Touchstone Strategic Law is thrilled to share that Michael Perez (co-founder and Managing Partner) has been honored by the Boston Bar Association (“BBA”) with the 2025 “Mary K. Ryan Achievement in Pro Bono Award”. Mike, as well as six other honorees, was presented with the award on October 30, 2025 at the BBA’s “Spirit of the Bar” event – an inspirational evening celebrating service, leadership, inclusion and community.

The Mary K. Ryan Achievement in Pro Bono Award was established in memory of former BBA president Mary Ryan and is given annually to individuals who embody her legacy as a dedicated advocate and champion of legal aid and pro bono work.  Mike’s commitment to serving underserved and marginalized communities has been a hallmark of his legal career.  The BBA lauded Mike’s combination of “legal expertise, compassion, humility and humor to inspire others to serve.” While serving as a Managing Partner and chairing the corporate department at Touchstone Strategic Law, Mike has devoted hundreds of legal hours to pro bono immigration, housing, and pandemic-related advocacy.


Together, the team at Touchstone Strategic Law celebrates Mike’s accomplishments, and are excited to move forward in the same spirit of service, leadership and community.

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC

Hello, reader! Welcome to this series where we will discuss the legal side of turning your entrepreneurial dreams into reality. Everyone talks about being your own boss and starting your own business—being master of your own fate, an indomitable force, the captain of your soul. All of that is beautiful and fantastic! But how do you go from your 9-to-5 to your first day as CEO…while still owning your idea and being ready to catch fire?

Meet Morgan and Blake. They are  data scientists who work on coding and technology for a large tech company. They wake up every morning at 7 a.m., make a strong cup of coffee, and reheat their meal prep. Morgan knows they’re meant for bigger things, so Morgan is getting ready to start their own company (empowered by the new non-compete rule). 

But they have to ask themselves, “How do I start? Do I form a company now or later? How do I protect my IP? Do I need a lawyer for incorporation?” 

Let’s start from the beginning. Let’s start while our protagonists’ idea is still just a light bulb above their head. your first post. Edit or delete it, then start writing!

“My Boss is in My Head”

No, seriously. Morgan and Blake’s employer may own the ideas or at least control which ones they can talk about publicly. We aren’t talking about some X-men thing here. We are talking about ownership of intellectual property (IP). Let’s see how this impacts Morgan and Blake.

When they get in a flow with the right dose of single origin coffee they’re unstoppable, and they’ve written code at their job that reduced processing time of financial data by 70%. After work hours, on their work computer, they made notes about a way to reduce processing time even further. Over the weekend, on their own computer, they implemented a new version of the code that works on health data. To try it out, they wrangled a sleek data set for analyzing anonymized personal health data. (sweat emoji) 

Can they use any of this to launch their own business? There is a high chance that the answer is NO. It could be possible but risky, or maybe they’re lucky to be in the clear. Companies usually make you sign contracts that safeguard the intellectual property created by their employees, often called “Assignments of IP”. The scope could be narrow. The scope of the assignment could be broad. It’s a bit of a thicket. 

Look into your situation early in the process. Identify what you’re assigning to your employer and what you keep for yourself. Think about what will be considered competitive to your employer or what they might not care about if you pursue. This will affect how motivated they are to claim what they might think is theirs. 

Ready to Become a Real Business

The soon–to-be partners read through their employment agreements and are ready to start their own business. It’s time to decide whether to create a corporate entity, like an LLC or a corporation. 

This is usually a good idea. They would be owners and co-founders, but this separate entity would shield them from liability for their business activity and provide the basis for adding people and resources to their endeavor. If that million-dollar idea is already showing signs of life, maybe it’s time to start a real company that will own the idea, build brand recognition, and form the basis for growth. 

The reasons why forming an entity might not make sense are taxes and administrative burden. This separate entity will affect their tax filings, and it requires upkeep – accounting, annual fees paid to the government, and plenty of forms to fill out to go with the fees. If they aren’t sure what the growth plan is – maybe they are just tinkering with the new idea – then maybe it’s not time to form the company.

