Practice Notes: A Small Florida Capital Raise — Common Stock with Two-Tier Shareholder Rights

This case study walks through a real capital raise we papered for a small Florida operating company. The structure is one we recommend often for founder-controlled companies raising their first outside money from people they know — an angel investor, a small group of advisors, a handful of friends-and-family checks. The deal we describe used common stock (not SAFEs, not preferred), a two-tier shareholder rights structure, and restricted stock with company repurchase rights for the smaller holders. We have anonymized all identifying details: no party names, no specific dollar amounts beyond round generic numbers, no specific industry vertical. The legal architecture, however, is intact.

We have also extracted the five core documents from the deal into clean, downloadable templates, linked at the end of this article. Read the case study to understand how the documents work together; download the templates as a starting point for a similar deal.

The setup

The client was a small Florida private company controlled by a single operating founder. The business was operational but pre-revenue at scale. The founder needed roughly one hundred thousand dollars of working capital to keep building. One angel investor — a longtime relationship operating through a personal investment LLC — was willing to write the full check. Five additional individuals, all advisors or service providers contributing meaningful labor to the company, also wanted equity exposure but were not putting in real cash.

The founder did not want a SAFE round. A SAFE postpones the equity question to the next priced round, which (in a company without a credible institutional fundraising path) might never come. The founder wanted these stakeholders on the cap table now, with clear ownership and clear rules.

The founder also did not want to issue a single class of common stock to everyone on the same terms. The lead angel was bringing real money and warranted meaningful protections in exchange. The five advisor/service providers needed to be on a vesting schedule the company controlled, because the equity they were receiving was effectively compensation for forward-looking work, not the cash they were paying for it. (The cash they paid was nominal — tenths of a cent per share — just enough to make the issuance valid consideration.)

So the deal had to do two different things at once. It had to receive a real check from one investor on terms that protected him, and it had to issue restricted, vesting equity to five service providers on terms that protected the company. The architecture we built treated these as two separate transactions documented through one coherent set of documents.

The deal architecture, at a glance

The full document suite included:

• Common Stock Offering Term Sheet — the non-binding term sheet that opened the round.
• Amended and Restated Articles of Incorporation and Bylaws — updated to support the new cap table.
• Board Consent and Shareholders’ Consent approving the A&R Articles and Bylaws.
• Organizational Consent — opening corporate housekeeping for the raise.
• Subscription Agreement — signed by every purchaser.
• Stock Restriction Agreement (Form) — signed by the five advisor/service-provider holders with restricted shares.
• Section 83(b) Election Forms — filed with the IRS by each restricted-share holder.
• Shareholders’ Agreement — narrow scope; two-tier rights (lead investor + founder vs. everyone else).
• Side Letter — bilateral between Company and lead investor only.
• Common Stock Purchase Agreement — for the lead investor’s $100,000 cash investment.
• Cap Table (pre and post) — tracking the issuance.
• PIIA — for each service provider who was being granted equity.
• SEC Filings — federal Form D for the Reg D 506 offering, plus a Florida OFR notice filing because the offering was made to Florida residents.
• Wire Instructions — for the funding of the lead investor’s check.

None of these documents is exotic. The interesting part is how they fit together, and where the specific drafting choices come from.

The strategic choice: common stock instead of a SAFE

The first question to settle was whether to use common stock or a SAFE. The default playbook in startup law would say SAFE: simpler, no immediate cap-table consequences, defers the equity math to the next priced round. We’ve used SAFEs in dozens of rounds. They are right most of the time.

They were not right here. The reasons:

• The lead investor wanted to be a shareholder now. He wanted a current voice in the company, not a contractual claim against a future round. He had board-observer aspirations and wanted to be informed of major decisions. A SAFE doesn’t make you a shareholder.
• The five advisor/service-provider holders needed to be on a vesting schedule. A SAFE doesn’t vest. The forfeiture-on-separation mechanic the company needed (so equity given to service providers tied to their continued involvement) only works with an actual stock issuance subject to a separate restriction agreement.
• The company was not on a credible institutional fundraising path. The next priced round might be small, internal, or never. A SAFE that converts only at a qualified financing — with no clean path to that financing — leaves the SAFE holder permanently in limbo.
• The founder wanted a complete cap table. A SAFE leaves the cap table partly tentative. The founder wanted to know exactly who owned what, with clean post-issuance percentages.

The decision rule we apply: if the company is venture-track and the next priced round is realistic within 18 months, use a SAFE. If the company is founder-controlled, cash-flow-oriented, and the next priced round is speculative, issue actual common stock with the right governance documents in place. This was a textbook case for common stock.

