Convertible Notes and Startup Funding
February 12, 2025
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In the previous article, we studied what convertible notes are and how they are used in the context of financing a startup firm. The various terms and conditions which are generally a part of the convertible notes agreement were also explained along with the working of the note. However, before investors and founders make a […]
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Setting up a startup company can require a lot of paperwork. It is common for startup founders to spend a lot of their time and effort putting these papers in order. It may seem like a mundane chore and even counterproductive. However, the reality is that the company needs to have all its legal documents in place if they want to obtain any kind of funding in the future.
This article provides a list of documents that can be used by the founders as a checklist when they set up their business.
This is the most fundamental document for any company. It contains details about the list of shareholders, the capital as well as the type of business which the company wants to perform. The certificate of incorporation is required to prove the existence of a company. Hence, the company cannot acquire a property in its name or even have a bank account in its name until the certificate of incorporation is not present. Now, this may seem like an operational decision but it can be financial.
There are several states which offer tax breaks to companies that incorporate within their geographical boundaries. It is possible for a startup company to have a sustainable advantage over its competition based on where they incorporate.
There might be some preconditions that need to be fulfilled before a license is issued. The entrepreneurs need to ensure that they have sufficient knowledge about these preconditions. Also, they need to have the money and the knowledge about the application process.
It is essential that the startup company has all the paperwork related to these assets in place before they make an attempt to pitch their idea to investors and other third parties. It is possible that they may face some competition due to intellectual property theft.
These statements will be used by the investors to calculate the burn rate and other metrics which are considered to be key while financing a startup. It is important that the entrepreneurs have several versions of financial statements which can be presented to the investors so that they have an idea about the various possibilities.
Hence, we can say that fundraising ideally requires a lot of documentation. It is common for companies to create a file with the relevant documents which is then presented to prospective investors along with a business plan. The above-mentioned documents are essential in such a folder.
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