Companies bring together people with a similar vision and views on business, but it is not always easy for owners to make joint decisions. Sometimes shareholders can get stuck with different opinions. Fortunately, there are some mechanisms in company law to overcome it. These arrangements can be enshrined in companies’ statutory documents in the form … Read more RUSSIAN ROULETTE CLAUSE
In our previous publications, we have drawn attention to the idea of vesting of options and reverse vesting of stock, which means that the founders of a start-up can receive stocks that they do not completely own, because a company has the right to repurchase them (in reverse vesting); or employees get the right (option) … Read more MAKING A SECTION 83(B) ELECTION UNDER U.S. LAW
As we have already discussed in our previous publications, the process of raising investments to a company may require several important legal documents to be drafted and agreed upon, including an investment agreement, shareholders or investors rights agreement, bylaws and a revised articles of association or a certificate of incorporation of a company, depending on … Read more REVERSE VESTING: A MECHANISM THAT HELPS RETAINING FOUNDERS
New businesses, and especially startups, can be risky for financial investments. Of course, investments always involve risks, but the possibility of high profits, particularly in the case of an IPO or M&A transactions, still attract investors. There are many tools, however, to mitigate the risks, and if the transaction papers are carefully drafted with respect … Read more LIQUIDATION PREFERENCES: WHAT INVESTORS CAN EXPECT IF A COMPANY IS SOLD
Promoting investment in a business and raising funds for it can be a complex process that requires careful legalization. Organizing an investor’s contribution to a company can involve a number of legal papers. Investment documents include a set of contracts signed between the company and the new investor(s). They usually contain standard information about the … Read more COMMON RESTRICTIVE PROVISIONS IN AN INVESTMENT TRANSACTION
In the previous article, we got acquainted with the concept of “bring-along” (or “drag-along”) rights, and also found out that there is another way to protect shareholders – the so-called “tag-along” right. Now we’ll talk in detail about that concept, what it means and how it can be implemented in the shareholders’ agreement. As you … Read more PROTECTING SHAREHOLDERS’ INTERESTS WITH A “TAG-ALONG” PROVISION
Building a business and creating a company is not only exciting, but also a very important process that requires careful planning when protecting shareholders’ interests. Founders must be sure that their rights are properly secured from the very beginning. That includes their right to quit. Of course, selling a stake in a business is not … Read more PROTECTING SHAREHOLDERS’ INTERESTS WITH A “BRING-ALONG” PROVISION
A “drag along” right is a contractual arrangement between shareholders of a company, specifying that if shareholders holding a majority interest of a company sell their shares, they can force the remaining shareholders to join them (in other words, to “drag” the minority along). In doing so, the majority shareholders will offer the same incentives … Read more Drag Along Rights
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
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