How do my co-founders and I pay for our shares?
The restricted stock purchase agreement for each founder in our Post-Incorporation Setup product specifies how the founder should pay for their shares. The consequences of failing to follow a proper payment process can introduce a variety of potential complexities. Consult your startup attorney if you have questions about these potential complexities, as they are very fact-specific.
In general, the most common practice is:
- The founder gives a check dated the date of the stock purchase agreement to an officer of the company on the same day. If the founder is a solo founder, it is generally considered acceptable for the founder to give the check to themselves.
- The officer keeps a photocopy of the check in the company's files as evidence of payment.
- The company deposits the check in its bank account. If the company does not yet have a bank account, the company officers should hold onto the check and deposit it into the company’s bank account promptly after opening it.
Alternative Payment Methods
If a founder is unable to write a check, any payment method that produces a record of the payment amount and date is generally considered acceptable. A PayPal account set up for the company is a popular approach, since PayPal accounts can receive funds in advance of being connected to the company's bank account. Cash payments are also considered acceptable if the company produces a receipt for the founder and retains a copy of the receipt for its records. Wire transfers and ACH transfers are also acceptable, although they are not viable options if the company's bank account has not yet been set up.
If a given payment method involves a transaction or service fee, the founder making the payment should send enough funds to ensure that the company receives the full purchase price of the shares after the fees have been deducted.
In general, it is considered safest for the payment to be in the same currency that is specified in the restricted stock purchase agreement. The default currency specified in Clerky products is U.S. dollars. Founders that do not have U.S. dollars typically will convert their currency into U.S. dollars first, or else use a payment method that converts their currency into U.S. dollars. It's important to ensure that there is a record (e.g. bank or PayPal statement) of the company receiving U.S. dollars in an amount equal to or exceeding the purchase price of the shares.
As mentioned above, it is generally common practice to have the purchase date be the same as the date of the restricted stock purchase agreement.
If the purchase date is different from the date of the restricted stock purchase agreement, the company and the founder should make a note of this difference in the company records. If the founder is making an 83(b) election, the company and founder should be sure it reflects the correct purchase date.