HMB Helps HPA and Leaf Trade in Corporate Coversion and Cap Table Reorganization
Leaf Trade operated as a limited liability company before HPA led its 2019 investment round. As is common with companies raising substantial venture capital, Leaf Trade changed to a Delaware C corporation before the financing round closed. Changing from an LLC to a C corporation can present several challenges to both companies and investors, including converting existing classes of LLC interests or investment interests such as SAFEs into corporate stock, changing existing employee equity incentives into stock options or other incentive forms, preserving opportunities for tax-free treatment upon the sale of stock under IRS Code Section 1202 and avoiding a taxable event upon conversion. HMB worked with HPA management and Leaf Trade’s counsel to accomplish each of these objectives, helping Leaf Trade retain its key service providers and position itself for growth through additional capital raises and tax-effective equity incentive grants.
HMB’s experience designing and implementing equity incentives with both companies and investors positions HMB to effectively execute tax-efficient structures for founders and subsequent team members as they join a start-up. HMB works on these structures from start-up formation to initial growth and hiring to, as the Leaf Trade experience demonstrates, companies that have programs in place that need adaptation to create a platform for future growth.
HMB committed to the cannabis legal practice a number of years ago. In addition to its work with formation, licensure and funding of cannabis businesses themselves, HMB also works with cannabis companies and investors providing services to cannabis businesses. HMB’s work with HPA on its Leaf Trade is one illustration.