East Greenwich Startup Attorneys & Lawyers

In financial terms, pro-rata rights allow an investor to maintain their portion of ownership in a company when the company takes on new investors.

Company Valuation and Pro-Rata Rights

It is important to understand the role that the valuation of your business has on pro-rata rights for other investors. This is important because the angel or venture capital investor dilutes the shares of other owners. Other owners in early-stage businesses are typically the owner (or owners) and friends and family members. Initially your company may look like this:

• Owners/Founders - 50 percent equity each
• Friend and family investors – each owner/founder surrenders 5 percent and 10 percent is given to friends and family (founders/co-owners now have 45 percent each)

At this point, you will typically have registered your company with stock to ensure you can actually issue stock to family or friends who invest in the company. As p

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Learn more about the types of Corporations below:

Corporation

A corporation is an independent legal entity distinct from its owners. The law views a corporation as a distinct legal person that can enter into contracts, incur debt, and pay taxes apart from its owners. The owners of a corporation also have the benefit of having

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What Is Preferred Return?

A preferred return—simply called pref—describes the claim on profits given to preferred investors in a project. The preferred investors will be the first to receive returns up to a certain percentage, generally 8 to 10 percent. Once you reach this profit percentage, the excess profits are split among the rest of the investors as agreed upon in negotiations. This type of return is most commonly used in real estate investment.

How Is the Preferred Return Calculated?

There are three main questions when it comes to calculating preferred return:

• Is it compounded or non-compounded? Compounded means that the calculation of a preferred return periodic growth amount comes from the amount of invested capital plus all previously earned but unpaid amounts.

• Is it cumulative or non-cumulative? Cumulative means that all the money earned i

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What is Your Principal Place of Business?

This question is not as simple as it sounds. For a sole proprietor or a one location company, the answer is straightforward – your principal place of business is your home, shop, office or wherever you primarily do  business. But large companies and corporations often have several locations spread out across the country, or even around the world. In these situations, the company headquarters is usually the principal place of business. This is not necessarily the same state as the state of incorporation.

The supreme court finally ruled that the “nerve center” of the company is the principal place of business. The nerve center test refers to the single place where a corporation’s officers direct, control and coordinate

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What Is a Condition Subsequent?

A condition subsequent (CS) is an exit clause from an existing contract. The agreement between parties includes language that frees one of them from the deal. This happens when a conditional outcome occurs. A CS relieves a party of all obligations.

What's the Purpose of a Condition Subsequent?

Think of a condition subsequent as an escape clause. It ends a party's contractual obligation. In contracts, all involved parties have certain responsibilities. The CS gives one party the ability to walk away from the promise to perform a duty.

A CS is a kind of insurance for one or more parties. It makes sure that one of the groups in the contract can leave when certain conditions are met.

Think of a contract as a series of promises. Everyone who signs the agreement must keep their promises. Sometimes, a situation

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