Legal frameworks, regulatory requirements, and compliance concepts in venture capital.
35 terms
An independent appraisal of a private company's common stock fair market value, required by the IRS to set compliant exercise prices for employee stock options.
A provision that triggers immediate repayment of outstanding debt upon certain events like default or change of control.
An individual or entity that meets the SEC's financial thresholds to invest in private securities — typically a net worth over $1M or annual income over $200K.
The process of confirming that an investor meets SEC criteria for accredited status, required under Rule 506(c) through documentation review and optional under Rule 506(b) via self-certification.
A contractual obligation requiring a company to take specific actions, such as maintaining insurance, filing taxes, or providing regular financial reports.
A parallel tax system that can create unexpected tax liability when exercising incentive stock options.
A for-profit company certified by B Lab for meeting rigorous social and environmental standards — relevant for impact-focused VC investments.
The structure and makeup of a company's board of directors, including the balance between founder, investor, and independent seats.
A non-voting participant in board meetings, typically a smaller investor, who can attend and speak but has no voting rights.
The governing body of a corporation, responsible for major strategic decisions, hiring/firing the CEO, and representing shareholders.
The process of maintaining accurate records of company ownership, including all shares, options, warrants, and convertible securities.
The cumulative cost and effort required for a fund to meet regulatory, reporting, and governance requirements.
A provision allowing majority shareholders to force minority shareholders to vote in favor of an acquisition or other liquidity event.
A share structure with two classes of common stock carrying different voting rights, typically giving founders disproportionate control relative to their economic ownership.
Funds held by a neutral third party in an acquisition to cover potential post-closing liabilities — sellers receive escrowed funds after a holdback period.
The legal obligation to act in the best interest of another party, such as a GP's duty to their LPs or a board member's duty to shareholders.
A clause allowing a board to withdraw from a previously agreed deal if doing so is required by their fiduciary duties to shareholders.
An SEC filing required within 15 days of the first sale of securities in a Regulation D private placement, disclosing basic information about the offering and the issuer.
Generally Accepted Accounting Principles — the standard accounting framework required for audited financial statements in the US.
Publicly advertising a fundraise to non-preexisting relationships — allowed under Rule 506(c) for funds raising from accredited investors only.
Interest income the IRS assumes exists on below-market loans, even if no interest is actually charged.
A board member who is not affiliated with the company's investors or management, providing neutral perspective on governance decisions.
Contractual obligations requiring a startup to share financial statements and other operational data with investors on a regular basis.
A contractual restriction that prohibits a company from taking certain actions without investor consent, such as issuing new equity or taking on debt.
A legal agreement preventing parties from sharing confidential information shared during discussions — less common in early-stage VC, more common in later-stage and M&A.
The governing document for an LLC-structured fund entity (typically the management company or GP entity), defining member rights, profit sharing, and operational procedures.
Qualified Small Business Stock — a tax exclusion allowing founders and investors to exclude up to $10M (or 10x basis) of capital gains on qualifying startup investments.
An investor with $5 million+ in net investments, a higher threshold than accredited investor, required for participation in funds exempt from Investment Company Act registration.
The SEC safe harbor allowing companies to raise capital from accredited investors without registering the securities offering — the legal basis for most private financings.
Statements of fact made by a seller in an M&A transaction that the buyer relies on — breaches can result in indemnification obligations.
A contract among shareholders governing their rights, obligations, and the company's governance structure.
A supplemental agreement between a GP and specific LP granting customized terms beyond the standard LPA, such as fee discounts, enhanced reporting, or co-investment rights.
Rights allowing minority shareholders to join a sale when majority shareholders sell their shares, ensuring equal treatment in a transaction.
Contractual limitations on an investor's ability to sell, transfer, or assign their fund interest or shares.
The rights of shareholders to vote on major company decisions — common shareholders typically vote on general matters, while preferred shareholders have special protective votes.