Drafting Shareholder Agreements for Venture Capital Investment

Voting and Consent Rights, Transfer Restrictions, Drag-Along Provisions, Estate Planning Issues

Recording of a 90-minute CLE webinar with Q&A


Conducted on Wednesday, January 24, 2018

Recorded event now available

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Program Materials

This CLE webinar will enable corporate counsel to structure shareholder agreements that balance the interests of founders with those of the venture capital (VC) investor. The panel discussion will include voting and consent rights, share transfer restrictions, share classes, drag-along provisions, other shareholders, and estate planning concerns.

Description

When VC enters into the picture, the corporate dynamic is profoundly affected. VCs want to know that company ownership cannot change without their consent. Restrictions can take the form of outright prohibitions on transfer or right of first offer/right of first refusal provisions. Founders and common shareholders may disagree on the level of these restrictions.

VCs will require some level of control over the company, which comes in the form of the right to appoint board members and the right to veto certain specified actions. The balance to be struck in the shareholder agreement is for the VC to have enough control to protect its investment while not stifling the company’s agility in an ever-changing business environment.

Drag-along rights allow a VC to force other shareholders to sell their stock when the VC finds a buyer. The threshold price is critical—if it is too low, little or nothing may be left over for the common shareholders after payment on the VC’s shares. Further complicating matters may be the desire of the founder(s) to transfer their shares into trusts and estate-planning vehicles. These provisions will need to be crafted to address the concerns of the VC.

Listen as our authoritative panel discusses the key provisions which must be included in shareholder agreements when adding a VC investor into the ownership structure.

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Outline

  1. Nature of VC investment—preferred stock, exit strategy
  2. VC concerns
    1. Consent rights, election of board
    2. Restrictions on transfer/ Tag—Along Rights
    3. Ability to influence or force a sale or Put Right
    4. Reverse vesting for Founders equity
  3. Conflicting concerns of founders
    1. Management control
    2. Voting rights and investment return
    3. Estate planning transfers
  4. Protecting interests of existing non-founder shareholders

Benefits

The panel will review these and other key issues:

  • What voting and control rights do VC investors typically seek when they become shareholders?
  • Why are drag-along rights important to the VC’s exit strategy, and how should they be documented in the shareholder agreement?
  • What are some conflicting concerns that may arise between founders and other existing shareholders?
  • How should estate planning transfer provisions be amended to address VC demands?

Faculty

Firsten, Jamie
Jamie Firsten

Partner
Goodmans

Mr. Firsten's practice focuses on corporate and commercial law. He is also involved in private equity, venture...  |  Read More

Stark, Lisa
Lisa R. Stark

Partner
K&L Gates

Ms. Stark has nearly 15 years of corporate experience in mergers and acquisitions, strategic investments, initial...  |  Read More

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