Introduction

In advising a tech company on its equity financing project, the founder asked about pre-investment structure. This article summarizes key equity structure considerations for companies preparing for equity financing.

I. Key Pre-Financing Structure Considerations

1. Consolidate Business Under Controlling Person

Common issues include分散 business income across multiple companies, unclear financing subject, and serious related-party transactions and competing businesses.

Risks for investors:

• Unclear financing subject reduces credibility
• Multiple related entities reduce financial statement reliability
• Competing businesses enable tunneling and related-party transactions

Recommendation: Before financing, consolidate the financing subject and adjust equity structure to integrate similar business under a single financing entity.

2. Design Clear and Stable Control

Clear control enables rapid decision-making, avoids deadlock, and is necessary for capital market access.

Key thresholds:

• Over 50% voting rights: General control threshold
• Over 30% voting rights: IPO threshold for identifying controlling shareholder if equity is分散

For companies targeting IPO, pre-investment structures should preserve control above these thresholds considering the 25%+ public float requirement.

3. Separate Family Shareholders

Early-stage companies often rely on family members. As business develops, family shareholders may create problems:

• Occupying key positions blocks talent development
• Internal control deficiencies deter investors
• Family members as controlling persons may trigger joint control identification in IPO

Recommendations: Gradually transition family members to non-shareholder roles where appropriate.

4. Employee Equity Incentive Platform

Pre-investment is the optimal timing for employee equity incentives:

• Incentive shares valued based on net assets with lower accounting costs
• Lower individual income tax exposure
• Avoids valuation adjustments affecting financial statements post-investment

5. Founder Holding Structure

Consider mixed holding structure through both family company and direct personal holdings for tax optimization and wealth succession.

II. Conclusion

No two companies face identical situations. While the above considerations provide guidance, actual structures must account for paid-in capital status, other shareholder cooperation, and tax implications of share transfers. Seek professional advice for specific situations.