Legal Challenges 3

What is the Memorandum of Association

Legal statement signed by initial shareholders confirming creation of company

Is the Memorandum of Association required by law

Yes it is mandatory

What is the Articles of Association

Written rules governing company structure ownership and management

Are the Articles of Association public or private

Public

Do Articles of Association need to be registered

Yes

What topics do Articles of Association typically cover

Share classes rights meetings and director rules and duties

What is a shareholders agreement

Private contract between shareholders

Is a shareholders agreement mandatory

No it is optional

Is a shareholders agreement public

No it is private

Does a shareholders agreement need registration

No

What does a shareholders agreement define

Rights and obligations among shareholders and between shareholders and company

How does a shareholders agreement relate to the Articles of Association

It complements them

Why use a shareholders agreement

To add specific rules and confidentiality

What mechanisms may a shareholders agreement include

Minority and majority protections and share transfer rules

Which document is required by law Articles or shareholders agreement

Articles

Which document is private Articles or shareholders agreement

Shareholders agreement

Which document governs internal company structure

Articles

Which document governs relationships among shareholders

Shareholders agreement

Which document must follow legal statutory rules

Articles

Why may share transfers occur

Sale or death or illness or bankruptcy or company sale

What mechanisms control share transfers

Pre emptive rights tag along rights drag along rights shotgun clauses

What is a pre emptive right

Right for existing shareholders to buy new shares before outsiders

What is the purpose of pre emptive rights

Prevent dilution of ownership and voting power

What does pro rata mean in pre emptive rights

Each shareholder may buy shares proportional to existing stake

Are shareholders forced to exercise pre emptive rights

No

To which type of shares do pre emptive rights commonly apply

Common shares

In Example 1 what happens if 1000 new shares are issued without pre emption

Each shareholder drops from twenty percent to ten percent

In Example 1 what happens with pre emption applied

Each shareholder may buy 200 new shares to keep 20%

In Example 2 how many new shares may each shareholder buy under pre emption

25.000

In Example 2 how many shares does Jack buy

50.000

What is a drag along right

Right allowing majority to force minority to sell shares if whole company is sold

What is the purpose of drag along rights

Ensure buyer gets full control

What must minorities receive during drag along sale

Same price and terms

When are drag along rights triggered

When majority accepts a full acquisition offer

What is a tag along right

Right allowing minority to join majority sale on same terms

What is the purpose of tag along rights

Protect minorities by ensuring equal treatment

What happens if a majority sale ignores tag along rights

Sale is often invalid

What is a disadvantage of tag along rights

They may complicate negotiations and reduce buyer interest

What is a shotgun clause

Dispute resolution where one shareholder offers to buy or sell at a stated price

What choice does the recipient have in a shotgun clause

Buy shares at that price or sell shares at that price

Why must instigator offer a fair price in a shotgun clause

Because the recipient may reverse the offer

What is the purpose of a shotgun clause

Resolve deadlocks by forcing separation

In SmartCookie SAS how many founders exist

Three

In SmartCookie SAS how many shares does each founder hold

Five

In SmartCookie SAS between which founders does the shotgun clause apply

Between you and Ginette

What price per share does Ginette offer

Eight hundred

What topics does the Facebook case include

Share issuance pre emption rights dilution and fiduciary duties

What happened to Saverin in the case

His stake was diluted

What are ordinary shares

Standard shares with one vote per share and equal dividends

Do ordinary shares rank last in liquidation

Yes

Can ordinary shares be separated into classes

Yes with A B C types

Why create classes of ordinary shares

To differentiate dividends transfer rules or control

What are preference shares

Shares with fixed dividends and priority in liquidation

Do preference shares often carry votes

Often no

Can preference shares be redeemable

Yes

What are non voting shares

Shares with no voting rights

Why issue non voting shares

To give employees economic benefit without governance control

What are redeemable shares

Shares that company buys back in future

When may redemption occur

At fixed date or director choice or specific event

Are redeemable shares often used in employee schemes

Yes

What are multiple voting shares

Shares with more voting power than proportional ownership

Which countries use double voting rights

France and Italy

Which countries may use ten vote shares

Sweden and Finland

Why use multiple voting shares

To maintain founder control

What is liquidation order step one

Secured creditors

What is liquidation order step two

Unsecured creditors

What is liquidation order step three

Preferential shareholders

What is liquidation order step four

Ordinary shareholders

Why do ordinary shareholders often receive nothing

Because liabilities exceed assets