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Ask Us Anything: Startup Law with Archetype Legal

  • 1.  Ask Us Anything: Startup Law with Archetype Legal

    Posted 01-15-2025 14:02

    Hello Carta Community!

    We're attorneys from Archetype Legal PC. We serve entrepreneurs, startups, and small businesses as they grow and evolve. We believe the practice of law can be completed with a three-step approach: transparency, philanthropy, and sophistication.  We'll be here to answer your questions next Wednesday, January 22, at 11:OO AM PT. From formation to an eventual exit and everything in between, such as raising capital, equity compensation, commercial transaction, compliance, and business strategy, you can ask us anything!*

    We hope to interact with you on the 22nd. A bit more about us below -

    Alex King is the founder of Archetype Legal; he brings deep expertise in startup financing, equity structures, and commercial transactions.

    Alexis DeBose is a seasoned attorney at Archetype Legal who specializes in corporate law with expertise in entity formations and corporate compliance.

    *DISCLAIMER: This is a rapid-fire response, and our feedback and comments are intended to be high-level thoughts without evaluating things like your corporate governance documents or having an opportunity to dive below the surface and know what is going on. No one should act or refrain from acting solely on what is said in our discussion. You are STRONGLY encouraged to speak with an attorney familiar with startups who can give you professional advice.



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    Alex King
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  • 2.  RE: Ask Us Anything: Startup Law with Archetype Legal

    Posted 01-15-2025 14:25

    Very excited for you two to host this AMA! This is our first repeat host of Ask an Expert, and we're very grateful to the Archetype team for sharing their expertise with us and their continued support in Carta Community. 


    A quick word from Carta's legal team: 

    DISCLOSURE: This event is presented on behalf of eShares, Inc., dba Carta, Inc. ("Carta"). The content of this event is not, and no opinions or comments shared in this event should be treated or construed as, accounting, business, financial, investment, legal, tax, or other professional advice or services​​. This event is for information purposes only. The content of this event is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein and undertakes no obligation to update content. The opinions of the guests and host are their own and do not reflect the view of Carta or Carta's affiliates. All product names, logos, and brands are property of their respective owners in the U.S. and other countries, and are used for identification purposes only. Use of these names, logos, and brands does not imply affiliation or endorsement.



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    Brent Devey
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  • 3.  RE: Ask Us Anything: Startup Law with Archetype Legal

    This message was posted by a user wishing to remain anonymous
    Posted 01-17-2025 07:54
    This message was posted by a user wishing to remain anonymous

    I heard about the recent court ruling in Texas related to the Corporate Transparency Act and BOIR requirements. Should we still prepare to file, or is enforcement on hold? Also, do you have to include board members in filing or just owners?




  • 4.  RE: Ask Us Anything: Startup Law with Archetype Legal

    Posted 26 days ago
    Edited by Alexis DeBose 26 days ago

    Hello, 

    Now that we're ready to rock n' roll, we'll start with responses to this first question and go from there.

    There are currently several court challenges to the Corporate Transparency Act (CTA). I believe you are referencing the ruling based out of Texas (issued December 3, 2024), wherein a district court issued an order granting a preliminary nationwide injunction as to the enforcement of the CTA, including the Beneficial Ownership Information Report (BOIR) filing requirement for Reporting Companies. As such, Reporting Companies are not required to file a BOIR with the US Department of Treasury (DoT), however, the DOT is accepting voluntary submissions of the BOIR. 

    While it is hard to anticipate with certainty where things will land when the dust settles related to these court challenges and appeals, we do not see any "harm" in filing a voluntary submission of the BOIR with the DoT, as we do not anticipate the CTA simply "disappearing" and the information supplied is stored on a non-public database within the DoT.  Further, there have been recent court rulings in Texas issued within three (3) days of each other, which (i)  re-instated the filing requirement and (ii) vacated the ruling issued a few days prior re-instating the filing requirement. You can imagine these rulings have caused further confusion, and as such, many simply choose to file the voluntary BOIR submission to be compliant with the CTA. 

    With that said, it is important that you (and each company) use your own discernment and consult with your own legal counsel prior to making a determination on whether you will file a voluntary submission and regarding the information supplied with the submission.

