Par Value of Stock | Jason Furtado

Is there some states that give exemptions or immunities to early-stage companies? So there are certainly companies that— I mean, certain states that will have incentives in place for folks to get started. It all depends on when— how quickly you plan to raise money, because those incentives are worthless if you need to raise. The incentives don't matter if you can't get the money. A lot of those incentives, I think New York had a bunch of startup incentives and stuff. Even there, they just wanted you to be in New York. So, even if you weren't a New York LLC or a New York corp or whatever, they just wanted you to be in New York and hire people in New York. And I think they still had some incentives. They had some program in place to try to get you to move over there. I don't know what's in place now. So, there is some variation in that. Certain areas might be more— they might have less tax restrictions. They may put less onus on a company trying to get off the ground from a regulation perspective until you really get moving and get started.

Yeah? So if you're doing business outside of the U.S., would you suggest incorporating outside of the U.S. in the country where you're doing business? If so, do you Do you think the investors would be hesitant if it is not incorporated in the U.S.?

If you want U.S. investment, they're likely going to want you to be a U.S. entity, because otherwise then they're not going to have as much control. They don't have the legal— the legal setup is going to be different, and if they're not comfortable with it or they're not familiar with it, it's unlikely that they're going to want to go along with that. It's just complexity that they don't want to deal with. So it depends on how that particular fund is structured. It doesn't mean that there isn't venture capital folks there in that foreign entity that might be totally fine with it. There's a lot of international companies that incorporate in the U.S. because they want to get U.S. capital. So a lot of Israeli startups, they're actually Delaware C corps. They just happen to be domiciled in Israel. So there's— it's not— I always thought when I was starting Shoebox, I was like, oh, I have to be— I'm in Massachusetts. I need to be a Massachusetts corp. It's like, it doesn't work like that. You could be in— You could be in some random country and still be running your company as a Delaware C. Yeah?

So if you're an international and incorporating your company in Delaware, can you earn revenue in the US?

Any what?

So if you're coming from a foreign state and you're incorporating your company in Delaware, can you earn revenue in the US?

Can you own revenue in the US? So if you're selling your product in the U.S. and you're gaining revenue off of that, there's likely some business tax associated with that, and that can vary. So that's where you start talking to a tax attorney. I am not a tax attorney, so I'm not going to go too far down that road. But those are good questions to kind of dig into, and that's a great example of high-value advice, right? You want to get that stuff right. So, let's— I'll keep going here. So, let's say I'm going to create my new Co. 4. And here, I'm asked a couple questions. And some of them— and one of these questions is pretty esoteric. The par value of common stock. You have to answer that question. Most people never actually understand what par value means. It's complicated. It's kind of a legacy concept that defines kind of the— your stock can be defined as zero, but the par value of the stock is basically the lowest amount. So, if you're going to grant founder shares and your company's worthless, you're still going to grant it at something. You still have to pay something for the stock. So, par value is generally that baseline. So, you'll grant all your founder shares at par value. You'll pay a couple bucks. And you at least paid money, you purchased the shares, that's going to be your baseline for tax purposes, things like that. The concept of authorized shares, another concept that people have trouble with. Just because you authorize, in this case, let's say 10 million shares, doesn't mean you have to grant that on the next day. You can authorize 10 million shares and between all the founders you only grant, let's say, 2 million. Really what you're doing is you're defining a currency. You're NewCo for bucks, right? Like literally you're defining the cap of the number of dollars you can print. And you issue those out as you see fit. But as— once you have stockholders, any additional issuance that you make beyond that initial set will have to be approved, right? Your board will have to approve them.

Okay.

Your stockholder, in certain cases, your stockholders will have to approve that issuance. How many of you have heard of a stock plan or a stock incentive plan? Some folks. Not too many. Okay. So, stock incentive plan. When you hire employees, you may want to grant them equity. And your board, your board, or at least your stockholders probably don't want to be involved in every grant to a new hire. Otherwise, they have to approve it. Any issuance, they're going to have to approve because they want to be involved whenever you're going to dilute the company. You're basically printing more money. So what a stock plan does is allow you to pre-approve a slug of shares that you're saying, I'm going to allocate this many shares for hiring and incenting The people that are going to build this business. So when you do that, you basically have the stockholders approve it. The board will still approve every issuance to new employees, but the stockholders won't have to get involved over and over again. They've basically accepted that a certain amount of the equity of the company is already diluted. So they think of it as dilution. So they've preallocated that percentage and they don't think about it. Does that make sense? Just efficiency and also being transparent with what you think you're going to need to build the company. You have to set up your initial board. It's likely a founder or a couple of the founders up front. When you raise capital, maybe not in the seed stage, but later, some of those folks will want board seats so they have more control. over how you operate. And with those basic decisions, you have— you can generate the core set of documents. The Delaware bylaws, the corporate bylaws that define how you're going to operate your company, they're pretty standard. The certificate of incorporation, which is kind of the declaration of independence for your company. defines the core of how the stock's going to be laid out and how your company is going to operate in Delaware. It will be there as well. And it's a super simple document. It's only a couple pages. And that's your initial charter. As you grow, as you raise capital, as you start to have preferred stock where you have investors that have rights, that will get— that'll end up being a much longer document. over time. So this is a growing, living document that grows as your company grows. But in the early stage, it's pretty trivial. Yep?

So you mentioned that you're