Wailuku Startup Attorneys & Lawyers

Preemptive Rights: What are they?

Preemptive rights (also referred to as preemption rights, anti-dilution rights, subscription rights, or subscription privileges) are rights granted to certain equity holders giving them the option to purchase additional shares of a company’s stock or other securities before new investors can buy them. Preemptive rights are used to prevent new investors from reducing ("diluting") the ownership percentages of existing share or securities holders.

Preemptive rights are a common provision found in company shareholders’ and operating agreements, as well as other option, securities and merger agreements. They may also be included in the text of the subscription agreement that investors sign when purchasing stock or securities.

In addition, preemptive rights are often granted in connection with convertible preferred shares, enabling preferred shareholders to maint

...

Form S-3: What is it?

Form S-3 is a simplified securities and exchange form that registers securities for companies. In order to use Form S-3, certain criteria must be met. Form S-3 can be used by a company that qualifies, in order to register securities under the Securities Act of 1933, instead of using the original Form S-1.

Registrant Requirements

S-3 registration gives investors the right to demand that a company registers their shares using Form S-3. Form S-3 is a shorter registration form than Form S-1, which is used in an initial stock launch or IPO. Form S-3 can be used by a company one year after an IPO. 

In order to use Form S-3 for securities, your company must meet certain requirements:

• The company is organized within the United States, a territory of the U.S., or the District of Columbia, and has its main busines

...

What Is Startup Valuation?

Startup valuation is simply the value of a startup business taking into account the market forces of the industry and sector in which that business belongs.

These factors include the balance (or imbalance) between demand and supply of money, the size of recent events, the willingness of investors to pay premiums to invest in the company and the level of need the company has for money.

What Is a Startup?

A startup company is a new business which is potentially fast growing and aims to fill a hole in the marketplace by developing and offering a new and unique product, process or service but is still overcoming problems.

Startup companies need to receive various types of funding in order to rapidly develop a business from their initial business model that they can grow and build up.

Difference Between Startup Valuation and Mature Business Valuation

Startup businesses will usually have

...

LLC Versus C Corp: What Is It?

An LLC is a business entity that is legally separate from its owners, who are known as "members." An LLC can have one member or many members.

A C Corporation refers to any corporation taxed separately from its owners. Unlike S Corporations, taxing of C Corporations occurs twice, once on the earnings and again on the salaries of the owners.

Similarities of an LLC and an S Corp

LLCs and S Corps have several similarities:

• Limited liability protection. In both an LLC and an S Corp, owners are not personally responsible for business debts or liabilities.

• Separate entities. LLCs and S Corps are separate legal entities formed through a state filing.

• Pass-through taxation. Both usually receive the pass-through tax, meaning they are not double taxed.

...

What Is Participating Preferred Stock?

Participating Preferred Stock is a security that gives venture capitalists a return on investment before the rest of the stock holders get their share earnings. It is often used in angel investment schemes when the investor wants a sure and quick return on their investment on top of their company share in the venture. Unlike common stock, the equity of participating preferred stock comes first.

Why Is Participating Preferred Stock Important?

This stock option is important for venture capitalists because it lowers their investment risks in startups and company expansions. It also protects them if a company goes through liquidation and cannot pay all the investors. Those holding participating preferred stock will enjoy preference and get paid even if other investors or lenders do not.

There are different types of participating preferred stock, and in some cases the company caps the guaranteed amount at

...