Expert's guide to understanding Shareholder's Agreement (SHA) and Subscription Agreement (SSA) | Summary and Q&A
TL;DR
Investment documents, such as subscription agreements, shareholders agreements, and articles of the company, govern the financial and operational aspects of investor funding in founders-led companies.
Key Insights
- 🍧 Founders benefit from having a network of industry peers to discuss investment documents and align their expectations.
- 📜 Legal counsel is essential for reviewing and providing advice on investment documents to ensure their fairness and compliance.
- 🤝 Risk allocation and deal certainty are crucial considerations for both investors and founders during the document negotiation process.
- 👨💼 Tidy up items refer to fixable problems in the business that can be addressed after funding, requiring the founder's willingness to resolve them.
Transcript
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Questions & Answers
Q: What is the purpose of a subscription agreement?
A subscription agreement governs how investors provide capital in exchange for shares in a founders-led company. It defines the terms and processes for investing and share distribution within a short time frame.
Q: What does a shareholders agreement entail?
A shareholders agreement outlines the long-term relationship between founders and investors, defining their rights and obligations. It governs the operations and decision-making processes within the company for its entire lifespan.
Q: How do articles of the company differ from other investment documents?
Articles of the company serve as the constitutional document for the founders-led company. They replicate the provisions in sales agreements and formalize the company's structure and governance. They are typically finalized at the end of the investment process.
Q: What is the role of lead investors in the document process?
Having a single lead investor or a group of well-aligned investors can streamline the document process. They can provide a solid base for founders to review and comment on, allowing for quicker resolution and closing of the deal.
Summary & Key Takeaways
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Subscription agreements define the terms of investment and share distribution for investors in a founders-led company, with a short-term functional impact.
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Shareholders agreements establish long-term relationships and outline rights and obligations for both founders and investors.
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Articles of the company replicate the provisions in sales agreements and are usually finalized at the end of the process.