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Rajan Paswan

Stealth • 8m

Starting a startup is exciting, but understanding the shareholder agreement (SHA) is crucial. Today, let's focus on Dilution. What is dilution? Imagine you and a friend each own half a pizza (50% each). If you bring another friend in and share more slices, your ownership percentage (of pizza) goes down. In a startup, dilution happens when the company creates new shares and sells them to investors.This increases the total number of shares outstanding, decreasing your ownership percentage. The SHA should clearly state how much dilution can occur. What to look for in the SHA: • Pre-emptive rights: This allows you to buy your proportional share of new offerings before they go to outsiders, minimizing dilution. • Anti-dilution provisions: These can protect your ownership percentage by adjusting share price or conversion ratios if new shares are issued at a lower price than yours. Next time: We'll explore another key term in the SHA - Board of Directors!

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