Katy Contract Attorneys & Lawyers

Updated October 30, 2020:

Before you purchase stock or issue stock as part of a new company, you need to have an understanding of the basic classes of stock. Each class of stock comes with its own package of features (voting rights, price, payout priority, etc.), resulting in a number of advantages and disadvantages associated with each. Here’s a look.

What Are Classes of Stock?

In the most general terms, there are two main types of stock: common and preferred. However, each type of stock may be further distinguished by class.

Note: “Classes of stock” should not be confused with “classes of shares.” Although the two terms may be interchangeable when referring to company stock, the term “classes of shares” may also refer to different classes of mutual fund shares.

Why are Classes of Sto

...

What is Liquidation Preference?

Liquidation preference determines the payout process or the distribution of stocks if the company pays dividends, enters into a merger, or liquidates the company. Liquidation preference means the company's investors or the preferred stockholders receive their investment back first in case the company liquidates.

Liquidation preference determines who gets first and how much when the company is liquidated, sold, or declares bankruptcy. Liquidation preference is associated with the preferred convertible stock. It explains how the proceeds are divided and shared.

For example, a holder of preferred stock has a liquidation preference equal to $30 million and the company is sold. Then the holder will get the first $30 million before the

...

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

...

CrowdFunding: What Is It?

Crowdfunding involves a lot of people investing a small amount of money to start a project. This is typically seen over the internet, but can also be done in other ways. Asking strangers for money may seem awkward, but it doesn't have to be. There are a lot of excellent crowdfunding sites that people trust. By using one of those sites and having a great project, you have a higher chance of getting people to help you.

Equity crowdfunding has been a newer option available under the Jumpstart Our Jobs (JOBS) Act.  

What Are the Types of CrowdFunding?

There are

...

You’ve started a business and approached a lawyer to ask some questions, but do you know what to ask? What topics need to be covered before hiring a legal team? What’s most important once your team is in place? And why do these questions matter?

We asked 55 attorneys to weigh in on what people should ask before starting a small business and after they’re up and running.

Here’s what we learned.

The Key Queries for Your Lawye

...