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How Much Equity Should You Provide to Your founders?
Simply put, founders equity, or founders shares, means the shares that a founders or a co-owner gets when they join or discover a new startup , e.g., a computer company. Equity is normally created by a company issuing the founders a share of ownership in the business. If you became one of the founders or co-owners, then you will then hold shares, usually very common stock, that means you have a tiny percentage of the company that is worth a lot of money. But what is important to know is that you are entitled to that money without having to pay a lot of taxes on it.

The only time you may be required to pay taxes on your startup equity is when you receive a payment for services you render as a co-owner, or when you sell the shares of your startup to an individual for investment. It is also possible that you will have to pay income tax on the value of your startup shares. The IRS and most state tax codes allow this so long as you report such income on your tax return. In short, the Startup Capital that your business raises from friends and family does not need to be reported as income on your personal tax return if you do not use it for personal gain.

So what happens if a founders leaves your business? If all or most of the capital raised by your startup is still present, then there is a net loss to your business at the time of your death or disablement. You will be taxed on the difference, but you don't have to pay capital gains tax until the year after the death/disability. So if all or most of your founders left the company, how are you going to make up the difference and what is the proper way to go about raising the capital to replace those founders? Well, the best way to raise the funds for an accelerated growth business is to take small cap or micro cap companies. Typically these are companies with less than $10 million in sales.

When you approach angel investors, your startup has two choices. You can raise money by issuing promissory notes or by obtaining Convertible Preferred Stock from a venture capital investor. For early stage companies, both approaches are perfectly acceptable. The convertible Preferred Stock approach provides a means for the founders to provide some return to their investors while still retaining control of their company.

The problem with selling company stock as part of your startup equity is that it is only offering you a partial return on your investment. Most venture capital investors want to see a significant portion of your company to be invested in the business. So how can you address this issue? The answer is simple. As you grow and attract more employees, you can reissue your founders stock to new investors so that they have a partial ownership stake of your company.

You never want to limit yourself with the number of shares that you issue to new investors. In fact, if you have limited liability, you may not want to offer your founders equity. This will prevent you from personally losing everything that you personally invested in your startup . However, if you do have limited liability, then you can use a special method of vesting your founders equity called the " Founder Gift Grant".

One method of providing a substantial amount of capital to your company is through the " Founder Gift Grant". To qualify, your startup must demonstrate one or more of three things-a technology platform that can be in a position to attract customers, an existing consumer market or an established industry. Once you meet these requirements, you can begin to apply for a grant from the US Federal Government's Smart Grants program. There are no fees to apply, and you will not receive a cash grant, but rather a tax credit in the form of deductions for the taxes paid on your corporate business income.

There are two ways to provide investors with a portion of your company's common stock ownership. One way is to first issue common stock and then issue a preferred stock for the same price. In this scenario, you would be selling your personal shares of the business before issuing the preferred stock. The other option is to provide your startup with preferred or common stock as payment for loans and other advances. In either case, it's important that you provide your company with a great deal of flexibility so that you can compensate your founders equity properly.