Once at a startup, how if at all can an employee increase his/her options or total equity ownership?

Chris Barsness, startup, finance, law, and tech nerd

I have put in performance based vesting of restricted stock units, straight stock grants, or stock options, but these equity grants typically need board approval or at least put into a board approved stock option or equity inventive plan.  That is sometimes difficult to draft into a grant since determining if someone hit those performance metrics is not always black and white.  The board and management are typically constrained by the terms of any approved plan, state and federal securities laws, and considering what others in the company will say if one person gets substantially more than someone else.

To answer your question, the typical equity or stock option incentive plans set aside a pool of a certain number of shares and when one person leaves, they usually have a short period of time (often 30 to 90 days post termination) to exercise any option rights they had.  If they don't exercise it, they lose it and that grants goes back into the pool for other employees.  You can ask for performance reviews for possible further equity or option grants if you hit certain performance targets every year, quarter, etc.  That is pretty fair to both the company and employee most of the time.

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Hiring Engineers for LLC startup

Chris Barsness, startup, finance, law, and tech nerd

The problem with an LLC is that these issues are not as easy to deal with.  If you plan to grow and seek funding, convert to a corporation.  In most states, it is a very easy thing to convert from LLC to a corporation, usually just a form filed with the secretary of state (of course you still have to keep records of authorization to make those changes and put together bylaws etc.).  It generally is a better form for future growth, fund raising, classes of equity, and flexibility in incentives for consultants/employees.  

It is not that an LLC is a bad type of entity, but the structure is for managers and members that is good for small or closely held companies and other specific situations.  Ownership interests (equity) take the form of membership interests where the new member would have similar rights to distributions of profits and potentially share in losses, which all depends upon the state of formation, operating agreement, and other factors.  If you can't afford to keep paying him similar to a full time employee (with payroll tax withholdings and other requirements) after the site is done, just pay him the cash as an independent contractor with incentives to finish early or penalties for delays in completion and forget about ownership interests.

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Do angel investors use services of freelance consultants for checking business plans and technical part of works submitted to them by start-ups? If yes, what is the best way to approach angel investors for offering such services?

Chris Barsness, startup, finance, law, and tech nerd

I have seen well known angels without expertise in that specific space bring in what I call "due diligence dogs" to sniff out the problems in the business by going in to dig into the founders, board, and other aspects; however, this was only using their own internal trusted person.  I have been asked by angel investors to analyze business plans or ventures, but that is pretty rare and usually they are long term existing clients of my law practice.  

As was said, I wouldn't spend much time or effort on this expecting it to pay well.

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Can a startup accelerator give legal advice to the startups they help out without an in-house lawyer?

Chris Barsness, startup, finance, law, and tech nerd

Just like real estate agents will sometimes try to answer tax or legal questions, the accelerator is there to provide guidance, but they are not licensed to practice law.  In California, it is a misdemeanor to provide legal advice without being licensed.  It is also a misdemeanor to falsely advertise that someone may be able to provide legal advice without a license.  They can also be subject to civil penalties for unfair competition, in addition to the items listed in the other answers.  

Even if they have an in house lawyer, they are not a law firm and cannot provide legal advice to someone outside of that organization.

There are some grey areas.  For example, if they tell you that you need to form a C corporation in Delaware in order to go after VC funds, that may not necessarily be legal advice.  If they go on to explain the differences in legal entities, tax consequences, and tell you how to do it or give other advice that may have legal consequences, that crosses that line.  Their role is to provide guidance in the early stages, so there will be some advice that will probably border on legal advice.

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How do startup accelerators give you the funding?

Chris Barsness, startup, finance, law, and tech nerd

Commingling of funds (where you mix personal and business assets/cash) is something to avoid at all costs and the investor will probably require you to have a business bank account to wire the funds to or will give you a cashier's check made out to the business.  You generally can't cash the check at most banks without a business account in that same name as is listed on the check.

Go onto the IRS website and you can apply and generally get a new employer identification number (EIN) within minutes online.  Print that out, with a copy of your certificate or articles of incorporation/formation documents or good standing, resolution from the board or shareholders authorizing you to open a bank account on behalf of the company, and go to a local bank's business banker.  I have generally been able to get them set up same day, especially if you do your personal banking there.

Now if you don't have a US banking relationship already and don't have a SSN or ITIN, you could either bring someone as treasurer in who does or you are right it may take a little while to accomplish.  My advice is to do it right the first time and set one up right away.

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