In a startup corporate issues arise all the time, but who wants to solve them?
In order to prevent fatal errors, let us focus on the main aspects that should be worked out.
Growth issues
A startup is a small company that quickly becomes big. Over the course of several years, a successful startup faces all the growth issues: drawing investment, current management, strategic planning, monetization, optimization.
To manage or not to manage?
As a rule, venture funds do not receive a controlling stake (share). So do not be afraid that the investor takes all the power. Moreover, the documents often include a clause on the obligatory participation of the founders in the life of the project during a certain period.
This condition, as well as the decision-making procedure, the disposition of shares is indicated in the corporate agreement (by the way, here we wrote in detail about applying the corporate agreement).
Employee incentive programs
Often the project needs the best specialists on the market, but they cannot pay adequate salaries. In this case, the option program acts as an additional incentive.
An option agreement has long been explicitly permitted by the Civil Code.
The use of this design allows you to give a share not immediately, but in case the employee fulfills certain conditions. This can be both the term of work in the company and the implementation of KPIs. Bear in mind that the contract is subject to notarization, which means that the condition must be clear and specific.
You can see the webinar on option certification and the content of the contract here.
Deadlock
When drafting corporate documents, be sure to plan what you will do in case of a “deadlock”. Deadlock means as an impasse where the participants (shareholders) cannot make any decision.
Then they use a pre-designed exit system. Most often this means one of the parties buys out a share, for example, sealed bids for the value of their share are submitted, the intermediary opens the envelopes and the one who bid higher buys the share of another. This is called “Texas shoot-out,” but there are other ways to resolve deadlock situations.
If a company is a start-up, then the investor is not interested in buying out a share in deadlock, because he does not need full control, he does not want to manage the company instead of the founders. In this case, the option for the investor is to sell his share back to the founders (put option, we will give more detail in the following materials). If the start-up founder does not agree on the put option, they can still "butt heads".
Author: Roman Yankovskiy