a personally backed loan can be backed by anyone and is limiting the liability to whatever the loan guarantee was. Not additional liability for whatever liabilities come from the company.
All that depends on the legal entity form used, which is especially in Europe quite interesting.
All that depends on the legal entity form used, which is especially in Europe quite interesting.
LLC veil can be pierced if they are the sole person responsible for the business. It is different case if there are multiple shareholders and employees though.
All depends on the country.
All depends on the country.
Depends on the /state/ as well.