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I see that you were part of a startup company and now will be departing.
The company will continue?
that is correct
yes, the other founder will continue with it
I see that you were on a vesting schedule and have 20 percent up to this point.
correct, we both had 45% or the company, the rest was a shared pool
One important consideration is that typically a departing partner will have a limited number of days to exercise those options.
so I need to make sure it is covered in the contract
That is often a 90 day period. This forces the outgoing partner to return their stock back to the company.
That is important.
what are the typical exercise period?
90 days is typical
is that based on current valuation of the company?
That would be based on the value when the vested stock is exercised.
actually, I own shares not options
Yes. The valuation would then be when the shares are exercised
Or sold back to the entity.
Does that make sense?
let me make sure I understand
Typically in these entities partners will earn stock overtime on a vesting schedule.
This prevents a partner from getting all of their stock upfront and just leaving.
When a partner does exist they are entitled to those vested shares.
that makes sense.
Typically, the partner must sell back those shares within a specified period.
what is not clear, is there a period over which I need to sell shares
so I need to look into over what period of time I need to sell back the shares
That would depend on the stock purchase agreement
in case I decide to sell back now, how is the price determined
Check the stock purchase agreement, but that would typically be at current valuations.
what if I decide to hold the stock
is that possible at all?
beyond the 90 day limit
That would depend on the stock purchase agreement.
ok, i would have to review it
Those limitations would be there. These are important issues for a startup to consider. Some include these issues in these agreements and some do not.
These are the types of issues to look for in the agreement.
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how do the startuo typically determine the valuation?
of course, but I just want to clarify the aspect of valuation
This was stock and not options?
that is, what criteria would be used to determine the valuation of the company
correct, I was the stock owner
Have there been any new investors?
no, just the angels and that was a convetrable note deal
The valuation for a departing partner for vested common shares is typically fair market value.
is there anything else I need to be concerned about?
i have put in a lot of work for it and I don't want to end up with $20 as a result of it
Certainly, that valuation process can be contentious
In fact, these issues can result in litigation.
when is this typically discussed?
at the time of leaving or at the time of sell back?
You may consider having a CPA assist you in that process.
Normally such issues would want to be discussed, on good terms, prior to departure
A CPA would assist you with potential tax implications.
ok, that is very helpful
thanks a lot!
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