Legal training by Hedman
https://drive.google.com/file/d/1nRQ5QOFRSsm_jgSyTuG-6G6yjOSuUqFm/view?usp=drive_link
Shareholders Agreement
Investment agreement
- warranties (company is established & not bankrupt)
- liability (data protection, EU grants)
Convertible note agreement / SAFE agreement
Convertible notes / loans
- investor gives a loan
- terms of conversion pre-agreed
- gets a promise - investor becomes a shareholder upon conversion of the loan, not immediately
- helps if the valuation is lower than desired
- Some variables:
- loan amount
- interest
- CAP (max valuation to convert to shares)
- discount (optional)
- maturity date (2-3 years)
- valuation floor
- most favoured nation
- information rights (what information is accessed)
- participation right
- future sha content
Reverse vesting
Share transactions
Preferential subscription rights
Term Sheet
- establish key conditions under which investment is made
- valuation
- investment amount
- special rights of the investor
- confidentiality, costs / obligations not to simultaneously hold investments talks with other investores
- usually driven by investor
Option pool
- non-monetary compensation
- attracting talent
- size varies depending on role
- the later you get options, the smaller the size is
- can be given to advisors
1st way to implement - Virtual option pool
- exists only in a spreadsheet
- not visible in the commercial registry
- easily manageable
- increase of share capital upon exercise
- does not create problems if not exercised to full extent
2nd way to implement - Treasury share as option pool
- acquiring the treasure share
- Notary appointment needed upon exercise in most cases
- calculation of votes is more complicated
3rd way - Option pool held by a shareholder
- creates problems
- voting rights (can’t split share votes)
- dividents
- partial exercising is problematic
- notary appointment needed
Taxation
- region-specific taxation rules
In Estonia:
- granting stock options = not taxed
- sale of stock options = taxed
- vesting of stock options = not taxed
- exercising of stock options
- exercising prior to 3 years
- Non-monetary renumeration / fringe benefit ~ 70% taxation
- income tax + social tax
- Non-monetary renumeration / fringe benefit ~ 70% taxation
- exercising after 3 years = not taxed
- exercising prior to 3 years
Taxation exceptions
- full company exit (2/3 of shares → 2/3 is not taxed)
- death or loss of capability to work
Non-compete
- Protecting the business and the advantages in the market
- different from the employment law non-compete
Non-solicitation
CAP table
- shows equity capitalization of the company
- Usually Excel or custom software
- Projections on future rounds
