The importance of a liquidation event should also be defined in the shareholder contract. This may involve the sale of all assets, bankruptcies or other situations in which shareholders are forced to sell their equity, for example. B, when a new investor waters down the equity property by buying shares from everyone or by buying newly issued shares. A liquidation event may relate to the sale of an industry and not just to the entire business. A shareholder contract is a legal contract entered into and concluded by all current and future shareholders of a company. All future shareholders are required to sign an act of membership that binds them to the shareholders` pact. The concept of preference defines the distribution among shareholders of the residual value of the company in the event of liquidation. This could be a negative event such as bankruptcy, but it could also be any other time that shareholders receive money for the abandonment of equity. B, for example, when acquired by another company.
Some shareholder agreements also define a liquidity event as the sale of “the bulk of all assets.” A custody clause prevents a worker/founding shareholder from obtaining the benefits of the stakes until he or she completes certain steps; such as: the usual approach in negotiating this clause is to include a minimum value for which the fund can sell the shares and force the rest of the shareholders to sell (. B for example, the fund may exercise drag-along law, provided that the total price offered by the third-party buyer includes an assessment of the start-up (business value) equal to or greater than the reasonable amount envisaged by the parties. A preferential liquidation clause is usually included in a shareholders` pact by a professional investor (for example. B a business angel or venture capital firm) as a risk reduction tool if the company fails but still has value, or to give some shareholders a higher return than others in the event of a profitable sale. For the investor, it is usually one of the most important conditions to negotiate because it largely defines the outcome of the investment. Deadlock`s rules create the mechanism for resolving shareholder disputes if they fail to agree on a decision. Deadlocks can be common if there are only two shareholders who each hold 50% of the company`s shares. This right allows a majority shareholder to sell its shares with the right to compel minority shareholders to participate in the transaction. Such a provision is included, as some investors only wish to acquire a business if they can acquire 100% of the shares. In addition to defining the liquidation event, a liquidation preference clause must also specify how the value should be distributed. This may be based on a formula or percentages or a formula for a shareholder and percentages for the rest. By incorporating this clause, shareholders ensure that the shareholder who received the third party`s offer does not have the right to transfer the shares offered to the third party without that third party extending its offer to the fund (and other shareholders), provided that one of the other shareholders requests it.