The terms the Corply Handbooks use, in a sentence or two each.
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409A valuation
An appraisal of a private company's common stock, used to set the exercise price of stock options at fair market value under Section 409A of the tax code. An independent appraisal gets a safe harbor and is generally relied on for up to 12 months or until a material event.
83(b) election
A filing with the IRS, due within 30 days after you receive restricted stock, choosing to be taxed on the stock's value at purchase instead of as it vests. For founders buying at formation, it usually costs nothing and saves a great deal. See the formation chapter.
A
ABC test
California's test for whether a worker is an employee. The worker is presumed to be an employee unless the company shows the worker is free from its control, does work outside the usual course of its business and is independently established in that trade.
Acceleration
Faster vesting triggered by an event, usually an acquisition. Single-trigger acceleration vests on the sale alone; double-trigger acceleration requires a sale and a termination without cause.
Accredited investor
An investor who meets SEC tests for income, net worth or professional credentials. For individuals: income over $200,000 ($300,000 with a spouse or partner) in each of the last two years, net worth over $1,000,000 excluding a primary residence, or certain securities licenses. Most startup rounds sell only to accredited investors.
Action of incorporator
A short written action in which the incorporator names the first directors and, often, adopts the bylaws. After it, the incorporator has no further role.
Annual report
A yearly filing with a state that confirms a company's basic information. Delaware's is due March 1 with the franchise tax and a $50 fee.
Anti-dilution protection
A preferred stock term that adjusts the conversion price if the company later sells shares at a lower price, giving earlier investors more common shares on conversion. Broad-based weighted average adjustment is the market standard.
Assumed par value capital method
One of two ways to calculate the Delaware franchise tax, based on gross assets, issued shares and authorized shares. For most early startups it produces the $400 minimum. See the franchise tax chapter.
Authorized shares
The maximum number of shares a company may issue, set in its certificate of incorporation. A ceiling, not an allocation: unissued authorized shares belong to nobody and count toward nobody's ownership.
Authorized shares method
The default Delaware franchise tax calculation, based only on authorized shares. For 10,000,000 authorized shares it produces $85,165, which is why startups use the assumed par value capital method instead.
The group of people elected by stockholders to manage a corporation. It approves stock issuances, appoints officers and makes major decisions, acting by vote at a meeting or by unanimous written consent.
Business judgment rule
The presumption that directors made an informed, good-faith decision in the company's interest. When it applies, courts do not second-guess the decision, even if it turned out badly.
Bylaws
A corporation's internal operating rules: board size, meetings, quorum, officers, stock transfers and indemnification. Adopted privately and easier to amend than the charter.
C
C corporation
A corporation taxed under Subchapter C of the Internal Revenue Code, paying its own income tax. The standard form for venture-backed startups.
Cap table
A summary of who owns a company's securities, by class, including options, SAFEs and notes, showing outstanding and fully diluted ownership. It should match the stock ledger.
Cash-out amount
Under a SAFE, the amount equal to the investor's purchase price that the investor can receive if the company is acquired before the SAFE converts, when that is greater than the conversion amount.
Certificate of amendment
A filing with Delaware that changes a corporation's certificate of incorporation, after the board and stockholders approve the change.
Certificate of good standing
A certificate from the state confirming a corporation exists and is current on its annual reports and taxes. Banks, investors and other states ask for one.
Certificate of incorporation
The document filed with Delaware that creates a corporation and sets its name, registered agent, purpose, authorized stock and certain protections. Also called the charter. See the charter chapter.
Change of control
A sale or merger of the company, or sale of substantially all its assets, after which different holders control it. Triggers acceleration, SAFE payouts and preferred stock rights.
Class B common stock
In a dual-class structure, the high-vote common stock held by founders. See the note on dual-class common.
Cliff
A period at the start of vesting during which nothing vests, after which a block vests at once. The standard is one year, with 25 percent vesting on the first anniversary.
Co-sale right
An investor's right to sell some of its shares alongside a founder who sells shares to a third party, on the same terms.
Common stock
The basic class of stock, held by founders, employees and option holders. It has no liquidation preference and comes after preferred stock in a sale or liquidation.
Confidential information and invention assignment agreement
An agreement every employee and contractor should sign, assigning their work product to the company and protecting its confidential information. Also called a PIIA or CIIAA.
Convertible note
A loan to a startup that converts into stock in a later financing, usually with a valuation cap or discount. Unlike a SAFE, it accrues interest and has a maturity date.
Corporate opportunity
A business opportunity that a director or officer may owe to the company before pursuing personally. Delaware section 122(17) lets a company renounce its interest in specified opportunities, which venture investors often request.
Corporation
A legal entity created by a state that is separate from its owners, can own property and sign contracts, and shields its stockholders from personal liability for its debts.
Court of Chancery
Delaware's specialized court for corporate disputes, which decides cases without juries before judges experienced in corporate law.
D
D&O insurance
Directors and officers liability insurance, which covers legal costs and liabilities from claims against directors and officers. Usually added once outside investors join the board.
Delaware General Corporation Law
Delaware's corporate statute, Title 8, Chapter 1 of the Delaware Code. It governs the internal affairs of every Delaware corporation.
