Vesting – how it works

Vesting is one of the most important elements of every startup’s legal framework as it not only shapes the dynamics between its founders, but may also influence prospects of securing financing. Yet, despite its crucial importance and abundance of articles available online, we often see founders confused with the seemingly innocuous and apparently dreaded question: “are you on vesting”? In this post I will explain the mechanics of vesting and clarify the related terminology. Caveat: vesting is a construction used in multiple contexts and I will only touch upon its use and consequences in the context of startup founders’ stock. What is it? Forward vs Reversed vesting. Vesting provision is usually located in founder’s stock purchase agreements. Its main purpose…

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US startup with International Subsidairies – Tax

It is becoming more and common for US startups to estalish international subsidiaries or international startups flipping their company into the US. When this happens people ask if they will pay taxes on money earned by the non-US subsidiary in the US as well. The answer whether you are “double taxed” is it depends. Most founders assume that their startups would be taxed only on income generated by the US corporation (parent company) and that foreign income generated by non-US subsidiaries would be excluded from US taxes, until is is distributed to the US. This is a very common misconception. Unfortunately, even if the US corporation doesn’t earn a single dollar in its own name and doesn’t get a single…

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Startup Weekend Honduras

Tytus Cytowski and Italo Valerio lawyers with the New York office of the firm spoke on a panel during StartupWeekend Honduras, which took place on March 9, 2014 in San Pedro Sula, Honduras. The talked focused on the dynamic development of Central American technology companies and strategies of their expansion to the North American markets. Startup Weekend is a global network of events for entrepreneurs which is sponsored by Google for Entrepreneurs. StartupWeekend for Google helps to launch hundreds of successful startups worldwide.

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Board of Directors and Legal Duties

If you just joined as a new member of the board of directors of a startup, or you are VC that hops from board to board you should know your legal duties as a director. We usually try not bore you with arcane legal concepts from the common law and Delaware corporate law, but you must familiarize yourself with the term fiduciary and fiduciary duties. Under Delaware law each director is a fiduciary and has fiduciary duties to shareholders and the company. In practice this means that as fiduciary, a director must not put his personal interest before the interst of the company and the shareholders. In the real world you only care about your own wealth maximization, however, when…

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Founder Departure – Legalities of Painful Goodbyes

Farewells are always unpleasant and one of the hardest thing for an early stage company is the founder departure. Some examples that come to mind in recent years include Twitter and Snapchat. There are many reasons for a founder departure and things can get very messy, very quickly. Some founders might have only preliminary or oral arrangements regarding the startup or prefer to apply the lean methodology to postpone legal formation. Can it get ugly? Do you need a lawyer to remove a founder? The answer is it depends, but in general to reduce future liability (litigation) of the startup and give the remaining founders peace of mind it is advisable to have your lawyer prepare a separation agreement.  The…

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Polish IT – Coming of Age

Managing partner of the Warsaw office Tomasz Snazyk is speaking on “Polish IT – Coming of Age?” at the Warsaw Business Journal's conference 'New Beginnings' on February 12, 2014 in Warsaw, Poland. The conference will focus on the growth opportunities of the Polish IT sector and potential for its global expansion in the coming years. More information

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Intellectual Property in the US or abroad?

We are frequently asked if IP in foreign startups should be held in the US or abroad. Our general response is that it depends and each situation requires substantive analysis. However, taking that in consideration, we are generally not in favor of situating IP in the United States if the technology company is started outside of the US. In fact, most US-based companies (including technology companies) work very hard to migrate their IP outbound from a tax-efficiency standpoint.  Such technology companies as Google, Apple and Facebook employ this structure. The reasoning is quite simple. The United States taxes its corporate and individuals subjects on worldwide income, regardless of where that income is derived. So, if the IP were owned in…

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Darmowe konsultacje prawne dla uczestników Aula Polska

Biuro warszawskie kancelarii prawnej Snażyk Cytowski LLC Sp k. razem z Aula Polska uruchamiają projekt darmowych office hours (konsultacji) dla społeczności związanej z Aula Polska. Snażyk Cytowski LLC Sp k. jest kancelaria specjalizująca się w reprezentowaniu startupów oraz przedsiębiorców... O co chodzi? Biuro warszawskiej kancelarii prawnej Snażyk Cytowski LLC Sp k. razem z Aula Polska  uruchamiają projekt darmowych office hours (konsultacji) dla społeczności  związanej z Aula Polska. Snażyk Cytowski LLC Sp k. jest kancelaria specjalizująca się w reprezentowaniu startupów oraz przedsiębiorców. Jaki jest harmonogram czasowy projektu? Projekt trwa od uruchomienia tj. koniec stycznia 2014 roku do końca czerwca 2014 roku. Do kogo jest skierowany projekt? Projekt jest skierowany do społeczności związanej z Aula Polska oraz do osób, które przekażą wypełniony…

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AngelList – Legal Nuts and Bolts

AngelList recently announced that it would be expanding to Europe. A few hours after AngelList's press release we were approached with three basics questions from our European clients. All three had significant cross-border legal implications. The questions were as follows. How can we fund raise in the US as a European startup? How can a European investor invest through angel list? How does a syndicate operate and can we take a fee on the syndication? Although it is not clear yet how AngelList will work in Europe we wanted to offer some guidance on how AngelList works in the US. AngelList in essence was a networking website for early stage companies and investors as well as related professionals such as…

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Foreign Founders and US Taxes

International Founders and US Taxes. International founders and foreign angel (lead) investors wishing to establish a US start up need to understand and plan for US personal taxes. In most instances foreign founders start to think about US personal taxes when they become CEO of their startup or post funding, however, it should be pointed out that a foreign founder may become personally taxable in the United States even earlier. Pursunat to Internal Revenue Code („Code”) tax residency for foreign indivuduals is established either by immigration status or by a substantial presence test. Immigration Status: Lawful Permanent Residence A founder that holds non-immigrant visa would be considered a tax resident for US tax purposes (Code Section 7701(b)(A)(i)). This would include…

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