The appointment of a company Director is one of the most important issues for shareholders. One always wants to entrust business to an honest manager who would act in the interests of the company. However, it may be difficult to assess the performance of Director’s duties in terms of his “loyalty” and “care”. And it’s … Read more DIRECTORS’ FIDUCIARY DUTIES: LEGAL AND MORAL ASPECTS
Share or option vesting is a retention mechanism, intended to secure the engagement of founders, employees, and advisors, over time or when hitting certain milestones. Vesting allows equity grantees to earn their share over a period of time, or when achieving certain milestones. On the other hand, vesting acceleration allows founders, employees and advisors to … Read more Double Trigger on Option [Vesting] Acceleration – Meaning and Importance
The GNU Affero General Public License (AGPL) is part of the GNU GPL family which includes Lesser General Public License and General Public License (GPL) v2, and GPL v3 as well. These licenses were developed by Richard Stallman and they aimed at not only protecting the rights of creators by allowing them to keep their software open … Read more Understanding ASP Loophole
Directors and Officers Indemnification Agreements intend to cover liabilities the covered persons may suffer as a result or in connection with their decisions and actions, as directors or officers of a company. Directors and Officers in a company are responsible for performing certain duties, and acting in a way that favors the company over their … Read more D&O INDEMNIFICATION AGREEMENTS
Investors purchasing preferred stock, usually demand to have a liquidity preference mechanism, whereby their purchased stock is being cashed out on preferred terms, in the event of an M&A, or liquidation of the Company. Preference provisions serve as a hybrid mechanism, combining equity and debt concepts. Although preferred shares are, at the end of the … Read more Liquidation Preference: Meaning and difference between “participating” and “non-participating” liquidation preference
Right of First Refusal and Co-Sale Agreement is one of the standard transaction agreements executed in the framework of a US based startup’s financing round, based on the NVCA templates. This agreement envisages different rights, the two key being a right of first refusal, and a co-sale right. We discussed the right of first refusal … Read more Right of Co-Sale
SAFE is an agreement used by startups mainly to raise funds during their seed financing rounds. By using a SAFE, investors invest capital in the company, which converts into equity upon certain trigger events, most commonly a subsequent financing round. A SAFE could contain investor-“friendly” economic mechanisms, such as discount and valuation cap, the first … Read more Purpose of Valuation Cap in SAFE
A term sheet outlines the rights and obligations of parties involved in private equity transactions. Generally speaking, most term sheets being provided by venture capital firms or potential acquirers are non-binding, with only two provisions considered to be binding upon the transacting parties – confidentiality and no-shop (also referred to as “exclusivity”). There are important … Read more No Shop Provision in Term Sheet and its Implications
Breakup fee clause, also known as “termination fee” clause, is often included in the Letter of Intent, a Memorandum of Understanding, a Term Sheet or other preliminary documents involved in Mergers and Acquisitions transactions (M&A). Although, as a general rule, M&A’s letters of intent tend to be non-binding in nature, the breakup fee clause is … Read more Why Breakup Fee clauses needed in M&A transactions?
Protective provisions or veto rights are usually granted to the preferred stockholders (stockholders’ purchasing preferred stock) and they allow them to exert power to approve or disapprove specific decisions or actions taken by the company that could have an adverse impact on their investment, or any matter considered to be material. These rights usually serve … Read more What are Protective Provisions (or veto rights), why do investors insist on having them and how founders should negotiate them?
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