“Ask the Attorney” – Class F Stock

by Scott Edward Walker on April 7th, 2010


This post is part of my weekly “Ask the Attorney” series which I am writing for VentureBeat (one of the most popular websites for entrepreneurs).  Below is a longer, more comprehensive version.  Many thanks, Scott


My buddy and I are launching a new venture, and we’ve read some articles on the web about incorporating in Delaware and other things we need to do from the legal side.  One issue that came up that we don’t understand is Class F stock, which we read about on a few blogs.  What is Class F stock and do you think we should be utilizing it?


This issue has come-up quite a bit recently with several new clients.  “Class F” stock is a special class of common stock that was designed by The Founder Institute to protect founders.  The “F” is for “Founders” – but it really doesn’t matter what you call it: Class H, Class Q or Class X.  The key point is that a separate class of common stock is issued to the founders upon incorporation with the following special rights (as set forth in the sample certificate of incorporation on the Founder Institute’s website):

  • super-voting rights (10 votes per share);
  • certain protective rights similar to those that preferred stockholders are generally granted (e.g., the consent of a majority of the Class F holders is required for the company to enter into a “Liquidation Event”); and
  • the right to elect a director that has two votes on the Board (not one).

The advantage of issuing Class F Stock is that it will arguably level the playing field for you and your co-founder in connection with your negotiations with investors and protect you from the “atrocities of investors.”

The disadvantage of issuing Class F Stock is that it may deter investors from investing in your startup.  Indeed, it is tough enough for entrepreneurs to raise capital these days; throwing Class F stock in the equation may make your company less attractive.  Moreover, the issuance of Class F stock will increase your legal fees due to the added complexity.

The bottom line is that the issuance of Class F Stock is relatively new.  Accordingly, in the current economic environment (where investors generally have the leverage), Class F Stock probably only makes sense for successful, serial entrepreneurs who are going to have lots of investors interested in their venture.  For first-time entrepreneurs, I would suggest that you just keep it simple and issue ordinary shares of common stock to the founders.

That being said, I tip my hat off to Adeo Ressi, the founder of the Founder Institute, for his efforts.  Having spent the bulk of my career doing large M&A transactions in New York City, I was surprised to see how complex and pro-investor the standard VC financing documents are.  Clearly, any effort to level the playing field is a net plus for entrepreneurs and something that I wholeheartedly support.


I hope the foregoing is helpful.  In conclusion, please note that Class F stock should not be confused with “Series FF” stock, which was created by Sean Parker of the Founders Fund and is designed to permit founders to cash out a small percentage of their stock prior to a liquidation event.  I will discuss Series FF stock next week.

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