Startup & Emerging-Business Counsel

Founder agreements, equity splits, and vesting

The founder relationship is where most early disputes start, and almost none of them are papered in time. We draft the founders' agreement that ties each person's equity to their role and contribution, sets vesting with a cliff so a co-founder who leaves in month four doesn't keep four years of stock, and spells out what happens to that stock when someone exits, voluntarily or not. For founder shares issued as restricted stock subject to repurchase, an IRC § 83(b) election filed within 30 days of issuance fixes the tax basis at grant rather than at vesting; a missed election is one of the most common and expensive mistakes we see surface during a financing. Where founders want to preserve the Qualified Small Business Stock exclusion under IRC § 1202, which can exempt up to the greater of $10 million or 10× basis of gain after a five-year hold, how and when the stock is issued matters from day one. We draft the founder relationship for the departure no one is planning yet.

IP assignment, confidentiality, and open-source hygiene

An investor's first diligence question is whether the company owns what it sells, and the answer is no more often than founders expect. Work created by an independent contractor belongs to the contractor unless there is a written present assignment; the Copyright Act's work-for-hire rule (17 U.S.C. § 101) reaches employees and a short list of commissioned categories, and patents require an express assignment regardless. We put a proprietary-information-and-inventions assignment in front of every founder, employee, and contractor, so the company holds clean title to its code, designs, and inventions. Trade-secret protection under Washington's Uniform Trade Secrets Act (RCW 19.108) and the federal Defend Trade Secrets Act (18 U.S.C. § 1836) only attaches when a company takes reasonable measures to keep the information secret, which means real confidentiality agreements and access controls, not a clause buried in an offer letter. We also flag the open-source licenses that can contaminate a proprietary codebase, and keep non-compete and non-solicit terms inside the limits Washington's RCW 49.62 now imposes.

SAFEs, convertible notes, and priced-round readiness

Most early money comes in before the company has a priced valuation, through SAFEs or convertible notes. The terms that feel like boilerplate decide how much of the company the founders keep. We work through the valuation cap, the discount, whether a SAFE is pre-money or post-money, and how a note's interest and maturity behave if the next round is late, then model the conversion so founders see the dilution before they sign rather than at the Series A. These instruments are securities: they're typically sold under the Securities Act's private-placement exemption, Section 4(a)(2) (15 U.S.C. § 77d(a)(2)), and SEC Regulation D Rule 506, with a Form D filing and Washington blue-sky compliance under RCW 21.20. Before a priced round, we clean up what accumulated along the way, including stacked SAFEs with different caps, most-favored-nation clauses, and side letters that a lead investor will insist on resolving.

Option pools, advisor equity, and employee grants

Hiring early talent usually means paying in equity, and equity compensation has its own rulebook. We set up the stock option plan and the option pool, and we're candid that a pool created before a round dilutes the founders, not the incoming investor. Option strike prices have to be set at fair market value, which for a private company means a defensible IRC § 409A valuation; options priced too low trigger immediate tax and a 20% penalty on the recipient. We structure incentive stock options within the limits of IRC § 422, including the $100,000 annual vesting cap, the 90-day post-termination exercise window, and the holding periods that preserve their tax treatment, and we use non-qualified options or restricted stock with an § 83(b) election where they fit the situation better. Advisor grants get the same discipline, so a handshake doesn't become a cap-table surprise.

Fundraising, cap-table, and data-room readiness

When an institutional investor finally shows interest, the company has weeks to prove it has been run carefully since formation. We get the cap table into a single authoritative record rather than a spreadsheet with rounding errors, confirm that every stock issuance was properly authorized by the board, that the § 83(b) elections were filed, and that the IP assignments are signed, then assemble the data room diligence counsel expects to see. We translate the term sheet into what it actually costs: pre-money versus post-money valuation, the liquidation preference, the option-pool shuffle that comes out of the founders' share, pro-rata rights, and board composition. For companies organized as Washington LLCs, we also handle the conversion to a Delaware C-corporation that most venture investors require, and structure it to keep the IRC § 1202 clock and the founders' tax position intact.