In most startups, founders are issued shares of common stock of a newly formed corporation. Common stock is the same type of stock that companies typically issue to employees and other service providers.
How are founders issued shares?
Founders typically pay for these shares with a nominal amount of cash, or a contribution of intellectual property, or both. For Delaware corporations, it is advisable pay cash for at least the par value of the shares being purchased. Founders usually maintain stockholder voting control over the company based on their large equity ownership in relation to other holders. Founders should subject their own shares to vesting. They also may include vesting acceleration provisions for their shares.
What if you opt for a different type of stock?
In some cases, founders may opt to implement more complicated types of stock for themselves, such as supervoting stock or Series FF or founders preferred stock. Certain founders may find these types of equity to make sense for their circumstances and experience; however, more complicated structures may entail higher costs upfront to implement and over time to maintain.
LTSE Equity is a free, fully-featured cap table management tool that helps startups manage and plan equity.
Disclaimer: LTSE is neither a law firm nor provides legal advice. Before making decisions on matters covered by this post, readers should consult their legal adviser.