Start up Law - Synthesia Flashcards
What are articles of association?
Functions as a contract between the company and its shareholders, concerning internal rules for
- governance,
- shareholder rights,
- share transfers
- director powers..
What are treasury shares?
Shares that a company has repurchased but not cancelled. They don’t have voting rights or receive dividends.
shares of the company owned by the company
What are model articles?
Default template articles of association provided by law (e.g., UK Companies Act 2006). Can be adopted or modified.
Not ideal for start ups tho.
What is Accel?
group of VC funds that are invested in Synthesia
What are differed shares?
Shares that rank below others for dividends and liquidation. They often have no voting rights and low value.
Shares that are paid after all the other shares
What is Pari Passu?
Latin for “on equal footing”—shares that rank equally in terms of rights, dividends, or liquidation.
What are liquidation preferences?
Defines who gets paid first in case of liquidation. Typically, preferred shareholders get paid before ordinary shareholders.
(as in the US law)
What are ordinary control shareholders?
Founders that are then employees.
Majority shareholders who have control over company decisions, typically through voting power.
What does encumbrance mean?
A restriction or claim on a share that limits its transferability.
(e.g., pledge, lien, or charge)
Explain an exit
A situation where investors or founders sell their shares by an:
- IPO,
- acquisition M&A
- asset sale.
95% of the times it is selling assets or shares due to tax reasons.
What is asset sale?
The company is selling all assets to another company in the same business. The company is liquidated and the money goes to the VC
(Also can be an M&A transaction).
Basically selling the company
What are pre-emption rights for?
Ensures that existing shareholders have the first right to buy new shares before they are offered to outsiders. Preventing dilution.
In Europe its mandatory, in the UK and US, this is not mandatory unless negotiated.
How majority thresholds work?
Entrepreneurs issue different types of shares (e.g., Series A, Series B), each with different rights.
The % required for a majority can increase, depending on what rights were given when those shares were issued. Used to protect control
Like the multiple voting shares.
Difference Between “Subscribe” and “Purchase”
Subscribe → Buying new shares directly from the company (Primary Market). Usually done by existing investors (e.g., VCs).
Purchase → Buying shares from another shareholder (Secondary Market).
Private vs. Public Companies: on share transfers
private companies have restrictions on share transfers, unlike public companies.
In closely held companies founders cannot sell their shares without investor majority consent.
What does a permitted transfer stand?
Shareholders can transfer shares JUST to a company they control. But if they sell that company the shares must revet to the shareholder. To avoid tax loopholes.
What is the Mandatory Offer on a Change of Control?
A mandatory offer is a legal rule that requires an investor who acquires a significant percentage (Italy 25%, Germany 30%) of a company to offer to buy the remaining shares from other shareholders at the same price. It protects minority shareholders by giving them a chance to exit on equal terms.
Basically a MANDATORY Tag-Along with a threshold:
Mandatory Offer: Required by law in public companies when a large ownership change happens.
Tag-Along Right: A contractual right in private companies that allows minority shareholders to sell at the same terms when majority shareholders sell.
Drag-along
A clause in an agreement that enables majority shareholders to force minority shareholders to sell their shares if the majority decides to sell the company.
They HAVE TO join in the sale of the company. This clause allows you to sell the 100% of the company
A MUST IN THE ARTICLES OF ASSOCIATION! (specially in Italy)
What is a Co-sale Right Clauses?
Also called Tag-Along rights. It allows minority shareholders to sell their shares alongside a majority shareholder on the same terms and price.
Intended to protect minority investors.
in italy also includes drag along
What is Tag Along?
A protection for minority shareholders—if majority shareholders sell, the minority can sell at the same terms.
Explain a Lock-up
A lock-up agreement is a contractual provision preventing shareholders of a company from selling their shares for a specified period of time.
Often after an IPO or investment round. (Usually 6 months)
Right of First Refusal
A right that gives the investor an opportunity to purchase first the founders stock if they decide to sell to a third-party.
