Corporate Law
Good governance
is the foundation
of every great company.
Corporate governance, board matters, equity management, and transactional support for businesses of all sizes. The companies that scale and exit cleanly are the ones that maintained proper corporate structure and records from the beginning, not the ones that tried to clean it up at the last minute.
Structure & Authority
Corporate Governance
Governance is not bureaucracy; it is the legal infrastructure that defines who has authority to act on the company's behalf, how decisions get made, and what obligations those in control owe to the people they represent.
Board Composition & Duties
A corporation's board of directors is its highest governing authority. Board composition (independent vs. insider directors, committee structure, and seat allocation) affects both governance quality and investor confidence. Boards are responsible for major strategic decisions, executive oversight, and approval of significant transactions.
Duty of Care
Directors must act on an informed basis, in good faith, and with the care that a reasonably prudent person in a like position would exercise under similar circumstances. In practice: read the materials, attend meetings, ask questions, and document deliberations. The business judgment rule protects directors who follow this standard.
Duty of Loyalty
Directors must act in the best interests of the corporation and its stockholders, not in their own interests or the interests of a third party. Conflicts of interest must be disclosed, and conflicted directors should recuse themselves from the vote. Related-party transactions require special approval procedures and fair terms.
Board Meetings & Minutes
Regular board meetings (in-person, by phone, or by written consent) create the formal record of corporate decision-making. Meeting minutes document what was discussed, what was resolved, and who voted. Accurate minutes are essential for corporate veil protection, investor diligence, and resolving future disputes about what the board authorized.
Written Consents
In lieu of a formal meeting, most corporate actions can be authorized by a written consent signed by directors or stockholders holding the requisite voting power. Written consents are efficient but must be properly documented and stored in the company's corporate records. Improperly documented actions can be challenged as unauthorized.
Officer Roles & Authority
Officers (CEO, CFO, Secretary, and others) are appointed by the board and derive their authority from the board's resolutions and the company's bylaws. Officer authority can be actual (expressly granted) or apparent (created by the company's conduct). Clear officer appointment records and defined authority limits protect the company from unauthorized commitments.
Ownership & Incentives
Equity & Capitalization
Equity is the currency of company building. How it is structured, documented, granted, and transferred determines whether your team is aligned, your cap table is clean, and your company can transact without surprises.
Cap Table Management
A capitalization table is the master record of a company's ownership structure: who holds what securities, at what price, and subject to what restrictions. A clean, accurate cap table is essential for financing rounds, M&A transactions, option grants, and tax planning. Errors in cap tables compound over time and are expensive to correct.
Best practice: maintain your cap table on a dedicated platform (Carta, Pulley, or equivalent), reconcile it against your stock ledger and option plan records quarterly, and update it promptly following every transaction: grant, exercise, transfer, or cancellation.
Equity Incentive Plans
A properly structured equity incentive plan (EIP or ESOP) is how companies attract, retain, and align employees with long-term value creation. The plan must be approved by the board and stockholders, include a defined option pool, and comply with tax and securities requirements. Poorly drafted plans create tax traps for employees.
Plan components: authorized option pool (typically 10-20% of fully diluted shares), form of option agreement, vesting schedule standards, exercise price methodology (requires 409A valuation), post-termination exercise periods, and change-of-control acceleration provisions.
ISOs vs. NSOs
Incentive Stock Options (ISOs) receive favorable tax treatment (no ordinary income tax at exercise, potential for long-term capital gain treatment at sale) but come with significant restrictions. Non-Qualified Stock Options (NSOs) are taxable as ordinary income at exercise, have no holding period requirements, and can be granted to non-employees.
ISO limits: only for employees, maximum $100K exercisable per year at ISO rates, must be granted at fair market value, 90-day post-termination exercise window (standard). NSOs: flexibility in exercise price (though below-FMV grants trigger Section 409A), grantable to advisors and contractors, taxable spread at exercise is a deductible compensation expense for the company.
409A Valuations
Section 409A of the Internal Revenue Code requires that stock options be granted at no less than fair market value on the date of grant. A 409A valuation is an independent third-party appraisal of the company's common stock value. Companies must obtain a 409A before each new option grant or repricing. Granting below-FMV options without a 409A exposes employees to significant tax penalties.
409A valuations must be performed by a qualified appraiser using an IRS-accepted methodology. They typically last 12 months or until a material event (new financing, significant revenue change, M&A activity). Companies at pre-revenue or early stages often receive valuations with a substantial discount to the preferred stock price; this discount typically narrows as the company matures.
RSAs & RSUs
Restricted Stock Awards (RSAs) involve the issuance of actual shares subject to forfeiture restrictions that lapse over a vesting schedule. RSAs are common for founders and early employees. Restricted Stock Units (RSUs) are contractual promises to deliver shares upon vesting, common at growth-stage and public companies. Both require careful tax planning.
RSA tax treatment: taxable at vesting unless an 83(b) election is filed within 30 days of grant, which causes the recipient to recognize income immediately at grant-date value. RSU tax treatment: always taxable as ordinary income upon vesting at the then-current FMV; no 83(b) election available. RSUs are simpler administratively but create automatic tax obligations.
