Introduction
Being a founder is exhilarating, but it also comes with legal and tax pitfalls. From vesting schedules to employment law and exit taxes, founders must navigate issues that employees don’t face. Getting these details right early on can prevent costly disputes and unpleasant surprises later.
Key topics covered on the blog
- Paying yourself and classifying co-founders — Determine employee coverage, exemptions and promised compensation. Washington’s owner-manager exemption can apply to a bona fide 20% owner actively managing the business without the ordinary salary requirement. It does not erase agreed wages. See the deferred-salary guide.
- Founder vesting and repurchase rights — Vesting schedules and repurchase options align incentives among founders and protect the company if someone departs early; we explain typical four‑year vesting with a one‑year cliff, discuss alternatives, and cover when an 83(b) election may matter. Under IRC §83 and Treas. Reg. §1.83-2, the election applies only to qualifying transfers of substantially nonvested property in connection with services; whether to elect depends on whether a transfer occurred, the current tax cost, and forfeiture risk—not every founder issuance requires one.
- Golden Parachute Taxes (Section 280G) — In a change of control, accelerated vesting and other contingent compensation for a disqualified individual can be parachute payments if their aggregate present value equals or exceeds three times the individual’s base amount. Once that threshold is met, Section 4999 imposes a 20% excise tax on excess parachute payments (generally each payment minus its allocated base amount—not merely the slice above 3×), and Section 280G can disallow the related corporate deduction. See how the base amount, excess, and planning options work.
- Handling founder disputes — For co-founder departure and equity cleanup, see founder vesting, repurchase rights, and buyback mechanics. That guide covers documenting vesting and what happens to shares when someone leaves; it does not cover minority-shareholder oppression claims or corporate deadlock remedies.
Founders who understand these issues can protect their equity, avoid unnecessary taxes and build a stronger foundation for their business. For the full picture on founder stock, options, restricted stock and RSUs, see the Complete Guide to Equity Compensation.
Ready to get started?
- Schedule a consultation — Book a time on our calendar to discuss your compensation, vesting or transaction plans.
- Founder Formation — Forming a new company? Our formation service covers vesting terms, stock issuances and 83(b) elections.
- Work with Joe — Learn more about the practice and how to get in touch.
- Subscribe for updates — Join our newsletter to stay informed on founder compensation, vesting and exit tax developments.