Tag archives: governance

Shareholders’ agreements: right of first refusal versus right of first offer

It is common for shareholders of a closely held corporation to set out the rules that govern their relationship vis-à-vis one another in the form of a shareholder agreement. One key concern for shareholders when negotiating a shareholder agreement is controlling the transfer of shares to unknown or undesirable persons, while still maintaining liquidity in their shares. A common mechanism used to address this concern is a right of first refusal (ROFR).

Right of first refusal

A ROFR provides non-selling shareholders with the right to accept or refuse an offer by a selling shareholder after the selling shareholder … Continue Reading

Director distraction and successful M&A

Members of a board of directors play a crucial role in the decision making processes of a company, which shape the company’s practices, strategies, future goals and overall success. Directors who are not are primarily employed by the subject company or those who sit on multiple boards may be at a risk of neglecting some of their key director responsibilities if they are preoccupied with too many things at once. This is not to say that busy directors will inevitably get distracted and neglect their responsibilities, but that directors ought to be mindful of juggling too many roles at once … Continue Reading

Private equity investments and common governance rights in investee companies

Private equity investors (PEIs) are often a good source of capital for companies looking to start, maintain, or grow their operations and can also provide significant operational and transactional expertise. Like other investors, PEIs operate with a primary goal in mind; that is, to receive a favourable return on their investment. However, PEIs generally seek to have a greater level of involvement in an investee company than other investors.  Accordingly, PEIs commonly negotiate for certain governance rights in the company via a unanimous shareholder or limited partnership agreement in order to maintain a certain level of oversight over … Continue Reading

Common liquidity rights in private equity investments in early stage companies

Early stage companies face an uphill climb in growing their business and ensuring their viability going forward. Private equity firms can provide capital as well as significant operational and transactional expertise to aid in a company’s growth. However, private equity investors often intend to exit any investment within a defined time period. As a result, private equity investors frequently demand concessions prior to investment to avoid exposure to liquidity risk. Common liquidity mechanisms sought by private equity investors include drag-along rights, and registration rights.

Drag-along rights and tag-along rights 

Private equity investors will frequently attempt to negotiate the inclusion of … Continue Reading

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