All businesses have financing needs and sometimes working capital and cash flow are not enough to meet their needs or growth needs. A SHA should indicate the methods of seeking additional capital and the priority in which such funding should be sought. These additional resources are often obtained through external financing, including mezzanine financing (convertible debt securities sometimes with a sweetener such as warrants), external investors and traditional loans from banks or other financial institutions; Shareholder loans And cash calls. It is also worth specifying the order in which such additional funding is requested. √ Do some key employees have stakes in the company? Options? Restricted stock or units? Are there provisions related to those interests? The founders of a company generally do not contain complex anti-dilution rules in an initial SHA (except pre-emption rights). These terms are generally negotiated, or even dictated, by outside investors and depend on the relative bargaining power of the parties. They are not used to protect founders, but to protect experienced investors. Anti-dilution provisions are one of the many incentives that are often needed to satisfy investors and reduce their risk when investing their money in a company that needs capital. In order to prevent third-party spouses from having a say in management, all purchase-sale agreements should clearly give the outgoing owner the right to purchase interest from his former spouse. If the outgoing spouse does not use this option, the business and other owners should have the right to purchase the interest.
When a shareholder converts his preferred shares into common shares, the conversion price of his preferred shares is reduced by the effect of the complete anti-dilution of the ratchet to reflect the issue price of the new cycle. This means that a preferred shareholder can convert his preferred shares at a lower price. When the shareholder holds common shares, additional shares are often issued after the new cycle to make a whole. In both cases, the investor receives more shares for his initial investment to ensure that his or her interest in the company is not diluted. In the event of a voluntary transfer, the selling shareholder must ensure that the terms of the takeover offer are extended to other shareholders in proportion to their respective shares. The rights of the tag along exist to protect minority shareholders, so that a majority shareholder, when it sells its shares, grants other shareholders the right to join the transaction. For example, when an investor buys preferred shares in a company for $20 each, converted one by one into common shares, and the company then proceeds with a new set of capital increases that values the common shares at $15 each (a decrease), the investor`s shares will be depreciated (economic dilution).