    Importantly, the DoT publishes live updates regarding the reporting requirements and deadlines, and we suggest that you check the BOIR landing page (linked) for the most recent updates on the reporting requirements. If the reporting requirement is re-instated and your company fails to comply, you could be faced with a $500 penalty for each day that you are not compliant.

    Reporting Companies are required to provide information related to Beneficial Owners of the Reporting Company, which are generally those who own at least 25% of the company or who exercise substantial control over the company. A board member may qualify as a beneficial owner if such board member is a 25% owner of the company or if the board member exercises substantial control over the company (which board members typically do). This will all be facts and circumstances specific. If you have questions related to who may qualify as a Beneficial Owner, the DoT publishes helpful FAQs (linked) and a compliance guideline (linked), which will help you examine who you should include as a Beneficial Owner.



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    Alexis DeBose

    alexis@archetypelegal.com
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  • 5.  RE: Ask Us Anything: Startup Law with Archetype Legal

    Posted 01-17-2025 13:02

    I am still confused about form 83B. I was told I didn't need to do one, since we formed our startup and just gave out Founder's stock. Now I am giving stock to advisors. Do they need to file the form. What happens if they didn't do it on time?



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    Del-Metri Williams
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  • 6.  RE: Ask Us Anything: Startup Law with Archetype Legal

    Posted 26 days ago

    Hi Del-Metri,

    Quick disclaimer: we're not tax professionals, and what is said below should not be construed as tax advice, but as you might suspect, our startup clients encounter the 83(b) election as part of the incorporation process, as well as other situations in which the stock granted is subject to a vesting schedule. Here are some high-level thoughts to help guide your follow-up conversations.

    An 83(b) election must be done within 30 days of receiving the stock, and there are no exceptions for a late or improper filing. An 83(b) election is commonly done when founders receive their stock subject to a "risk of forfeiture," such as a repurchase option for all unvested stock granted to the company should the stockholder no longer be in service. Therefore, if you purchased or were granted your stock, and it's subject to a vesting schedule, it's generally thought advisable (there are definitely circumstances in which it would not be) to file an 83(b) election. 

    However, an 83(b) is generally unnecessary if your stock is fully vested. Furthermore, if the holder received a stock option grant, which does not allow for early exercise, an 83(b) is also generally unnecessary. 

    Granting stock to advisors is typically done via an "equity incentive plan" (sometimes called a Stock Plan or Stock Option Plan) and in the form of stock options without early exercise. An equity incentive plan (and a relevant state filing) is all but necessary to comply with private placement regulations for the issuance of a security to a service provider. Again, an 83b(b) is usually unnecessary for a stock option unless the recipient is subject to vesting and has the right to early exercise. However, if the advisor grant is a stock grant or a stock purchase right and there is a vesting schedule (advisable to have a vesting schedule), then an 83(b) election should be considered.

    The consequence of failing to file is that the recipient would be taxed at each vesting period based on the change in value from the sale/grant price to the new fair market value. You can avoid this with a properly filed 83(b) election, and once again, before taking any further actions, we'd encourage you to speak to a tax professional such as a CPA.

    -Alex



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    Alex King
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  • 7.  RE: Ask Us Anything: Startup Law with Archetype Legal

    This message was posted by a user wishing to remain anonymous
    Posted 01-17-2025 13:39
    This message was posted by a user wishing to remain anonymous

    We are in the process of raising money in a seed round. We are also hiring some staff in February. We have a current 409(a) valuation, but what do we do if we're in the middle of our seed round, with some written committments (and maybe even some funds received) when the new employee starts? Do we wait until the Seed Round is complete to do a 409(a) and then issue the new employee options after that? Or issue the options at the old 409(a) valuation?




  • 8.  RE: Ask Us Anything: Startup Law with Archetype Legal

    Posted 26 days ago

    A 409A valuation is valid for one year from the valuation date unless a transaction or activity results in a "material change" in the company's valuation that would otherwise invalidate the valuation before the one-year expiration. For startups, the most common transaction that would adjust the company's price is entering into a term sheet for an equity (usually preferred stock) financing round. Thus, it's advisable to speak with a valuation expert (cautiously optimistic the Carta team can guide you), and my hunch is that their guidance will be to hold off until the seed round is completed, obtain a new 409A and issue equity awards based on the revised valuation.

    -Alex



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    Alex King
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  • 9.  RE: Ask Us Anything: Startup Law with Archetype Legal

    Posted 01-17-2025 13:44