Corporate law, M&A

Relationships between the shareholders are of key importance, and their disputes may paralyze the company or even cause its dissolution. It is important to clarify their mutual tasks in the company’s operation and their obligation to invest further funds, and to set out rules for the entry of investors. Without a shareholder agreement, a dispute with a shareholder may thwart development of even a start-up with a world-class idea. A shareholder agreement is next to the memorandum of association (that is kept in the Commercial Register) and is not publicly available.

Of course, it is primarily a matter of money and what you offer to the investor in return – the ratio of investments to the share size. Be careful how large control over the company you give the investor. The investor often has a small share but so extensive rights that they actually obtain an absolute majority. So they can block any of your decisions. If the investor has an obligation to make further investments, you need to decide not only how tough conditions you set but also whether you are able to invest the money reasonably in accordance with your business plan.

The most frequent mistake is absence of intellectual property documentation. Typically, absence of contracts with the IT specialists who coded the software, absence of contracts with graphic designers, absence of trademarks (i.e. uncertainty whether you have rights in relation to your brands), failure to address GDPR matters (which may result in high penalties). IT companies often do not have technical documentation of their software or do not document their open-source components.

An ESOP (employee stock option plan) may take various forms. From the sale of an actual share to the creation of “phantom” shares that give the employees a number of rights but do not give them any direct share in the company. Typically, they cease to exist when the employment terminates.