Friday, November 27, 2015

Startup stock options under the domestic law of seven concise practical advice

Startup stock options under the domestic law of seven concise practical advice

  Entrepreneurs usually use two ways to determine the company's ownership structure, one is assigned in accordance with shareholders ' capital contribution, and the other is evenly distributed between the shareholders. Contribution which easily triggered shareholder and shareholding ratio does not match the problem, which will weaken the grip of core-founder of the company, affecting the company's decision-making efficiency. Although many entrepreneurs has realized that equity distribution of importance, also intends to reference abroad developed venture system Xia of equity schema thought, helpless some idea does not for business registration organ by accept, and venture of early Affairs miscellaneous, entrepreneurs in limited of energy Xia, inevitably has for expediency meter hasty sub-unit and hopes follow-up solution of practices, for company future development buried Xia hidden, this has was multiple venture company failed lessons by proof, this not repeat. This paper will proceed from our existing legal provisions, on startup stock options programme design and landing seven concise legal practical recommendations are given.

  A, three principles of equity distribution

  Entrepreneurship is like rowing upstream, only peers who targeted, consistent, fair and encourage coexistence must be long-term and stable relations. Equity distribution is such an implementation to "person" in the process, it aims not only to pass the "warn you in the front" to establish rules, but also clear gene and values, to achieve consensus among the shareholders of the company.

  Given venture company early shareholders and management layer usually is overlap of, temporarily without consider shareholders and management layer Zhijian of game, author think established equity distribution Shi need consider three a factors, respectively is: shareholders Yu resources level of contribution, and shareholders Yu company governance level of put control and company future of financing hematopoietic space, certainly above three a factors still has decomposition of space, like resources on can by funded, and input time refinement, funded and can according to is currency, and real, and intellectual property, on company of value further refinement.

  Second, choose the paid-up registered capital subscribed registered capital is better than

  Although March 1, 2014 purposes of new company law used recognize paid registered capital business, that unless legal, and administrative regulations and State decided another has provides outside, company of registered capital without experience funding program, by all shareholders commitment recognize paid can, recognize paid term by shareholders itself agreed, but, this not means with shareholders can "only recognize not paid", also not said registered capital more high more good.

  Recognize paid business Xia shareholders of funded obligations just suspended paid, shareholders still to to recognize paid of funded amount limited for company of debt bear responsibility, if shareholders to displayed company strength, unrealistic of recognize paid high registered capital, so will faced multiple legal risk, for example Dang creditors to company Cable claims Shi, shareholders of settlement responsibility also with of aggravated, and as company dissolved Shi, shareholders yet paid of funded will as liquidation property, addition also need consider tax risk.

  The author believes that startups should rationally determine the registered capital, select paid and verification so that "company" in this form can give full play to its enterprise risks isolation.

  Three, the equity allocation scheme to eventually fall in industrial and commercial registration.

  Contribution is the basis for allocating the necessary equity, is not the sole basis for entrepreneurs programme of final accounting of stock options are often not consistent with the investment proportion, some entrepreneur will adopt a protocol of yin and Yang approach, on the one hand signed investment agreements fixing the real stakes, on the other hand according to the proportion of completed registration.

  However, these laws can be risky, once involved in a lawsuit, shareholder rights difficult to obtain protection not only entrepreneurs, will consume a large amount of time, resulting in missed growth opportunities of the company. I believe that in this case, may consider adopting stock premium solution: first of all, entrepreneurs investment agreements signed before, clearly every entrepreneur's actual investment and equity ratio; then confirmed by entrepreneurs in accordance with the equity ratio and conversion of the amount of industrial and commercial registration, part of shareholders beyond the registration amount included in the capital reserve.

  Four founders, to corporate governance to safeguard the core control

  In accordance with the provisions of the company law:

  1 when, in the absence of a special agreement, shareholders will generally require shareholder resolutions through half of the votes held by shareholders will make a special resolution to amend the company's articles of resolution, increase or reduction of the registered capital, merger, Division, dissolution of the company or change of corporate form, required through two-thirds of the votes held by shareholders;

  2, the proportion of voting rights and equity-linked, "but, except as otherwise provided in the articles of the company. "(Hereinafter" the proviso ")

  The actual situation, start-up companies often have more than one founder, together with popular equity raising, founder of core holdings is likely to fall short of absolute (IE holding interval equal to or greater than 51%--67% of the registered capital of the company). This situation in order to ensure control of the core founders, you need to make full use of the "book" will be voting and shareholding, and implement it in the form of the articles.

  Five held with founder, options pools, it is the core of good

  For startups, reserved option pool is not a new topic. Rich is a reality that startups target rather than startups, growth is the core driver of startups, and options are what startups can motivate the most important tool. Many entrepreneurs do not pay attention to option pools of questions, either sent out early on the premise of the option has not yet been established, has provoked some controversy, or causing unnecessary dilution of the core shareholders.

  In my opinion, in view of:

  1, options, essentially from the existing shareholders ' stake, but held by the shareholders in proportion to disperse, difficult to work together in the future, easily lead to disputes and implementation of efficiency; Policy interpretation traditional logistics business

  2, under the system of limited liability company option is quite flexible and realistic choice of positioning and programmes to be adopted depends on the company, should be established company option after implementation;

  Option pool should make early arrangements when assignments are proposed, it separated from the shareholders, held together by core founder, other shareholders can be held with clear rights limit the nature and disposition of the agreement.

  Six share buy-back provisions, making good use of limited liability companies

  For startups, like-minded shareholders is particularly important, equity allocation therefore needs to consider two dimensions, and reverse. One that is working to protect entrepreneurs with the ship of this effort when equity and incentive problems, also consider the reverse in some special cases such as entrepreneurs left exit, situations such as divorce, inheritance, ownership of the recovery.

  Repo system is balance shareholders exit and company interests of important system way, but company law on limited responsibility company of shares repo is has restrictive provides of (despite this provides in practice in the is has dispute of), so in design repo terms Shi, should note several problem, a is repo terms best by company specified of other shareholders implementation, and should note repo pricing of fair sex; II is repo terms of applies range can covers company equity distribution of reverse by needed; three is should will repo terms and equity transfer system integrated consider , Mix design.

  Company law of seven, the innovative use of the system

  Law of autonomous space is quite broad, and entrepreneurs to make full use of the shareholder's Statute of autonomy, establish their equity allocation and dynamic adjustment programmes.

  For example, some shareholders are willing to "pay a lot of money, the small unit", then such shareholder may use agreements and articles of Association will be decoupled dividend rights, pre-emption rights, the right to vote, designed to meet the needs and strengths of each shareholder ownership structure again can draw on capital instruments, the use of convertible preferred stock, liquidation preferences, such as the equity distribution design.

  To sum up, in my opinion, startup stock options in nature is not complicated, but entrepreneurs should give considerable weight to. If we can spend a little time in the early problems straightened out, is to have a multiplier effect to help the positive development of the company.

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