Introduction
Being a founder is exhilarating, but it also comes with legal and tax pitfalls. From vesting schedules to employment law and exit taxes, founders must navigate issues that employees don’t face. Getting these details right early on can prevent costly disputes and unpleasant surprises later.
Key topics covered on the blog
- Paying yourself and classifying co-founders — Even if cash is tight, founders should draw at least minimum wage and properly classify co‑founders as employees or contractors; failing to do so can create wage claims and tax liability.
- Founder vesting and repurchase rights — Vesting schedules and repurchase options align incentives among founders and protect the company if someone departs early; we explain typical four‑year vesting with a one‑year cliff, discuss alternatives, and cover the 83(b) election that should accompany restricted founder stock.
- Golden Parachute Taxes (Section 280G) — In a change‑of‑control, accelerated vesting of founder shares can trigger a 20% excise tax and loss of the corporate deduction if parachute payments equal or exceed three times the individual’s base amount. We outline how to calculate the base amount and strategies to avoid the tax.
- Handling founder disputes — We share best practices for documenting founder agreements, addressing minority shareholder disputes and planning for buy‑outs or deadlock situations.
Founders who understand these issues can protect their equity, avoid unnecessary taxes and build a stronger foundation for their business. For the full picture on founder stock, options, restricted stock and RSUs, see the Complete Guide to Equity Compensation.
Ready to get started?
- Schedule a consultation — Book a time on our calendar to discuss your compensation, vesting or transaction plans.
- Founder Formation — Forming a new company? Our fixed-fee formation service covers vesting terms, stock issuances and 83(b) elections.
- Work with Joe — Learn more about the practice and how to get in touch.
- Subscribe for updates — Join our newsletter to stay informed on founder compensation, vesting and exit tax developments.