Dilution
The reduction in an owner's percentage when the company issues new shares. Dilution is normal; what matters is whether the new shares buy more value than they cost.
Discount
In a SAFE or convertible note, a percentage off the price paid by investors in the next priced round, such as 20 percent.
Double-trigger acceleration
Acceleration of unvested equity that requires two events: an acquisition and a termination without cause (or resignation for good reason) within a set period afterward. Corply's founder agreement uses a 12-month window.
Drag-along
An agreement requiring stockholders to vote for and join in a sale of the company that a specified majority approves, so a minority cannot block it.
Dual-class stock
A structure with two classes of common stock that differ in voting power, typically giving founders more votes per share. See Class B common stock.
Duty of care
A director's duty to act on an informed basis and with appropriate deliberation. Startup charters usually eliminate directors' personal money damages for care violations under DGCL section 102(b)(7).
Duty of loyalty
A director's duty to put the corporation's interests ahead of their own. It cannot be waived and matters most when a director has a personal interest in a decision.
E
EIN
Employer identification number: the federal tax ID the IRS assigns to a business. Needed for banking, payroll and tax returns. Obtained online or with Form SS-4.
Exculpation
A charter provision eliminating directors' and certain officers' personal liability for money damages for breaches of the duty of care, as permitted by DGCL section 102(b)(7).
Exercise price
The price per share an option holder pays to buy the shares under a stock option. It must be at least the stock's fair market value on the grant date.
F
Fair market value
The price a willing buyer would pay a willing seller for an asset, both knowing the relevant facts. For startup common stock, usually established by a 409A valuation.
Fiduciary duty
The legal obligations directors and officers owe the corporation and its stockholders, principally the duty of care and the duty of loyalty.
Foreign corporation
A corporation in any state other than the one where it was formed. A Delaware corporation is a foreign corporation in California.
Foreign qualification
Registering a corporation to do business in a state other than its state of incorporation. See the state registrations chapter.
Form 1120
The annual federal income tax return for C corporations, due the 15th day of the fourth month after the tax year ends (April 15 for calendar-year companies).
Form 15620
The IRS form for making an 83(b) election, available since late 2024. It can be filed by mail or online through an IRS Online Account.
Form D
A short notice filed with the SEC within 15 days after the first sale in a Regulation D offering.
Form SS-4
The IRS application for an EIN. Required when no founder has a Social Security number, filed by fax or mail.
Founder preferred stock
A class of stock issued to founders at formation that can convert into a later round's preferred stock for sale to investors. See the note on founder preferred.
A count of shares that includes every outstanding share plus every share that could be issued under existing commitments, such as options and the option pool, and often SAFEs and notes. Definitions vary, so read them.
G
General partnership
The default legal form for two or more people running a business together without forming an entity. Each partner is personally liable for all of its debts.
Good standing
A company's status when it has filed its annual reports, paid its taxes and kept a registered agent. See certificate of good standing.
I
Incentive stock option
A stock option for employees that qualifies for favorable tax treatment under Section 422: no regular income tax at exercise and capital gain treatment on sale, if holding rules are met. Subject to limits, including $100,000 first exercisable per year and a three-month post-employment exercise window.
Incorporator
The person who signs and files the certificate of incorporation and names the first directors. The role ends there and carries no ownership or control.
Indemnification
A company's promise to cover a director's or officer's legal costs and liabilities arising from their role, within the limits of DGCL section 145.
Internal affairs doctrine
The rule that a corporation's internal affairs (relations among the company, its board, officers and stockholders) are governed by the law of the state where it was incorporated.
L
Limited liability
The principle that a company's owners are not personally liable for its debts beyond what they invested.
Limited liability company
A flexible entity governed by an operating agreement, taxed by default as a partnership. Common for small businesses, rarely used by venture-backed startups. See the LLC chapter.
Liquidation preference
The right of preferred stockholders to be paid back before common stockholders when the company is sold or liquidated. The standard is 1x, non-participating.
Liquidity event
An event in which stockholders can turn shares into cash, usually an acquisition or IPO.
M
Minute book
A company's permanent collection of formal records: charter, bylaws, consents, minutes, the stock ledger and equity documents.
Most favored nation
A SAFE or note term letting the holder adopt better terms that the company later gives other investors in the same kind of instrument.
N
Nexus
A connection with a state sufficient to require a company to collect its sales tax or pay its income tax. Since Wayfair (2018), sales alone can create sales tax nexus.
Nonqualified stock option
A stock option that does not qualify as an incentive stock option. It can go to anyone; the spread at exercise is taxed as ordinary income.
O
Officer
A person the board appoints to run the company, such as the CEO, secretary or CFO, with the authority the board and bylaws give them.
Operating agreement
The contract among an LLC's members that governs its management, economics and transfers, as bylaws and stockholder agreements do for a corporation.
Option pool
Shares reserved under a stock plan for future grants to employees, advisors and consultants. Investors often require it to be enlarged before a priced round.
Outstanding shares
Shares that have been issued and are held by someone other than the company. Ownership percentages are measured against outstanding or fully diluted shares, never authorized shares.