Secondary Transactions
Secondary transactions (sales of existing equity by stockholders rather than issuance of new equity by the company) require careful handling. Most stockholder agreements include rights of first refusal (ROFR), co-sale rights, and transfer restrictions. Board consent is often required. Tax withholding obligations may arise. Improperly documented secondaries create cap table discrepancies and securities law issues.
Required steps: review stockholder agreement for ROFR and transfer restrictions, obtain board approval if required, give existing stockholders and the company ROFR notice, execute stock transfer agreement and assignment of interest, update cap table and stock ledger, and issue new certificates or record entries.
Staying Current
Ongoing Corporate Maintenance
Formation is a one-time event. Maintenance is permanent. The companies that arrive at due diligence with clean records close faster and on better terms. Here is what good corporate housekeeping looks like.
Annual
Annual Board Meeting
Elect directors, appoint officers, approve financial statements, ratify prior year's actions.
Annual Stockholder Meeting
Elect board members, approve major actions requiring stockholder consent (if any).
State Annual Report
File required annual or biennial report with Nevada Secretary of State (or state of formation).
Registered Agent Confirmation
Verify registered agent information is current and agent is active.
409A Valuation Refresh
Obtain updated 409A if prior valuation is over 12 months old or a material event has occurred.
Ongoing
Board Resolutions
Document all material corporate actions: contract approvals, officer changes, equity grants, and significant expenditures.
Option Grant Documentation
Board consent, option agreement, 409A support, and updated cap table for each grant cycle.
Stock Ledger Maintenance
Update ledger promptly after every issuance, transfer, cancellation, or exercise.
Compliance Filings
Monitor and file state-required filings, beneficial ownership reports (FinCEN CTA), and any required federal filings.
Corporate Records Book
Maintain organized records: charter, bylaws, board minutes, stockholder consents, stock ledger, and material contracts.
Event-Driven
Financing Round Closing
Updated cap table, board and stockholder consents, SPA/SAFE execution, and post-closing record update.
New Director or Officer
Board appointment resolution, D&O indemnification agreement, and updated officer list.
Material Contract Approval
Board resolution authorizing execution of significant agreements: leases, material vendor contracts, IP licenses.
Equity Plan Amendment
Board and stockholder approval required to increase option pool or amend plan terms.
Change of Control Preparation
Board process documentation, fairness opinion (if required), stockholder approval mechanics, and disclosure obligations.
Common Questions
FAQ
What is a 409A valuation and why do I need one?
A 409A valuation is an independent appraisal of a private company's common stock fair market value, required by Section 409A of the Internal Revenue Code before granting stock options. If you grant options at a price below fair market value without a valid 409A, the options are treated as deferred compensation, and the option holder faces a 20% excise tax plus interest on the spread at vesting. For companies with active equity grant programs, a current 409A is non-negotiable. Valuations are valid for 12 months or until a material event. Early-stage companies typically see common stock valued at a significant discount to preferred stock price; this discount narrows as the company approaches liquidity.
What is a cap table and who should maintain it?
A cap table (capitalization table) is the definitive record of a company's ownership structure: who holds shares, options, warrants, or convertible instruments; at what price; and subject to what vesting or restrictions. It should reflect both issued and outstanding shares as well as fully-diluted shares (including the unissued option pool). The company is responsible for maintaining an accurate cap table; it is not the investor's job to track your ownership. In practice, a dedicated cap table platform like Carta or Pulley is far more reliable than a spreadsheet for any company with more than a handful of security holders. Errors in a cap table surface in due diligence and can delay or kill transactions.
What is the difference between an ISO and an NSO?
An Incentive Stock Option (ISO) is a stock option that qualifies for favorable tax treatment: no ordinary income tax at grant or exercise (though the spread is an AMT preference item), and potential long-term capital gain treatment on sale if holding period requirements are met (hold for 2 years from grant and 1 year from exercise). ISOs can only be granted to employees, and no more than $100,000 worth (measured at grant-date FMV) can be exercisable as ISOs in any calendar year. A Non-Qualified Stock Option (NSO or NQSO) can be granted to employees, directors, consultants, and advisors. The spread at exercise is taxable as ordinary income to the recipient and deductible by the company. NSOs are more flexible but less tax-advantaged for the recipient.
What are fiduciary duties and who owes them?
Fiduciary duties are the legal obligations that directors and officers owe to the corporation and its stockholders. The two primary duties are the duty of care (act on an informed basis, in good faith, as a prudent person would) and the duty of loyalty (act in the corporation's best interest, not in personal interest or for a third party's benefit). Directors who breach these duties can be held personally liable for resulting damages. The business judgment rule provides a presumption that directors acted properly if they were informed, acted in good faith, and had no conflicting interest, but the presumption can be rebutted. Conflicts of interest should be disclosed to the board, and conflicted directors should recuse from the relevant vote.
Do I really need board minutes and written resolutions?
Yes, and the stakes are higher than most founders realize. Board minutes and written resolutions serve multiple functions: they document authorization for actions the company has taken (giving contracts and equity grants legal weight), they maintain the corporate veil that protects directors and officers from personal liability, and they are the primary record examined in M&A due diligence and financing round diligence. Companies that have operated for years without maintaining corporate records face expensive remediation: reconstructing historical board actions, re-approving grants, and obtaining retroactive consents. Courts have pierced the corporate veil in part based on failure to observe corporate formalities. The fix is inexpensive when done consistently; it is expensive when deferred.
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