Sweat equity will be issued at nominal value.
There are no pre-emption rights for the investors. This is what is stated in one of the schedules:
2. The passing of resolutions of the Shareholders to:
(a) waive pre-emption rights in respect of the allotment and issue of the Subscription Shares; and
(b) grant the directors of the Company authority to allot the Subscription Shares.
Does this mean we can issue shares freely, i..e without having to issue another shareholders agreement to existing investors for them to sign? And do the terms of the sweat equity shares have to be the same as investors? i.e. can they have less voting rights as investors?
Hi, Thank you. The shareholders agreement will become useless unless all the shareholders are party to it. You can ask the incoming shareholders to sign a deed of adherence to the existing shareholders agreement - do not give them the option to re negotiate it unless absolutely necessary. Do you already have a special resolution passed where by the pre emption rights have been dis applied and the directors have been given authority to alot shares under S.551 of the Companies Act 2006? If so how many shares have they been given permission to issue/allot? Is it enough to cover the sweat equity? If you want the sweat equity shareholders not to have voting rights then you would need to issue a different class of share which would require you to amend the articles of association. If the sweat equity shareholders have less than 25% of the issued share capital, their vote will likely be of little value anyway. I look forward to hearing from you. Kind regards AJ
Is it possible they sign the same deed of adherence as the investors, even though they are not investing any money? We have an employee share option plan which would be enough to issue all the shares, can contractors who take a decreased contract rate be allowed in the employee share option pool if they sign a service agreement? Thanks a lot for this Alex btw!
This is in the Warranties
PART 2Further matters requiring investor consent
1. Amend or waive any provision of the Articles or the memorandum of association.
2. Make any increase or reduction or alteration whatsoever (including by way of redemption, purchase, subdivision, consolidation, redenomination or redesignation) of the Company's share capital, other than pursuant to the Share Option Plan or the Articles.
3. Grant any option, warrant or other right to subscribe or convert any securities into shares, or require the allotment or issue of any such shares or securities whether conditional or otherwise, other than pursuant to the Share Option Plan or the Articles.
They do. Do they need to sign something saying as such?
if we didnt mind about voting rights, can they sign the deed of adherance from the investors agreement? allowing us to issue the shares?
I think theyhave already waived their pre-emption rights as this is in the investors agreement.
There are no special rights for the investors and the shares issued will be 50 ordinary shares that amount to 5%. So we want to issue these shares based on some deliverables i.e certain things they must perform to retain ownership of the shares, can we just give them the investors agreement and add conditions for which they need to satisfy to retain ownership of the shares?
Would we still need a special resolution if the director and I allocated these shares of sweat equity via our own holdings, so not to dilute their holdings?
And yep I do mean the employee option.
Thank you Alex. We're not opposed to making the contractors employees as long as it keeps our original compensation agreement in tact.
The current agreement we have with the contractor is with his company and just states standard monetary remuneration. But my partner and I have since agreed with the developer to offer him 4% equity as an employee offering services outside of what is in his original agreement, and therefore we would still owe him the monies as a contractor. So we have formed an agreement with his company but now want to take on the person as an employee.
We would like to offer them an employment contract in a leadership role with the remuneration in equity, and they would be happy to accept this as long as it doesn't affect our original agreement with their company, where we have hired him as a developer for our infrastructure (separate to leadership role)with a monetary compensation package.
I hope this is slightly clearer...
Well they own the company they work for as they are independent contractors, and the employment agreement will be purely towards them as an individual rather than their limited company. It won't be a zero hours contract or anything like that.
Hi, Thank you. If they own the companies concerned, make sure that any right to the shares is assigned to them personally so you do not end giving sweat equity to them and their limited company. Always remember a company is a distinct legal personality. If you are giving them an employment contract this will have to be carefully worded to fit in with your share option scheme. I would recommend you ask a solicitor to draft this. Ultimately you want to have enough flexibility to remove these people if things do not work out, without the fear of them bringing an employment claim against your company. Kind regards AJ
Thanks a lot Alex! Great Help