The term sheet

The Common Stock Offering Term Sheet documented the round’s headline terms: Florida-incorporated issuer, common stock for sale, accredited investors only, an aggregate purchase price up to a defined ceiling, a low-seven-figure pre-money valuation, multiple closings permitted, no minimum to close, customary right of first refusal, drag-along on a majority-and-board-approved sale, tag-along on majority sales, preemptive rights subject to a standard list of carve-outs (option plan grants, stock splits, conversion of outstanding convertible securities, M&A consideration, joint-venture issuances, debt equity kickers), and a closing-document package consisting of a Subscription Agreement, an Accredited Investor Questionnaire, and the Shareholders’ Agreement.

This term sheet is intentionally non-binding. The definitive documents are where the deal actually sits. The term sheet primarily functions as the document the founder shows prospective investors and uses to anchor pricing and structure in early conversations.

The lead investor track

The lead investor’s $100,000 check moved through a parallel set of documents:

• A Common Stock Purchase Agreement for the actual stock issuance, signed by both the investor’s LLC and the Company.
• The Shareholders’ Agreement, naming the lead investor and the founder as “Eligible Preemptive Holders” and “Eligible Co-Sale Holders,” entitled to enhanced rights that other shareholders did not receive.
• A Side Letter bilateral between the Company and the lead investor only, granting information rights, a non-voting board observer seat, a non-degradation clause prohibiting amendments that would materially degrade the investor’s rights, and a clean sunset trigger: the Side Letter automatically terminates when the Company closes a subsequent financing of at least one million dollars.

The Side Letter’s sunset trigger is one of the most important drafting decisions in this kind of round. Without it, the lead investor’s information rights and board-observer seat live forever — even at a Series A four years later when the new institutional investor wants those seats and that paper terminated. With the sunset trigger built in from day one, the cleanup happens automatically. Future investors and counsel walking into the cap table can see exactly when the original investor’s enhanced rights extinguish.

The information rights themselves were structured for a small company without a CFO. Annual budget, operating plan, and prior-year review delivered within thirty days after fiscal-year end. High-level quarterly written updates within thirty days after each of the first three quarters. Availability for strategic discussion as questions arise. That’s it. No monthly financials, no audited statements, no obligation to deliver materials the company doesn’t already produce. Realistic for an early-stage Florida private company.

The board observer right gave the lead investor the same visibility as a director without voting power. Same notices, same minutes, same consents, same materials — just at a non-voting observer capacity. The Company retained the right to exclude the observer from any portion of a meeting that would reasonably affect attorney-client privilege, result in disclosure of trade secrets, or create a conflict of interest.

The advisor / service-provider track

The five smaller holders moved through a different set of documents. Each one signed:

• A Subscription Agreement — identical form for each of the five, subscribing to a designated number of shares at a nominal price per share.
• A Stock Restriction Agreement — the form that did the real work, subjecting the shares to vesting and the company’s repurchase right.
• A Section 83(b) Election Letter — filed with the IRS within thirty days of the issuance to elect taxation at issuance (when the shares were worth nothing) rather than at vesting (when the shares might be worth something).
• A PIIA — assigning to the company all work product, including the work that produced the value the shares represented.
• The Shareholders’ Agreement — receiving drag-along and ROFR obligations but NOT receiving preemptive or co-sale rights.

The Stock Restriction Agreement is the heart of this side of the deal. It does several things at once.

Vesting: The shares vest over thirty-six months on a monthly schedule (no cliff). If the holder separates from the company before vesting completes, the unvested shares are automatically forfeited and canceled — no further action required, no compensation paid to the holder for the forfeited shares. The shares simply revert to the company’s treasury.

Vesting acceleration: All shares vest in full automatically upon a Sale Event (broadly defined: merger or consolidation in which the company isn’t the survivor, a 50%+ change of control transaction, or a 50%+ asset sale) or an IPO. This protects the holder if the company exits before vesting completes — they get the full economic benefit of their equity.

Company purchase option on vested shares: Even after a share has vested, if the holder separates from the company, the Company has 180 days to repurchase the vested shares at seventy-five percent of Fair Market Value. The 25% discount is the company’s reward for the holder leaving; the holder doesn’t get to retain a free option on the company’s future success while no longer contributing to it.

Fair Market Value with arbitration safety valve: The Board determines Fair Market Value using valuation principles consistent with IRC Section 409A. If the holder objects within fifteen days, the holder can request an independent third-party valuation firm of national standing mutually selected by the company and the holder. The independent valuation is final and binding. The company pays the appraiser’s cost if the appraisal differs from the Board’s determination by more than ten percent; otherwise the holder pays.

