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🧢 Cap Tables
What is a cap table? Why is having a cap table important?
📰 Stock
What are share classes?
Share class refers to different types of company stock. Share classes designated by a letter, name, or combination of the two.
Most companies are incorporated with one or two share classes: "Common Stock" and "Founders Preferred Stock." As the company goes through more rounds and authorizes the creation and sale of more stock, new classes may be created, such as "Series A Preferred Stock," "Series A-1 Preferred Stock," "Series B Preferred Stock," et cetera.
Different classes of company shares often carry different privileges, such as voting rights, liquidation preferences, and more. You can read about the exact rights associated with a specific share class of stock in the Stock Purchase Agreement.
You can learn how to create a share class here.
What are share certificates?
A share certificate (also known as a stock certificate) is legal proof that an entity owns a specific number of shares in a company. When stock is acquired in a company, the acquiring entity is granted a share certificate.
The share certificate reflects the number of shares acquired and the class of those shares. There are different ways to issue share certificates, which you can read about here.
What are different ways of issuing stock?
ISOs and NSOs
RSUs
Restricted Stock Units (RSUs) are essentially a free version of stock options. Like stock options, RSUs have a vesting schedule, but when RSUs vest, the recipient owns the shares outright. There is no need to exercise RSUs (and hence no need to bear any exercise cost).
RSAs
Restricted Stock Awards RSAs give the recipient the right to buy a certain amount of the company’s shares at the grant date. The purchase price can be set at the current fair market value, at a discount to fair market value, or even at zero. RSAs are typically only granted to the first few employees of a startup, likely before it has undergone its first financing round. Taxes are due when the RSAs vest, although the recipient can choose to pay their taxes upfront under an 83(b) election.
SARs
Stock Appreciation Rights SARs allow the recipient to obtain the potential upside of a stock option—but without needing to pay the exercise cost. In essence, the recipient will simply receive the difference between the SARs’ grant price and the current fair market value of the stock at the point the recipient chooses to exercise their SARs. This can be paid in cash, shares, or a combination of both. Exercising SARs creates a taxable event.
ESPPs
Employee Stock Purchase Plans ESPPs are company-sponsored plans that allow employees to purchase company shares at a discount to the fair market value (maximum discount of 15%). Employees are often given the option of deferring their wages—up to the IRS’ contribution limit of $25k a year—and then using that to purchase the discounted shares. Unlike RSUs, however, taxes are only due when the recipient sells the shares. ESPPs are typically used by publicly traded companies.
What's the difference between ISOs and NSOs?
Qualified Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) are the most common types of stock options issued by companies to their employees.
Tax Treatment
ISOs are exempted from taxation on exercise and will only be taxed at the time of sale. To qualify for the tax advantage, the holder must hold ISOs for at least one year after exercise and two years after the grant date.
NSOs are taxed both during the exercise of options and the sale of shares. Holders must pay tax on the spread between the exercise price and the fair market value.
Employment
ISOs only apply while the employee is still employed at the company that issued the options.
NSOs don’t require employment.
Cap
The principal amount of ISOs eligible for exercise each year has been capped at $100,000.
Typically, ISOs are more popular among companies to incentivize their employees. From a tax-saving perspective for employees, ISOs make more sense to attract talent.
What does certificated or un-certificated stock mean? Which should I use?
Un-certificated (Delaware Corporation)
This is a way to issue stock simply by sending a notice of issuance and tends to be the easiest for companies if your company has passed a board resolution to support this. Companies that are incorporated on Stack and use the standard documents already support using Uncertificated shares.
Certificated (US Companies)
This is a digital share certificate that needs to be signed by company signatories. You can read more about the workflow for issuing certificated stock below.
Invitation (All Companies)
If you have issued paper certificates or have managed issuance outside of AngelList Stack, this option will allow you to send an invitation email to view their securities on AngelList Stack. This does not formally issue stock but is useful if you are backfilling stock that has already been issued.
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