In future posts, we’ll dive into entity choices and how to create the entity of your choice. (Spoiler Alert! It’s totally feasible to DIY this step.) 

What’s in a Name?

A lot. Too much. Morgan and Blake have a bunch of names they like for their new company. They can’t decide which to go with. It seems crazy to dwell on this. It’s just the name. It’s the product that should matter, right? I mean “Google” is a nonsense word. Here’s why Morgan and Blake are worrying about the name of his company so much. 

Choosing a name can be a thicket of interdependent considerations, legal and otherwise. This is possibly the one thing we, as lawyers, recommend spending the most time analyzing before you move forward. Here’s a few of the legitimate questions to mull:

• Will the state you’re incorporating in allow the name?
• Can it be trademarked?
• Will someone else object?
• Is it easy to say? Will it be mispronounced?
• Is it easy to write? Fit on a website?
• Does it help identify what your company does?
• Does it help with SEO?

Changing the company name later will be a pain. You won’t want to, even if you know you need to. Pause, do your research, and sleep on it, before rolling with your name choice.

Sharing is Caring, but Don’t Overshare. 

All the sleepless nights writing code and a business plan are about to pay off. Now there’s the delicate topic of Morgan and Blake’s business partnership. Morgan and Blake know each other well as colleagues at this point, but they’ve never argued over more than semicolons and commas in the code. They’ve got to decide how to divide up ownership and responsibility for their company.

A business partnership is like a marriage. So, Morgan and Blake date, so to speak. They discuss their notions and feelings. They let it marinate. They talk to trusted friends and advisors. It’s ok to end a coffee meeting without a decision. 

When they’re ready to commit, they should write down what the deal is going to be. The agreement doesn’t need to resolve every detail, but it should get the important stuff in black and white to rely on later, under stress. 

Don’t let assumptions prevail over a true shared understanding with your prospective partner. 

This is just the beginning in a series in which we will talk you through the legal side of this painful, sleepless, stressful but incredibly beautiful and satisfying journey that is creating your own business. 

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC

At some point in building a company, every found asks themselves: “Do I actually have something here that needs protecting?”, and what’s worth asking is “Who would win in a Trade Secret Vs Patent?” It’s a fair question. Maybe it’s a piece of technology you’ve poured months into. Maybe it’s a process that gives you an advantage. Maybe it’s the “secret sauce” that makes your product work in a way competitors can’t copy. If any of that sounds familiar, you’re in the territory of patents and trade secrets — two different ways to safeguard what makes your business unique.

Two Ways to Lock It Down

When it comes to protecting innovation, you really have two paths: keep it confidential or claim it publicly. Both can work. The choice comes down to what fits your business.

Trade secrets: stay quiet, stay protected.

If your advantage is something you can keep behind closed doors — like a recipe, algorithm, or internal process — a trade secret is often the simplest route. There’s no registration, no government process. You protect it by limiting access, using NDAs, and simply… not talking about it with outsiders.

The upside? It can last indefinitely. The downside? The moment someone figures it out or leaks it, it’s gone. You don’t get a second chance.

Patents: stake your claim in public.

Patents flip that on its head. You publish how it works, and in exchange, you get exclusive rights to stop anyone else from using it for 20 years. This is common for tech, hardware, and other innovations where competitors could reverse-engineer your work anyway. There are a few flavors — utility patents (how it works), design patents (how it looks), and provisional applications (a temporary placeholder that lets you test the waters).

So Which One Makes Sense?

There’s no universal answer. If what you’ve built works best in the shadows — like a formula or internal process nobody else sees — secrecy might be smarter. If you’re selling something the world can examine, and exclusivity is key, patents are often worth it.

Many founders start with a provisional patent to buy time. Others skip patents altogether, focus on speed, and rely on trade secrets for as long as they can. Both approaches can work — it’s about what fits your company. The trade-off is time and money. Patents are an investment: filing often costs five figures, and it can take a couple of years before you even get an issued patent.