That cost-shifting language is critical. Without it, holders can demand expensive independent appraisals on every repurchase, simply to delay or to extract leverage. With it, the holder bears the cost of an appraisal that confirms the Board was substantially right — which deters frivolous requests while preserving a real check on Board manipulation.

Escrow mechanics: The holder pre-signs a stock power endorsed in blank at issuance, delivered to the company secretary as escrow agent. If a forfeiture or repurchase event occurs, the company doesn’t need the holder’s renewed cooperation to effect the share transfer. The escrowed stock power is already in the company’s hands. This avoids the most common practical failure mode of restricted stock: the holder who refuses to sign the transfer paper after separation.

The Shareholders’ Agreement: narrow scope, two-tier rights

The Shareholders’ Agreement ties the cap table together. It is intentionally narrow in scope. It does four things and nothing else:

• Limited preemptive rights for the lead investor and the founder only. New equity issuances must be offered to them first, on a pro rata basis, with five business days to elect. Carve-outs include equity incentive plan grants, stock splits, conversion of outstanding convertible securities, and service-provider grants.
• Drag-along applicable to all shareholders. If the Board and shareholders owning at least a majority of voting power approve a Sale (merger, consolidation, asset sale, equity sale, or similar transaction), every other shareholder must vote in favor, sell on the same terms, waive appraisal rights, and execute the customary transaction documents. Seller indemnities are several (not joint) and capped at each shareholder’s pro rata share of proceeds actually received.
• Limited co-sale rights for the lead investor and the founder only. If either sells shares to a third party, the other can participate pro rata on the same terms. The notable exclusion: this co-sale right does NOT apply to founder sales made for the purpose of raising capital for the company. That’s a deliberate carve-out — the lead investor cannot use the co-sale right to block the founder from selling personal shares to bring in new capital that benefits the company.
• Right of first refusal applicable to all shareholders. Before any shareholder transfers shares, the company has ten business days to elect to purchase. If the company declines, the other shareholders have ten business days thereafter, allocated pro rata. If neither purchases, the transferring holder may sell to the named transferee, but the transferee must execute an Addition Agreement to become a shareholder bound by the existing rights and obligations.

The two-tier structure recognizes that the lead investor and the founder are in a different category from the five advisor/service-provider holders. The lead and the founder are running the company. The other five are economically aligned but not in a position to use preemptive rights or co-sale rights productively. Giving them those rights would create administrative overhead and potential deadlocks without delivering meaningful protection. Withholding those rights does not disadvantage them — they retain drag-along participation and ROFR procedural protection. They simply do not have voice on future issuances or selective sales.

The Shareholders’ Agreement also has a non-degradation clause for the lead investor: no amendment can materially degrade the investor’s rights without his prior written approval. This means the company and the founder cannot quietly amend out the lead investor’s preemptive or co-sale rights through a majority vote of the other shareholders.

The agreement terminates automatically on the earlier of a Sale or an IPO. After that point, the company’s governance is dictated by the surviving entity (in a Sale) or by public-company law (in an IPO).

Corporate housekeeping: amended articles and bylaws

The round was structured as a recapitalization, which required amended-and-restated articles of incorporation and amended-and-restated bylaws. These were approved by board consent and shareholder consent on the same day as the closing. The new articles authorized the share count needed to support the new cap table; the new bylaws integrated the governance framework underlying the Shareholders’ Agreement.

For a small Florida private company, an A&R Articles and Bylaws at the time of the first outside money round is good practice. It produces a clean corporate record. It also avoids the trap of trying to reconcile a stale, pre-formation bylaws document with newly-issued securities and a new shareholder rights regime — reconciliation that becomes more expensive and more error-prone the longer it is delayed.

SEC and state filings

The offering relied on Rule 506(b) of Regulation D for the federal exemption. We filed a Form D with the SEC within fifteen days of the first sale. Because the issuer was operating in Florida and at least some of the purchasers were Florida residents, we also filed a notice with the Florida Office of Financial Regulation under Florida’s blue-sky regime. Both filings are required for a compliant Rule 506(b) offering in Florida. Both are routine, but a missed filing creates an issue that surfaces in due diligence at the worst possible time — in the next round, when the next investor’s counsel asks for the Form D filing receipt.

