Back

Saksham

ย โ€ขย 

Bebyondย โ€ขย 9m

Transfer Rights Clauses in SHAs from an Investorโ€™s Perspective!! When investing in startups, a well-drafted Shareholders Agreement (SHA) isnโ€™t just a formality, itโ€™s the foundation that protects their financial interests and ensures strategic control. Among the critical provisions, TRANSFER RIGHTS CLAUSES deserve special attention as they determine HOW, WHEN, AND TO WHOM shares can be transferred. Key Transfer Rights Every Investor Looks For: 1. Right of First Refusal (ROFR) - If a shareholder wants to sell their shares, existing investors get the first opportunity to buy them before they are offered to an external party. This prevents dilution and keeps control within the circle of trusted investors. 2. Tag-Along Rights - If majority shareholders decide to sell their shares to a third party, minority investors have the right to "tag along" and sell their stake under the same terms. This ensures they arenโ€™t left behind when major exits happen. 3. Drag-Along Rights - If a majority of shareholders want to sell the company, they can โ€œdrag alongโ€ minority investors to join the sale. Itโ€™s a powerful tool for strategic exits but can be risky if the terms arenโ€™t favourable for smaller investors. 4. Lock-In Periods - Sets a minimum period during which shares cannot be transferred. This is crucial for early-stage investments where stability is needed to drive growth. 5. Put and Call Options - Put Option: Gives them the right to sell their shares back to the company or promoters. - Call Option: Allows them to buy additional shares under predetermined conditions. These are particularly useful for securing favourable exits or increasing their stake. Potential Issues Investor's Watch Out For: 1. Ambiguous Trigger Events - Ensure that the circumstances under which transfer rights are activated are CLEARLY DEFINED. Vague clauses can lead to disputes or loss of control during crucial decisions. 2. Unfavorable Exit Terms - Drag-along and tag-along rights must be scrutinized to prevent being forced into a low-value exit. Always NEGOTIATE for fair valuation mechanisms! 3. Dilution of Control - Inadequate ROFR or lock-in clauses may allow new entrants, potentially diluting your stake or shifting the companyโ€™s control dynamics.

Reply
1
3

More like this

Recommendations from Medial

Image Description
Image Description

Saksham

ย โ€ขย 

Bebyondย โ€ขย 10m

Tag Along v/s Drag Along Rights When drafting agreements, Tag Along and Drag Along Rights are essential clauses that shape how investors and founders navigate ownership changes. Let's break down the impact from both perspectives: For Investors: 1.

See More
6 Replies
3
6
Image Description

Rajan Paswan

Honorary Mentions - ...ย โ€ขย 1y

As a founder, your startup is your baby. But what about when that Golden Exit opportunity appears? Drag-Along Rights in your Shareholder Agreement(SHA) are crucial for ensuring a smooth acquisition process. What are Drag-Along Rights? They empower

See More
2 Replies
6
Image Description

Saksham

ย โ€ขย 

Bebyondย โ€ขย 11m

Shareholder Agreements: The Bedrock of Your Business A well-crafted shareholder agreement is crucial for a company's success. As a corporate lawyer with years of experience, I've seen firsthand the impact these agreements can have. Key clauses to c

See More
2 Replies
5
9

Saksham

ย โ€ขย 

Bebyondย โ€ขย 11m

Demystifying the Ownership Structure Clause in Shareholder Agreements (SHA)๐Ÿ“ The Ownership Structure clause in your SHA is crucial. Here's why: 1. Defines Equity Distribution: It outlines who owns what percentage of the company. This impacts deci

See More
Reply
1
12
Image Description
Image Description

Vishu Bheda

ย โ€ขย 

Medialย โ€ขย 6m

Flipkart sold for $16 billion, but the founders got almost nothing. After looking at 100+ startup deals, I found some toxic terms that hurt founders: 1. Liquidation Preferences: Investors get their money back first. If the sale price is low, founde

See More
10 Replies
19
23
Image Description
Image Description

Rajan Paswan

Honorary Mentions - ...ย โ€ขย 1y

We've covered dilation and the Board of Directors(BOD). Now, let's delve into Tag-Along Rightsโ€”An Essential Topic Imagine your startup takes off! A major player wants to buy the company, and your majority shareholder is ready to cash in. But what ab

See More
8 Replies
2
13

HatchLegal

You Build the Dream,...ย โ€ขย 6m

๐’๐ก๐š๐ซ๐ž๐ก๐จ๐ฅ๐๐ž๐ซ ๐€๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ๐ฌ, ๐’๐ก๐š๐ซ๐ž ๐’๐ฎ๐›๐ฌ๐œ๐ซ๐ข๐ฉ๐ญ๐ข๐จ๐ง ๐€๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ๐ฌ, & ๐’๐ก๐š๐ซ๐ž ๐๐ฎ๐ซ๐œ๐ก๐š๐ฌ๐ž ๐€๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ๐ฌ: ๐๐จ๐ญ ๐€๐ฅ๐ฅ ๐€๐ ๐ซ๐ž๐ž๐ฆ๐ž๐ง๐ญ๐ฌ ๐€๐ซ๐ž ๐‚๐ซ๐ž๐š๐ญ๐ž๐ ๐„๐ช๐ฎ๐š๐ฅ! When expanding your busin

See More
Reply

Saksham

ย โ€ขย 

Bebyondย โ€ขย 10m

ROFR vs ROFO When structuring investment agreements, the Right of First Refusal (ROFR) and the Right of First Offer (ROFO) are two important clauses that can shape ownership transfers. Letโ€™s explore how these rights work and their implications for b

See More
Reply
3
8

Saksham

ย โ€ขย 

Bebyondย โ€ขย 11m

Startup Founders: Is Your Shareholder Agreement Protecting Your Vision? Let's talk about a critical component that often gets overlooked: the Voting Rights Clause. As a founder, you've poured your heart and soul into your startup. But have you con

See More
Reply
6
12
Image Description
Image Description

Tarun Suthar

ย โ€ขย 

The Institute of Chartered Accountants of Indiaย โ€ขย 11d

Zuckerberg just have15% Stake in meta, But Controls 100% - Hereโ€™s How ๐Ÿค” Yes, itโ€™s true. Mark Zuckerberg holds less than 15% shares in Meta, but has full control over the company. How is that possible? ๐Ÿง  Because Meta has a dual share system: -

See More
13 Replies
8
26

Download the medial app to read full posts, comements and news.