Comments on: What is preferred stock and why is it issued to investors? http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/ Venture capital, seed financings, convertible note bridge debt, M&A, option vesting and other matters explained for founders and entrepreneurs Sun, 11 Dec 2011 21:54:46 +0000 http://wordpress.org/?v=2.9 hourly 1 By: Yokum http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/comment-page-1/#comment-3004 Yokum Wed, 04 Mar 2009 10:05:57 +0000 http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/#comment-3004 @Tom - Please read the disclaimers and discuss with your own advisors. I don't really see the incremental benefit of having an LLC own C-corp shares. That really won't prevent the C-corp from being sued. If a third party wants to sue various parties in the ownership chain, you really can't stop them and as long as the C-corp complies with corporate formalities, the stockholders won't be liable personally absent additional facts that would create liability. @Tom – Please read the disclaimers and discuss with your own advisors. I don't really see the incremental benefit of having an LLC own C-corp shares. That really won't prevent the C-corp from being sued. If a third party wants to sue various parties in the ownership chain, you really can't stop them and as long as the C-corp complies with corporate formalities, the stockholders won't be liable personally absent additional facts that would create liability.

]]> By: Yokum http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/comment-page-1/#comment-2070 Yokum Wed, 04 Mar 2009 03:05:57 +0000 http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/#comment-2070 @Tom - Please read the disclaimers and discuss with your own advisors. I don't really see the incremental benefit of having an LLC own C-corp shares. That really won't prevent the C-corp from being sued. If a third party wants to sue various parties in the ownership chain, you really can't stop them and as long as the C-corp complies with corporate formalities, the stockholders won't be liable personally absent additional facts that would create liability. @Tom – Please read the disclaimers and discuss with your own advisors. I don't really see the incremental benefit of having an LLC own C-corp shares. That really won't prevent the C-corp from being sued. If a third party wants to sue various parties in the ownership chain, you really can't stop them and as long as the C-corp complies with corporate formalities, the stockholders won't be liable personally absent additional facts that would create liability.

]]> By: Tom Cerrato http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/comment-page-1/#comment-2054 Tom Cerrato Fri, 27 Feb 2009 13:50:18 +0000 http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/#comment-2054 Setting up a closed c-corp. private investors will purchase common stock. Is their any way to protecting the c-corp from lawsuits that may loose assets. Can I form a Holding company, LLC to own the c-corp for protection. I was going to form a personal LLC to own my shares of company stock from the c-corp. Please help me in the structure to protect assets along this line...<br>Thanks Setting up a closed c-corp. private investors will purchase common stock. Is their any way to protecting the c-corp from lawsuits that may loose assets. Can I form a Holding company, LLC to own the c-corp for protection. I was going to form a personal LLC to own my shares of company stock from the c-corp. Please help me in the structure to protect assets along this line…
Thanks

]]> By: Yokum http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/comment-page-1/#comment-518 Yokum Sun, 10 Feb 2008 02:46:26 +0000 http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/#comment-518 <p>In the past, WSGR has had summer associates collect data on companies that completed IPOs to determine their option pricing prior to the IPO and compensation charges subsequently incurred as a result of SEC review. I would guess that most early stage companies post-409A that are pre-revenue still end up with a common stock FMV at 10% to 20% of the last round of preferred stock. In later stage companies, I suspect that the percentage increases dramatically, with there being almost no difference when company valuations would result in happy M&A exits.</p> <p>Of course, percentage based math is not proper accounting. I think that any private company that has received venture financing probably should have a 409A valuation report done. It's cheap insurance in the event of an IRS audit of a significant option grant in the future.</p> In the past, WSGR has had summer associates collect data on companies that completed IPOs to determine their option pricing prior to the IPO and compensation charges subsequently incurred as a result of SEC review. I would guess that most early stage companies post-409A that are pre-revenue still end up with a common stock FMV at 10% to 20% of the last round of preferred stock. In later stage companies, I suspect that the percentage increases dramatically, with there being almost no difference when company valuations would result in happy M&A exits.

Of course, percentage based math is not proper accounting. I think that any private company that has received venture financing probably should have a 409A valuation report done. It’s cheap insurance in the event of an IRS audit of a significant option grant in the future.

]]> By: Jeff http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/comment-page-1/#comment-498 Jeff Fri, 25 Jan 2008 21:28:44 +0000 http://www.startupcompanylawyer.com/2007/05/19/what-is-preferred-stock-and-why-is-it-issued-to-investors/#comment-498 Given the new more stringent accounting and tax considerations you reference, what are you generally seeing by way of rule of thumb for companies in terms of the difference (discount) in price for common stock and preferred stock, and does this vary based on whether or not the company decides to get a formal valuation of its common stock to take advantage of an IRS safe harbor? Also, what factors should the Board consider when valuing its common stock for purposes of setting a strike price for the option grants? Given the new more stringent accounting and tax considerations you reference, what are you generally seeing by way of rule of thumb for companies in terms of the difference (discount) in price for common stock and preferred stock, and does this vary based on whether or not the company decides to get a formal valuation of its common stock to take advantage of an IRS safe harbor?

Also, what factors should the Board consider when valuing its common stock for purposes of setting a strike price for the option grants?

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