Why this structure works for small Florida companies

The architecture described in this case study is well-suited for a specific type of company: a small, founder-controlled Florida business raising its first outside capital from a known angel investor plus a handful of advisor/service-provider holders, with no realistic institutional venture path in the near term. It is appropriate when:

• The company wants a clean cap table at the time of closing, not a deferred one.
• The lead investor wants to be a current shareholder with voice, not a future creditor.
• The other holders are receiving equity as forward-looking service compensation and should be on a vesting schedule the company controls.
• The lead investor’s enhanced rights should sunset at a defined future financing rather than persist indefinitely.
• The smaller holders should be bound to majority decisions and procedural transfer restrictions without consuming governance bandwidth.

The structure is not appropriate for a venture-track company. A company expecting to raise institutional capital within twelve to eighteen months should default to SAFEs and a Series Seed stack, paper the next round around what institutional investors expect to see, and avoid the two-tier permanence implied by the documents above.

The structure is also not appropriate when the lead investor’s check size warrants preferred stock economics. Once the check size crosses roughly $250,000 to $500,000 (depending on pre-money valuation), the lead investor is usually justified in asking for a liquidation preference and other terms that common stock cannot deliver. At that point a small Series Seed Preferred round is the right answer.

Lessons we take from deals like this one

• Common stock with vesting is a real instrument for small early-stage rounds. The default reflex toward SAFEs is sometimes wrong. For founder-controlled companies without a realistic priced-round path, common stock with the right wrap of restriction-agreement and shareholders’-agreement documents produces a cleaner cap table and clearer governance than a stack of SAFEs.
• Two-tier rights structures protect everyone. The lead investor gets meaningful protection without administrative weight; the other holders get clean drag-along + ROFR procedural rights without governance burden. Putting everyone in the same rights bucket either over-protects the small holders or under-protects the lead investor.
• Side letters need sunset triggers. The cleanest way to handle enhanced rights for an early investor is to make them automatically terminate on a defined future financing. The alternative — negotiated termination later — is harder and more expensive.
• Restricted stock for service providers requires escrow. A pre-signed stock power endorsed in blank, held by the company secretary as escrow agent, avoids the most common failure mode of restricted-share mechanics — the holder who refuses to sign the transfer paper after separation.
• The 75%-of-FMV repurchase right with arbitration safety valve is well-calibrated. A modest discount on FMV is fair to the departing holder; an independent appraiser as the holder’s safety valve protects against board manipulation; the cost-shifting language deters frivolous appraisal requests.
• A&R Articles and Bylaws at the time of the round is cheap insurance. A clean corporate record at the close of the round is much easier than reconciling stale formation documents in the next round’s diligence.
• File Form D and the Florida OFR notice. Always. Missing the filings is the most common preventable defect in small Florida private rounds, and the fix gets harder with time.

Templates

The five core documents from this case study are available as downloadable templates below. Each one has been anonymized — party names, addresses, share counts, prices, and dates removed and replaced with bracketed placeholders. The legal architecture, definitions, and operative language are intact. These templates are starting points only; they will need tailoring for any specific transaction, and we strongly recommend reviewing them with counsel before use.

• Common Stock Offering Term Sheet — the non-binding term sheet that opens a small common-stock round. Download the Word template.
• Subscription Agreement (Restricted Common Stock) — the short-form subscription used by each purchaser. Download the Word template.
• Stock Restriction Agreement — the vesting / forfeiture / repurchase document for service-provider holders. Download the Word template.
• Shareholders’ Agreement (Narrow Scope, Two-Tier Rights) — the agreement that governs the cap table going forward. Download the Word template.
• Side Letter (Lead Investor) — information rights, board observer, non-degradation, and sunset on a future financing. Download the Word template.

Talk to a Florida Business Lawyer

If you are running a small Florida capital raise and the architecture described here looks close to what you need, schedule a consultation with Montague Law at 904-234-5653 or use the contact form. We can adapt the templates above to your specific facts and walk you through the trade-offs at each decision point.

Related resources from Montague Law

• Montague Entrepreneur Forms Library
• Post-Money SAFE Template (the SAFE alternative we did not use here)
• Restricted Stock Purchase Agreement (Founders) — the founder-side equivalent of the service-provider Stock Restriction Agreement
• Section 83(b) Election Letter
• Securities Law Practice
• Florida Reg D 506 Practice Notes
• Practice Notes: Cleaning Up a Friends-and-Family Cap Table

This case study describes the legal structure of a real capital raise we papered. Specific identifying details — including the parties, dates, dollar amounts, specific industry, and geographic locations beyond Florida — have been omitted or generalized to ensure that no specific client or matter is identifiable. The five linked templates are likewise anonymized derivatives of the actual deal documents. The content is provided for general informational purposes only and is not legal, tax, or financial advice; reading it does not create an attorney-client relationship with Montague Law or John Montague. Specific deals require specific counsel.