Transferring 5% equity in Delaware Inc

[vanillasunflowers]

I incorporated with Stripe Atlas in Delaware. I own 100% of 10,000,000 shares. I'm trying to transfer 5% to someone. Stripe is recommending lawbite who offer the service for $549USD. This is more expensive than incorporating with Stripe Atlas which cost $250USD. Is there a cheaper way to transfer shares?

Edit: Ended up using carta to issue stock certificate for free

 

[romane91]

@vanillasunflowers Stripe has UX that trips people up. You were not supposed to assign yourself all 10M shares !

What you’ll do is fix that by issuing more shares or fixing the previous grant and then for the person you are giving shares to you will use a Restricted Stock Purchase Agreement

You can get RSPA from Orrick website and I few others have templates but the problem is fixing the 10M grant to yourself

First thing, go read Venture Deals by Brad Feld and then yes, use lawbite to fix the error that is not your fault it’s Stripe’s UX

 

[motherofone]

@romane91 Why is that an issue? Honestly I assigned 90% to myself as the founder and 10% for ESOP.

 

[dduc996]

@romane91 hi! I work on Atlas. Can you say more? As a solo founder, why wouldn't you assign yourself 100% (in the case where you choose not to create an ESOP?) And how could our UX have been clearer?

 

[romane91]

@dduc996 The right set up would be

10M shares
6M authorized. The founder owns 100% of the authorized shares, therefore 100% of the company.

From the remaining 4M shares you can grant Restricted Stock using RSPA, and do that before a 409a and an accompanying ESOP, especially since so many companies raise millions using SAFEs for a very long time and they’ll convert way after the company hires employees.

You can also from the remaining 4M have room to participate in accelerator programs that take common stock and enough that your convertible securities can convert before having to issue net new shares.

And finally, there’s room for a late co founder addition still using RSPA.

Thus therefore, best practice is to issue 10M but authorize less, could even be 8M

 

[pitcreature]

@romane91 From my experience with Stripe Atlas, Stripe should've automatically recommended a 20% pool (2,000,000 shares).

I'll assume that OP either altered that offer or maybe OP has 80% but 100% voting power?

Regardless I could be absolutely wrong with the assumption.

 

[romane91]

@pitcreature Atlas ask how big is your option pool, and since almost no one has a pool before incorporating or don’t know what it should be, they just put 0

 

[peachjwp]

@vanillasunflowers Don't transfer the shares directly to the new stockholder. The shares will not be QSBS for them if not received directly from the company. There are two ways this is typically handled:

1. Company repurchases 500,000 shares from Founder, RSPA Amendment for Founder (you don't want an RSPA with 10M shares floating around; it's cleanest to have a single file of the RSPA with an RSPA Amendment on top), RSPA for 500,000 shares for the new person, Board Consent to approve each of these actions.
2. File a Certificate of Amendment with DE SoS to authorize more shares ($194 I believe), Board Consent to approve amendment, stockholder consent to approve amendment, RSPA for 526,316 shares for the new person, Board Consent to approve RSPA.

Btw: at 5%, is this person more like a contractor? and do you anticipate issuing to more people? Creating an Equity Incentive Plan might be a better long-term solution if so.

 

[vanillasunflowers]

@peachjwp Advisor

 

[kissthedream]

@vanillasunflowers There are platforms like carta yes, but make sure the bylaws allow for any transfer or for exceptions. There may be tax implications. You’ll need to have this transfer be papered by proper resolutions.

Did you pay with “cash” for your founder shares?

 

[vanillasunflowers]

@kissthedream Yes paid "cash"

 

[lookingfortruth]

@vanillasunflowers You are getting into murky territory.

This is why you should use carta (contrary to popular belief, it’s free if you have fewer than 20 shareholders)

 

[vanillasunflowers]

@lookingfortruth Thanks signed up

 

[dduc996]

@vanillasunflowers Hi OP, I work on Atlas. Is the 5% going to an advisor, an investor, or an employee? And when you say 'transfer' what do you mean? Is this individual going to be on your board?

 

[vanillasunflowers]

@dduc996 Going to be an Advisor. Non Board

 

[johndaniels]

@vanillasunflowers On the same issue, how many shares have to be outstanding so that franchise tax is just $400 a year as opposed to $25,000 a year for a Delaware C-corp?

Someone can throw light on delaware c-corp incorporation and tax filing.

 

[vanillasunflowers]

@johndaniels You can calculate using par value and just pay $518 for 10m shares

 

[johndaniels]

@vanillasunflowers Thank you

 

[endtimeservant777]

@vanillasunflowers Question for this group - I made a 10% employee pool, but haven't issued any employees equity yet. How do I actually go about using stripe atlas to issue restricted equity? And is it possible to specify that it is non-voting equity? I don't see anywhere on the website to do this formally. Is it just having the person fill out the 83(b) form, or is there some way within Stripe atlas to do this...?

 

[vanillasunflowers]

@endtimeservant777 Stripe Atlas doen't really support this apart from supplying forms. I used Carta