What Investors Care About

Patents (or at least “patent pending” in your deck) can add credibility. But most investors won’t write a check just because you filed one. They care more about whether you’ve thought through how you’ll protect what’s defensible in your business. A smart IP strategy — even if it’s “we’re keeping this internal for now” — goes further than filing for the sake of it.

The Takeaway

Patents and trade secrets are just tools. Neither is automatically “better” — it depends on how your company creates value and what you can realistically maintain or enforce.

The Power of Community (Post-Credits Scene)

Some businesses don’t worry about protecting proprietary technology at all. Their competitive advantage is an energetic, loyal community. The technology is often open source, but competitors can’t match the community that has gathered around the product/environment/platform/etc. Community-building is an intriguing end-around or addition to a patent. It takes time and hard work, but that’s exactly why once you have it, your competitors will have a hard time catching up.

If you face any of this questions or find yourself at the beginning of your journey; we offer weekly sessions where we discuss this topics with entrepreneurs. Join us for Office Hours.

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC

Good day fellow reader, and welcome to Part 2 of this series called “Law for Entrepreneurs, A Crash Course.” where we are lighting the path for you to start your own venture, leave your nine to five, and be the owner of your own future. We are answering questions about the what, the why, and the which. In this post we jump to the where.

Where should I start my business?

Well, most likely you will start your business from the comfort of your house, because working from home is the dream, and you make your own schedule (or perhaps it’s because the money is scarce and there’s nothing better than working in shorts). But we are not talking about where your business will be born, rather where your business will have its birth certificate, or as the government calls it, your business’s “Articles of Incorporation.” For better or for worse, there are as many as 50 options for you to choose from.

To narrow it down, we ask ourselves:

• What is the nature of our business? 
• Am I expecting to hire employees? Where?
• Will I have an office or offices? Where?
• Am I going to have dealings with state or local government? Where? ? 
• Where will my customers likely be?

You don’t need to know these answers for all time. Just have a sense of what you expect for the next 3-5 years. The answer to those questions will  guide you to where you should probably create your business entity (aka entity formation or incorporation).

Let’s review a few popular options, so you get a sense of how to compare the options

Delaware: the State with More LLC’s than People

Delaware is  the place to go for most entrepreneurs. It’s like that $1 a slice pizza place from your college years, that friend who’s always ready to go with you anywhere and do anything, no questions asked, That mystery meat that hotdogs are made of. Their website is user friendly, the fees are low, and the forms are fairly simple, asking things like:

• The name of your business
• The type of business (LLC, Corp, Non-stock corp, etc.), 
• The amount of stocks (if needed), and
• Who is incorporating.

You won’t need to disclose your board of directors or your stockholders. (For the Corporate Transparency act you will, but that is wheat from another field.) So Delaware offers a lot. It gets you low fees, a lot of privacy, and easy access to the creation of your LLC.

Now it’s not all sugar, spice and everything nice. The amount of businesses who open in Delaware is massive, which causes delays on their turn-around times, a 10 day process might as well take over 30. Their customer service is also frequently slammed. They do offer live chat assistance but for most complicated matters you need to give them a call, and that will take some time.

Massachusetts: the State of Patriots, Pilgrims and Parking Tickets.

Massachusetts might be your first thought for entity formation if you come from MIT or Harvard, and even if you didn’t, there are a ton of potential cofounders, team members, partners, and customers in MA. MA is an awesome place to start. Beware, MA is a bit more expensive than Delaware, but it gives back through excellence service and fast communication. Their portal is so well built that you do the whole thing online, no need to create a PDF file and do all the shenanigans other States require, and their turnaround time is incredibly fast.

Now MA does require a lot more personal information when forming a business. MA is like a good parent. It lets you go out but wants to know where, how, and with whom you are going. MA will ask you the names, addresses and ownership of those who hold stakes at your business. It will also ask you to provide information about the nature of your venture.

