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#equity-instruments

Equity Instruments

Understanding stock, SAFE notes, convertible notes, and startup financing structures

Section 409A: Structuring Bonuses, Severance, and Phantom Equity to Avoid the 20% Penalty

Section 409A taxes noncompliant deferred compensation in the year of vesting and adds a flat 20% federal penalty plus interest. This guide explains the short-term deferral and separation pay exceptions, the six recognized payout triggers, the six-month delay for specified employees, and how to structure bonuses, severance, RSUs, phantom stock, and discounted stock options so founders avoid the penalty.

Section 302 Stock Redemption: How Closely-Held C Corporations Avoid Surprise Dividend Treatment

Section 302 of the Internal Revenue Code decides whether a closely-held C corporation's stock redemption is taxed as a capital sale or a full-amount dividend. This guide explains the three Section 302(b) tests, the Section 318 attribution traps that ensnare family-owned companies, the 10-year family-attribution waiver, and the partial-liquidation safe harbor under Section 302(b)(4).

Section 382 NOL Limitation After Ownership Change: How Venture-Backed Startups Preserve Net Operating Loss Carryforwards Through Equity Rounds

Section 382 caps a startup's pre-ownership-change net operating loss deductions at the pre-change fair market value multiplied by the long-term tax-exempt rate (about 3.56 percent in February 2026), triggered when 5 percent shareholders collectively gain more than 50 percentage points over a rolling three-year testing period.