Houston Business Attorneys & Lawyers

Securities: What Are They?

Securities are a financial instrument that gives people a form of company ownership. There are several types of securities, including stocks, bonds, and options. The issuer of the security is usually a company trying to raise revenue. The issuer can also be a state or local government as well. Due to state laws, the definition of a security can sometimes differ.

Securities are classified as either debt, equity, or derivatives.

• Debt securities are like loans provided by investors. Examples of debt securities include government and corporate bonds or certificates of deposits. Rating companies such as Standard & Poor’s, Moody’s and Fitch’s evaluate how likely the bond will be repaid with rating such as AAA, BBB, or junk bonds). Corporate bonds are loans to a company, sovereign debt are bonds to a country, and

...

What Are Tag Along Rights?

Tag along rights or "co-sale rights" are legal agreements that guarantee minority stakeholders the right to sell their shares in the company at the same time and under the same conditions as the majority stakeholder. These rights are often used when companies are founded and capitalized because it protects investors and encourages them to buy the company's stock at an early stage. This is especially true for most angel investors, who won't even think of joining unless there are tag along rights.

Why Are Tag Along Rights Important?

Tag along rights protect minority stakeholders by giving them a certain amount of control over their own investments. If a principal stakeholder of the company liquidates its share, smaller investors won't get a bad deal. In simple words: If

...

A limited liability company, commonly known as an LLC, is a type of business structure that offers the pass-through taxation benefits of a sole proprietorship or partnership, as well as the limited liability advantages of a corporation. In order to form an LLC in Illinois, you are required to complete several important steps.

Decide on a Name

The

...

Updated August 12, 2020:

Many employers now offer stock options in place of other popular benefits as a part of their employee incentive packages. Stock options can be confusing to new employees receiving them, and even some employers offering them. For example, some people do not realize that an employee stock option has no real value until it is exercised.

In this article, we take a look at stock options: what they are, how they are exercised, their tax implications, and more. We’ll also offer some suggestions on where to turn for financial advice regarding your stock option questions.

Keep in mind that exercising stock options can be complicated, and result in significant financial and tax consequences. It is highly recommended, therefore, that you consult with an attorney, accountant, or other experienced tax professional before exercising any stock option.

...

Updated June 19, 2020:

What Are SAFE Notes?

SAFE (simple agreement for future equity) notes are a simpler alternative to convertible notes. They were created in 2013 by Y Combinator, a Silicon Valley accelerator, and allow startups to structure seed investments without interest rates or maturity dates. SAFEs are short five-page documents. The valuation caps are the only negotiable detail.

A SAFE note is a convertible security that, like an option or warrant, allows the investor to buy shares in a future priced round. It addresses many of the drawbacks and challenges posed by convertible notes and can be an equitable option for investors and founders. Startups may prefer SAFE notes because, unlike convertible notes, they are not debt and therefore do not accrue inte

...