California: The Golden State of Red Tape

California is both the land of opportunity and the land of bureaucracy. Having one of the huge economies and energetic startup cultures, many businesses would want to get a start in the place. Interestingly, setting up a limited liability company or corporation in California offers unique challenges and considerations.

Starting a company here is among the most expensive options in the U.S. California has some pretty high annual franchise taxes, starting at a minimum of $800 a year for LLCs. Requirements are tough: you are to disclose highly personal information of the business owners and managers and the nature of your venture. The state also requires annual reports and adherence to strict regulatory and tax compliance, which raises administrative costs.

South Carolina: Because Who Needs High Fees and Cold Winters, Anyway?

While South Carolina may not be the first place  most people think of when it comes to incorporation, but it has a lot on offer, and that is especially true in case of smaller businesses or startups that need an inexpensive entry point.

The Good: South Carolina has very low incorporation fees, and the ongoing costs are pretty low, too. It has a pretty painless process, and the Secretary of State’s office can be helpful with new business owners. It is ideal for those who do not need Delaware-level privacy protection but want an affordable, pro-business state. 

The Not So Good: For all intents and purposes, South Carolina doesn’t offer the same kind of voluminous case law and legal business protections that Delaware does. If you’re the kind of business owner who anticipates a lot of litigated disputes,requires detailed shareholder protections, or whose investors want tried and true jurisprudence you might find South Carolina unsettling. But for most small businesses, ease, affordability, and Southern hospitality prove to be an excellent fit.

Pan back and you’ll see that many states offer affordable fees and online processing. The geography that your business touches is what will narrow down the choices for you. If your business will have a significant presence in many states, then Delaware or your business’s home state are the first two to look at.

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC

Hi there! We hope that this series on startups helps you pursue your vision. (If you haven’t read parts 1 and 2, be sure to check them out!)

Today we’re diving into the magical world of corporate structure, specifically ownership structure.  A little knowledge about setting up your company can do a lot for later attracting talent, securing funding, and making your new company a joy to drive.

Starting a company is like setting up your own little democratic society, with voters, a constitution, and elected officials. In this post, we’ll focus on the voters, who in the case of a company are the owners. In a corporation they are “shareholders.” In an LLC they are “members.” We’ll focus on corporations, since most growth-oriented startups form as corporations. 

We the People

Your product is great—you know it, we know it—but turning it into a reality depends 90% on the people you work with. You need capable, dedicated teammates to share ownership of the vision (because let’s face it, there’s a high chance you won’t be able to pay them much, if anything, at the start).There are several ways to think about this. 

You’re going to naturally divide up ownership differently depending on roles. You can think about this in terms of different levels of your inner circle. We like to think of there being four, concentric “inner circles.” Starting from the center moving outward there is 1) founders, 2) co-founders, 3) clutch team-members, and 4) early employees.

Founders are the people who have been with you since the beginning, sharing the vision, the blood, sweat, and tears. These individuals deserve a significant chunk of ownership in the company and a say over what happens with their shares. 

Now how is a “founder” different from a “co-founder” in this model? For lack of a better word for it, a Co-founder might not be around from the beginning but they could be a big player in the industry or an important early business partner who is prepared to put in significant sweat equity while bringing something strategically important to the table, such as expertise, funding, or connections. They might get a big chunk of equity, but not being in your innermost circle they might get less control. 

Clutch team-members are those experts you need on your team, that 10x developer or that sales person right out of The Wolf of Wall Street, the early team member providing truly unique value but who is demanding a significant salary. How will you recruit them when you can’t pay top dollar? By giving them a slice of the pizza: equity. What better motivation to excel at work than owning a piece of the business? That said, don’t confuse equity with significant control. You and your co-founders will want to maintain control of the company, but your A-team will have a stake in the future beyond your typical early employee and at least a nominal vote on major decisions. 

