While incorporation documents usually contain only mandatory data about the company, a SHA more precisely regulates rights and obligations, with an emphasis on relationships between shareholders. The parties to the SHA are always the founders and later the investors (usually after a round). Small shareholders, such as team members who have shares through ESOP, usually do not sign the SHA. The vast majority of venture capitalists require that all shares and options held by the founders (and other employees) of the startup be subject to acquisition. The typical acquisition schedule in Silicon Valley is four years, with 25% acquired after the one-year close, and after that, the remaining shares are acquired in an equal monthly amount over the next three years. If a founder stops providing services to the startup, the company can take over the shares or options acquired by the founders. Without this acquisition concept, the founders could stop working on behalf of the startup and keep all their shares. This can lead to a number of problems, including the fact that fundraising becomes very difficult. To avoid this, founders should seriously consider exercising their shares, either in the shareholders` agreement or in the share purchase agreements entered into at the time the shares were issued to the founders.
You can find more information about the founders` stock market practice issues in our article. Once you have formed your startup management team, what types of agreements should you enter into to register your legal relationship with the company, with each other and with the other participants of the startup? Investors, shareholders and founders may need special agreements to determine legal relationships. Founders usually don`t have to worry about long-term planning or estate planning issues in agreements. Avoid the seventy-page “everything but the kitchen sink” agreement and opt for something that matches the expected life of the agreement (for most companies, this lifespan lasts until the next round of financing or another major transaction). Although most of the Company`s business affairs are determined by the Company`s Board of Directors or officers, shareholders may reserve the right, by agreement, to approve certain matters before proceeding. These issues may include (i) the incurrence of debts of a certain amount; (ii) the issuance of equity securities that prevail over ordinary shares in terms of preferences and privileges; (iii) the sale of the business; (iv) a material change in the nature of the company`s business; and (v) an increase in start-up remuneration. These issues are usually crucial for founders, so they may even require a super-majority (instead of a simple majority) before they can be realized. The founder`s agreement must clearly define the roles and responsibilities of each founder.
For example, it is necessary to determine which founder should assume the following roles: A start-up contract should determine the share of capital in each of the co-founders. This is usually determined by taking into account a number of factors such as investment, experience, existing intellectual property and know-how. In addition, the shareholding determines the voting rights that each co-founder can exercise. A start-up agreement is therefore simply a form of shareholders` agreement that is appropriate in the early stages of the business and is usually replaced by a more complicated shareholders` agreement once the company accepts more shareholders. Acquisition schedules are also beneficial if the company wants to raise financing. Investors are often put off by non-contributing investors who hold equity, so it`s worth figuring out from the get-go what founders are entitled to and when they`re entitled to it. Often, founders don`t want to address these critical issues at the time a startup is organized for reasons of time and money. Instead, they are willing to let the existing law and their organizational documents control these issues.
The problem with this approach is that the law and organizational documents of the company may not cover all these issues or deal with them in a way that is satisfactory to the founders. Founders should agree on these concerns at an early stage; If a problem arises, there is a clear way to fix it. While the company`s organizational documents and the founder`s share purchase agreements may resolve some of these issues, founders should carefully consider whether an additional shareholder agreement should be used to resolve issues that have not already been addressed in these other documents. Background: When you start a business, the applicable state corporate law (usually Delaware) provides a set of standard rules to govern the company, and the company`s bylaws implement and embody many of them. For example: how directors are elected, whether shares are transferable, who are the officers of the company, how to vote on shares, etc. In addition, we will typically enter into acquisition agreements with the founders that define how the stock will win and when it will expire when the person leaves the company. .