📄

Step 4: Issue equity to founders and advisors

Founder share purchase

Founders are recommended to purchase (for a nominal amount) common shares in OCV companies (as opposed to receiving options). This is, however, dependent on each founder’s personal tax situation - please consult with tax advisors.
When a company issues common stock, it sells ownership stakes in the company differently than it would to investors - the price of purchasing common stock is nominal for the company’s founders but may change over time with employees (see
🛶
409A Valuation
).
The wiring of funds to execute the share purchase agreement needs to be completed prior to OCV SAFE funding.
It is strongly advised for founders to seek tax counsel from professionals who are experts in working with founder equity in venture-backed startups.
See additional details under
🕰️
Global Workforce Considerations
: immigration if work visa transfers are required.

Options

Common shares are usually reserved for founders, employees, and other stakeholders.
Options give the holder the right to buy common stock at a specified price for a certain period of time and may be used as a form of compensation for employees and advisors. Though options are a right to buy common stock, they are not the same as actual shares of stock.
See also (
🧮
Stock Options
).

Guidelines for equity stakes

Disclaimers

The following guidelines are:
  • subject to change
  • not a guarantee anyone will get any specific equity stake
  • not necessarily a perfectly up to date reflection of current frameworks
  • not going to impact past dealings
    • We will stick to the terms of previous arrangements regardless of if they are higher or lower than the current framework.

Founder shares guidelines

Vesting Period: Four years (48 months), no cliff
CTO
Minimum of 10% (Y Combinator Founder Norm)
Additional equity may be allocated as follows:
  • Contributor to the project: + 5%
  • Original author of the project: + 5%
  • First C-level hire at the company with management and entrepreneurial experience : +5%
Maximum of 25% (otherwise we can't make our model work)
CEO
Our standard model is to launch a company with a technical co-founder first and recruit a CEO six to nine months after. CEOs recruited after company launch will receive stock options from the company’s options pool. See CEO equity reserve at
📄
Step 5: Establish the company’s options pool
. Under special circumstances, we would consider launching with only a CEO or both CEO and a CTO together. Guidelines for CEO equity at launch would be similar to the CTO at launch.

Advisor shares guidelines

Minimum of 0.5%
Vesting Period: Four years (48 months), no cliff
  • Original author of the project (assuming a single author): + up to 2%
  • Time commitment to advise the company on monthly basis: + up to 2%
  • Active involvement in building the business (i.e. contribute to brand building, customer introductions, recruiting, etc.): + up to 5%
    • Merge requests improving the open source project are not considered to be active involvement in building the business.
Maximum of 10% (see Founder Shares Guidelines)
See also
🦉
Advisors
.

83b election

Filing an 83b election can have significant tax implications so it is extremely important for founders to have this filed in a timely manner.
83b Election form needs to be completed by founders themselves and sent to the IRS within 30 days of the effective date of the stock purchase agreement (and purchase date) as the date wire is initiated for the share purchase.
The election should be sent via certified mail to have the timing of the mailing tracked upon sending and upon receipt and pairing it with a return receipt will ensure the IRS sends back a signed confirmation that it was received. A self-addressed return envelope should be submitted as pre-paid and addressed to send to yourself from the IRS so that they can return.
The appropriate IRS office to send the election to can be found via https://www.irs.gov/filing/where-to-file-addresses-for-taxpayers-and-tax-professionals-filing-form-1040 (those with no payment enclosed).
Non-US founders should use the following address.
Department of the Treasury Internal Revenue Service Austin, TX  73301-0215 USA
Founders must retain a copy of proof of mail and provide this to the company’s legal team.