Speaking of early employees, this, the largest of the inner circles, is comprised of those special souls willing to work at  a startup despite an uncertain future and crazy hours. Let’s face it—you want top-level talent at entry-level prices, not because you don’t want to pay them more but because you can’t, at least not right now. So early employees get a piece of pizza too, but it’s likely to be stock options instead of actual stock, meaning they’ll have an upside but not a vote. 

These people deserve recognition, and you can give it to them with shares or options. Real pizza is a nice touch, but it won’t suffice. (Don’t be that kind of company ????)

Let’s Order “Pizza”

When you form your company, you get to decide how many pieces of pizza to start with. Ok, we’ll stop with the metaphor. You get to decide how many shares make up your company.  A common sweet spot is to start by authorizing 10,000,000 shares—it sounds like a lot, but trust the process. You may ultimately have hundreds of stakeholders. These 10M shares act as a reserve, with only a portion put into circulation at the start. The rest stay in your treasury for future needs, like attracting investors or incentivizing employees.

Next, set a low par value, the nominal monetary value of each share. A par value as small as $0.0001 or $0.00001 per share minimizes initial taxes for recipients and provides plenty of room for growth. Think small for now; you’ll appreciate it later when your company thrives.

As you issue shares, reserve most for future growth. Only the issued shares count toward ownership at any given moment. For instance, if you issue just 2M of your 10M authorized shares (20%) to the founders, that 2M counts as 100% of the company. The rest are out of circulation, waiting for future use.  

That future, when additional shares are issued, is when dilution happens. For example, if you and a co-founder each own ½ of the company’s 2M issued shares, and then an investor is issued 1M more, all three parties now own ⅓ of the company. While dilution reduces individual ownership percentages, it often comes with growth of the overall value of your company. You own a smaller percentage of the pizza, but the pizza got bigger in absolute terms, and your ⅓ is worth more than your ½ was. 

Plan strategically, and your ownership structure will be a powerful tool for attracting talent and investors while fueling your company’s success!

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC

Hello, Reader,

It’s been quite a journey! If you’ve been following along, on behalf of Touchstone Strategic Law, thank you! And if you’re new to this series, feel free to catch up with Parts 1, 2, and 3.

We’ve offered guidance about leaving your 9-to-5 to creating your business entity and dividing ownership. Now, we’re entering the end of this series with a primer on corporate governance. 

Your company has a government that is supposed to represent its best interests, that makes decisions on behalf of the owners, the citizens of your company. You get to set up the government! No need to brush up on John Locke to do it, though. Here are some basic principles. 

We’ll approach this through two lenses – for corporations and for limited liability companies (LLCs). Of course, the type of entity you choose will depend on your vision. (We’ve created a space to get free guidance—join us for office hours!)

Governing a Corporation

As the founder of a company, you are the founder of a new, mini society, and you can do this online! Back in the day, you had to sign paper with ink, just like George Washington, and visit the Secretary of State’s (SOS) office in person, or even worse you had to send a fax. Now, forming your corporation is as simple as filing an online application with your state of choice. 

The Sole Incorporator

Once your corporation is formed, there is one person in charge, known as the Sole Incorporator. They’re the one sim in a blank world you just created. Sounds heavy, but it’s just the person who signed the form to create the corporation. That’s probably you, but it could be someone at your lawyer’s office or at another service provider that formed the corporation for you. For a brief moment, this person is ruler of their new world. 

The Board

But heavy is the head that wears the crown. The Sole Incorporator will quickly (hopefully) transfer control to the Board of Directors, through a document called the Action of Sole Incorporator. In this document, you’ll appoint all the Directors who will serve as fiduciaries of the corporation, kind of like legal guardians of the baby society you just created. The Sole Incorporator is often also on the Board.  

The Board makes many decisions on behalf of the corporation—opening bank accounts, accepting investors, hiring major talent, and approving key agreements with other entities. It’s your society’s first congress. Quickly though, the Board delegates these tasks to others to handle everyday business. That first act of delegation is to appoint officers. 

