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Bebyondย โขย 9m
Transfer Rights Clauses in SHAs from an Investorโs Perspective!! When investing in startups, a well-drafted Shareholders Agreement (SHA) isnโt just a formality, itโs 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 arenโt left behind when major exits happen. 3. Drag-Along Rights - If a majority of shareholders want to sell the company, they can โdrag alongโ minority investors to join the sale. Itโs a powerful tool for strategic exits but can be risky if the terms arenโt 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 companyโs control dynamics.
Honorary Mentions - ...ย โขย 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
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Medialย โขย 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
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We've covered dilation and the Board of Directors(BOD). Now, let's delve into Tag-Along RightsโAn 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
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The Institute of Chartered Accountants of Indiaย โขย 11d
Zuckerberg just have15% Stake in meta, But Controls 100% - Hereโs How ๐ค Yes, itโs true. Mark Zuckerberg holds less than 15% shares in Meta, but has full control over the company. How is that possible? ๐ง Because Meta has a dual share system: -
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