P
Par value
A nominal minimum price per share stated in the charter. Startups use a tiny par value, such as $0.00001, so founders can buy shares cheaply and the franchise tax stays low.
Personal guarantee
A promise by an individual to pay a company's obligation if the company does not. It overrides limited liability for that obligation.
Piercing the corporate veil
When a court holds owners personally liable for a corporation's debts because they disregarded its separateness, for example by mixing funds or using it for fraud.
Post-money SAFE
The SAFE Y Combinator published in 2018, whose valuation cap is measured after all SAFE money is counted, so each investor's ownership equals investment divided by the cap.
Post-money valuation
A company's value immediately after a financing: the pre-money valuation plus the new money invested.
Pre-money valuation
A company's value immediately before a financing, used to set the price per share in a priced round.
A financing in which investors buy stock, usually preferred, at a negotiated price per share, as opposed to SAFEs or notes that convert later.
Pro rata right
An investor's right to buy enough of a future financing to keep its ownership percentage. Granted in a SAFE side letter or an investor rights agreement.
Profits interest
An LLC equity interest that shares only in future growth in value, used by LLCs much as corporations use stock options.
Protective provisions
Charter terms requiring approval of a specified majority of preferred stock before the company takes listed actions, such as selling the company or creating senior stock.
Public benefit corporation
A Delaware corporation whose charter commits it to a specific public benefit, which directors must balance with stockholders' financial interests. See the PBC note.
Q
Qualified small business stock
Original-issue stock in a qualifying C corporation whose gain can be partly or fully excluded from federal income tax under Section 1202 if held long enough.
Quorum
The minimum number of directors or shares that must be present for a meeting to act. Corply's standard bylaws set board quorum at a majority of directors in office.
R
Registered agent
A person or company with a physical address in the state of incorporation that accepts lawsuits and official mail for the corporation. Required by DGCL section 132.
Regulation D
The SEC rules that provide the exemptions most startups use to sell securities without registration, principally Rule 506(b) and Rule 506(c).
Repurchase option
The company's right to buy back a departing holder's unvested shares, usually at the price they paid. It is how founder vesting works.
Restricted stock
Stock subject to vesting, meaning the company can repurchase unvested shares if the holder leaves. Usually paired with an 83(b) election.
Restricted stock purchase agreement
The agreement under which a founder or early employee buys restricted stock, setting the price, vesting, repurchase option, transfer restrictions and, for founders, assignment of prior work.
Restricted stock unit
A promise to deliver shares in the future, without a purchase price, taxed as ordinary income on delivery. Rare in early private startups.
Right of first refusal
The company's (and sometimes investors') right to buy shares a stockholder proposes to sell, on the same terms, before an outside buyer can.
Rule 701
An SEC exemption that lets private companies issue equity to employees, directors, consultants and advisors under written compensatory plans, with extra disclosure above $10 million in 12 months.
S
S corporation
A corporation or LLC that elects pass-through taxation under Subchapter S. Limited to 100 stockholders and one class of stock, and generally cannot have funds as owners, so it does not suit venture-backed startups.
SAFE
Simple agreement for future equity: an investment that converts into stock in a future priced round, with no interest or maturity date. See the fundraising chapter.
Series
A subdivision of a class of stock, usually preferred, with its own price and terms. Each venture round typically creates a new series, such as Series A.
Stock
Units of ownership in a corporation. Each share carries the rights its class has under the charter and the law.
Stock ledger
The official record of a corporation's stockholders and their shares, which Delaware requires every corporation to keep (DGCL section 224).
A board- and stockholder-approved plan that authorizes equity grants to employees, advisors and consultants and reserves the option pool.
Stockholder
An owner of a corporation's stock. Stockholders elect directors and approve fundamental changes.
T
Term sheet
A short, mostly nonbinding summary of the key terms of a financing, signed before the definitive documents are drafted.
U
Unanimous written consent
Action by a board of directors without a meeting, effective when every director signs. Permitted by DGCL section 141(f).
Uncertificated shares
Shares recorded in the company's ledger without a paper certificate. Holders receive a written notice with the information a certificate would carry.
Unrelated business taxable income
Income a tax-exempt organization earns from an active business, which is taxable to it. A reason venture funds with tax-exempt investors avoid pass-through entities.
V
Valuation cap
The maximum valuation at which a SAFE or convertible note converts into stock, protecting early investors if the company's value rises sharply before the priced round.
Vesting
The process by which equity becomes fully owned over time. Unvested restricted stock can be repurchased; unvested options cannot be exercised and are forfeited on departure.
Vesting commencement date
The date a vesting schedule starts running, which can be earlier than the grant or purchase date to give credit for prior work.
W
Warrant
A right to buy stock at a set price, similar to an option but usually issued to lenders, partners or investors rather than employees.
Updated November 10, 2026. This handbook is general education about U.S. startup law and practice, not legal, tax or accounting advice, and reading it does not create an attorney-client relationship. Corply is operated by 0Lumen Labs Corp. and is not a law firm. Rules and fees change, so verify current requirements with the relevant state, the IRS or your counsel.