Officers of the Corporation

This is where titles come into play (hello, Mr., Dr., or Prof. Patrick!). The essential officer roles in a corporation, for legal purposes, are President, Secretary, and Treasurer. One person can hold multiple roles. The President, in terms of authority, is equivalent to what we think of as the CEO.

C-suite officers are also often appointed early in the life of a corporation. These are titles more often used on business cards, email signatures, and when otherwise relating to the rest of the company and the outside world. The offices above are necessary for legal corporate governance purposes, however. 

Now you’ve set up the government of your mini-society. At the beginning, the branches of your government – the Board members and the officers – are often one and the same. 

The Shareholders

In this metaphor the shareholders are the citizens, the voters. While shareholders are often seen as passive investors, they ultimately call the shots. They hold the power to elect the Board of Directors, who hold the power to appoint the officers, who hold the power to run the company. Behind all that are the shareholders.  

Not all corporate citizens are necessarily equal. Corporations often have different classes of shareholders:

• Common Shareholders: Common stockholders typically have 1 vote per share. What you see is what you have. 
• Preferred Shareholders: Preferred shareholders have bought extra rights with the strategically important funding they provided. They may have extra voting rights per share or a veto on major decisions (along with enjoying priority in receiving dividends and claims on assets).

Governing an LLC

Let’s touch briefly on LLCs and governance. The incorporation process for an LLC isn’t much different from a Corporation. You’ll need to visit the SOS website and select the correct form. (Pro tip: These forms may look straightforward, but always triple-check them before submission!)

LLCs tend to be flatter, as in less hierarchical, than corporations. An LLC is often seen as a relationship of equals. However, it’s essential to clearly define each member’s roles and responsibilities to ensure you stay on track toward your shared goals. 

For instance, one partner might oversee day-to-day operations as a managing partner, while another focuses on long-term strategy or funding. These roles can evolve as the business grows, but documenting them early on in an Operating Agreement is crucial. This document serves as the LLC’s rulebook, detailing ownership percentages, profit-sharing arrangements, and processes for decision-making or resolving disputes.

LLCs, however, are extremely flexible in terms of structure. You can build up the governance roles just about any way you like. Eventually an LLC can have enough layers of responsibility and authority that it looks more like a corporation. The difference in entity type becomes more important for tax consequences than governance.

That’s all for now! Stay tuned for the next post in this series, which will be about early hires and the various legal approaches one can take. 

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC

Hello, Reader. If you’ve been following along with this series, you’ve already tackled the big legal questions for launching your startup: leaving your 9-to-5, setting up your business entity, and divvying up ownership of your new company. (If you’re just joining us, no worries—catch up on Parts 1, 2, 3 and 4 whenever you’re ready.)

Now, let’s get into the legal side of building your early team. Whether you’re hiring your first employee, bringing on a contractor, or enlisting the wisdom of an advisor, it’s crucial to understand the differences—and the legal implications—of each role.

So, grab a coffee (or a glass of wine, no judgment here), and let’s break it down.

The Legal Categories:

Employees (W2): The Work Fam

When it comes to hiring, we often use “employee” as a generic term. These are the folks who show up every day (or log in remotely, because it’s 2025) and work at [insert amazing startup name] . But “employee” means something quite specific from a legal perspective, and it matters a lot. 

Having “employees” means you have to set up payroll, and you’re responsible for withholding taxes and perhaps providing benefits. You have to register with more than one government agency to do all this. And it goes without saying you have to pay the legally required minimum wage. Taking on an “employee” is a leap in maturity and administrative burden for a startup, and it’s hard to undo. 

Contractors (1099): The Hired Guns

Early-stage startups often start by hiring contractors for this exact reason. You don’t have to worry about withholding taxes or providing benefits. They invoice you for their work, and you pay them like any other vendor. Contractors are the freelancers. You make less of a commitment to them and them to you. 

