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 Which federal exemption makes sense when issuing shares to cofounder (Section 4(a)(2) vs. Rule 701)?

Catalin-Mihael Dumitru's profile image
Catalin-Mihael Dumitru posted 11-16-2023 19:20

Hello Carta Community,

Does anyone know which Federal Exemption applies when issuing stock to a cofounder?

I'm in the process of onboarding my cofounder into my startup and I need to specify a "Federal Exemption" when drafting a stock certificate in Carta. The Carta Support Center offers an overview of the different options and the 2 below seem most appropriate:

  1. Section 4(a)(2)
  2. Rule 701

Carta also lists "Non-US" as an option in the stock issuance form, which also seems applicable because my cofounder is not a US national (nonresident alien). My own digital stock certificate references "Section 4(a)(2)".

Does anyone know which of these 2 make the most sense for issuing cofounder stock? Thank you in advance!

Colleen Lowder's profile image
Colleen Lowder posted 11-20-2023 09:44

Hi @Catalin-Mihael Dumitru! Hopefully someone here in the community is willing to share some advice on the topic, but wanted to get you some support in the meantime. Here's Carta's knowledge base article on Choosing Federal Exemptions. 

Christopher Hoffmann's profile image
Christopher Hoffmann posted 01-07-2024 15:31

Hey @Catalin-Mihael Dumitru! Apologies for my delayed response. Typically I will see Section 4(a)(2) on founder grants, just like on your grant - though that might be a default setting sometimes. The best answer to this is really to check with your attorney to see which is the best fit. It is a field that you can modify later if you want to get the shares issued now, and check with your attorney later.

Happy to help if you have further questions!

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