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If I contribute founders capital to my company, do I need to…

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If I contribute founders capital...
If I contribute founders capital to my company, do I need to file any paperwork with the SEC? If I accept money from investors, I need to file form D. Not sure if the same applies to me.
Submitted: 1 month ago.Category: Tax
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3/22/2018
Tax Professional: rakhi.v, Tax Attorney replied 1 month ago
rakhi.v
rakhi.v, Tax Attorney
Category: Tax
Satisfied Customers: 4,550
Experience: Have graduated in Law with specialization & emphasis in Financial Laws and has working experience of over a decade.
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Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

If you contributing to the founders capital, you will not be required to file Form D. If you are accepting money from the Investors, the requirement of filing Form D will apply. Let me explain.

In the first case, you are issuing Equity to the Founders.

First and foremost, “founders stock” is not an actual type of class of security. It is simply a term used to typically describe common stock that is granted to founders, usually in the form of restricted stock that is (and always should) be subject to vesting.

Securities Act Rule 4(a)(2) provides an exemption from registering an issuance of such securities not involving a public offering that is sold to people who take the initiative in founding or organizing the business.

In the other case, when you are accepting money from the Investors, this exemption will not apply and you will be required to file form D. When it comes to raising money from outside investors, founders need to be aware of various securities laws (state and federal) that may apply. Regardless of the fundraising structure (e.g. convertible debt, SAFEs, stock issuances, etc.) a startup needs to follow the registration requirements under Section 5 before issuing its securities.

The private placement exemption under Section 4(a)(2) of the Securities Act and the Section 506(b) safe harbor under Reg D are the two most common ways startups navigate through securities laws.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

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