It’s illegal to treat a contractor like an employee, though. You can’t hire a contractor, and then have the same demands as you would with an employee. Put another way, you can’t hire someone you expect to work like an employee but dress them up like a contractor to avoid the legal entanglements of formal payroll.

So, what’s the right thing for your situation? When’s the right time to take the leap into being an “employer” in legal terms? It often comes down to whether you’re trying to bring on one person or you’ve got a plan to bring on many people (or at least several). 

Why hire a W2 employee?

• Control: You get to set their schedule, define their responsibilities, and oversee their work.
• Culture: Your employees build the culture of your company, from Slack emojis to office potlucks. This is your work fam in the making. 
• Tax Deductions: Many payroll expenses can be deducted. Once you reach a certain critical size, that can take the edge off the pain of setting up payroll.

Why hire a 1099 contractor

• Flexibility: They work independently. You expect them to get things done without a lot of management. If they don’t, you terminate the contract.   
• Low-friction: No benefits, no payroll taxes, less bureaucracy.
• Low-commitment: Just pay for the work you need. It’s more of a business transaction than a work marriage.

The Roles on Your Team

So, how do these legal categories apply to the roles you need on your early team? Let’s talk about it using a few categories:

• advisors
• fractional executives
• early workers

Advisors: The Wise Council

Advisors are the Yoda to your Luke Skywalker. They’re not employees or quite like consultants in the traditional sense. They’re your guru. In exchange, they often receive equity or a small fee. 

Nevertheless, it’s important to set clear expectations about what they do and what they’ll get for it. Founders often use an Advisor Agreement for that purpose, but it is a consulting agreement or independent contractor agreement in another name. Advisors are generally 1099s. 

Fractional Executives: Part-time Cofounders

By fractional executives we mean people you want as a leader or lynchpin of your company’s early days but who aren’t willing to dive in all the way. It’s still a side-project for them. Often these are part-time COOs or part-time VPs of Marketing/Sales. They’re people with industry-specific expertise you really need somehow someway, and they’re willing to give it a shot. Probably their pay is performance based or maybe just equity subject to vesting conditions. 

In the end, these are likely to be 1099 contractors. You don’t want to create payroll for this one person. They aren’t guaranteed minimum wage. You’re hoping they deliver, but it’s a more loosely coupled relationship than employer-employee. 

Early Workers: Your First Full-time Relationships

We use the word “worker” here intentionally. When you’ve got a plan that you need to implement you need labor. (It might be highly skilled labor.) This might be your first software developers or your first lab scientists. 

These early workers might need to be employees. You are going to exert more control. The quantity of their work feels more closely tied to the output you need than it might for an advisor or a fractional executive. It might be time to grow up and become an “employer.”  

We hope this helps orient you, but we definitely haven’t covered every scenario here. If you’re feeling overwhelmed, don’t sweat it. Join us for office hours, and we’ll help you navigate the legal labyrinth of early hires. Until next time, keep building, keep dreaming, and remember: even the mightiest oak was once a little nut that held its ground.

P.S. Stay tuned for the next installment, where we’ll dive into the wild world of equity compensation. Spoiler alert: it’s not just about handing out stock options like candy.

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC

By now, if you’ve been keeping up with this series, you’ve probably covered the heavy stuff—leaving your comfy 9-to-5, setting up your startup, and figuring out how to divvy up ownership. (And hey, if you’re just jumping in now, don’t stress. You can always catch up on Parts 1 through 4 before you dive in here!)

But today, we’re going to talk about  the next big step  for your business: distributing equity to your team.  is one of the most exciting (and sometimes confusing) parts of startup life. Let’s get you oriented. We’ll focus on corporations, since that is the most common entity type for businesses that plan to share equity with their team. (It can be done with an LLC too, though. Jump to the end for a quick look at that.)

So, grab a coffee, and get ready for a heaping scoop of equity compensation with a side of tax benefits. 

Lots of Words! Let’s Start With Equity, Shares, and Stock.

First, let’s establish a common vocab. Equity is a general term for a portion of ownership in a company. Equity in a corporation is called stock, a unit of which is often called a share. Getting shares is the most fundamental way to receive equity in a corporation. Founders typically take shares. Sometimes early team members receive them too.

Restricted Stock

If you’re giving (or getting) shares, it’s probably in the form of restricted stock, sometimes referred to as Restricted Stock Units or RSUs. They’re restricted because they come with limitations on their transfer. The company wants/needs to keep a tight reign on portions of ownership, so that it can hopefully sell itself one day or go public. 

Tax Implications of Shares

Shares are considered something of value the moment you receive them, so there’s the potential to owe taxes. That’s why companies typically sell them to recipients and/or exchange for services or IP. 

You’ll inevitably hear about “83b.” That’s a special tax election that helps minimize the tax implications of shares received. 

Owners Vote

Shareholders are part owners, and as owners they get to vote. They also have a right to certain corporate information. It’s a big step to welcome someone inside that circle.

You Can Opt for Options

Options are a way for you to give team members a piece of your company without immediate tax implications and without a vote. They’re not a real share of the company. They’re an opportunity to purchase shares at a set price later, hopefully when you know you can sell them for more right away. There are two main types of options.

Incentive Stock Options (ISOs): ISOs come with some sweet tax advantages if they’re structured right. They’re only available to w2 employees, and the company has to have a legitimate valuation to set the strike price, the price you get to buy the shares at later. There are also limits on their issuance.  

Non-Statutory Stock Options (NSOs): NSOs are like the Swiss Army knife of options. They can be offered to anyone. There is no limit like with ISOs and no requirement to be an employee. 

Here’s the trade-off. NSOs don’t get the same tax treatment as ISOs. Some of the increase in value of NSOs is taxed as ordinary income. Gains from ISOs, if everything is done right, are taxed as capital gains, which is roughly half of the income tax rate.  

Vesting

So, what is vesting and why is it such a big deal? It’s the process by which your team members earn the right to fully own the shares you promised them over time. But why do it this way? Well, you want to attract people, but you also want them to stay, so you dole it out over time, usually based on continuous service. Although it can be based on performance if you want. This helps ensure that your investment in your team translates into them investing their time and effort in your company. It also protects you—if someone bails early, they don’t walk away with all their equity.

For example, you might offer your early team members 100 shares, but they won’t own all of them right off the bat. Instead, those shares will vest over 4 years, with a 1-year cliff. So, after a year, they’ll own 25% of their shares, and the rest will unlock a little at a time over the next three years. 

So Why Should You Offer Equity?

Why go through all this? Well, for a startup, cash can be tight. You might not have the budget to pay someone their full market salary, but equity allows you to offer something of value in the long run. You’re inviting your team to grow with the company. They’re not just getting paid to work for you—they’re getting a chance to own a piece of your startup’s future success. And that’s powerful.

Denouemont: LLC Equity

LLCs don’t have a reputation for being vehicles for distributing equity to your team, but you can totally do it. Equity in an LLC is typically known as membership interest. Kind of like shares, membership interest is something of value the moment you receive it, so it comes with tax implications. You also get a vote. 

Profits interests in an LLC function similarly to stock options. They start with a baseline value, and their potential growth is tied to the company’s performance. Taxes are typically deferred until you receive an actual payout. Whether profits interests include voting rights or not depends on the specific terms set by the company.

Wrapping It Up

Equity is a fantastic way to attract and retain talent while investing your cash back into the company, but they come with plenty of legal complexity. If you’re feeling a bit overwhelmed by all the legal and financial details, don’t worry—you’re not alone. There are plenty of resources (including expert advisors) to help you navigate the waters. And of course, if you need some extra guidance, feel free to reach out. We’re here to help!

Until next time, keep hustling, keep growing, and remember: your startup’s success isn’t just about you—it’s about the incredible team you build along the way.

This blog was written by Touchstone Strategic Law, PLLC, and published accordingly to Touchstone Strategic Law, PLLC