In an earlier article setting out how angel investors can invest in your business, we looked at the rules governing investment, what to include in your deck and different valuation methods. We will now turn to consider what legal documents your business needs to formalise the investment.

Term Sheet

You and your angel investors may negotiate a Term Sheet or choose to reduce to writing the essential commercial terms. A Term Sheet is briefer and may not be legally binding, or may be subject to conditions like satisfactory due diligence.

Share Subscription Agreement

Following the investment’s confirmation, it is prudent to have each investor sign a Share Subscription Agreement. In short, each investor’s share subscriptions ‘vest’ on a particular date (e.g. end of the month) or subject to the business raising a minimum amount.

Shareholders Agreement or Deed of Accession

Shareholders Agreement will comprehensively outline the agreement between the Company and each investor regarding how the business will run. It includes:

  • Which shareholders can appoint a director,
  • Directors meetings,
  • Quorum for a directors’ meeting,
  • Which decisions need a simple majority or a higher majority to agree,
  • What shareholders can vote on,
  • Rules around issuing new shares,
  • Rules around one shareholder selling their shares, and
  • Dispute Resolution mechanisms.

Shareholders Agreement Negotiations

Experienced angel investors will seek specific clauses to protect their rights as a minority shareholder. These will include:

  • The right to appoint a director and to have a seat on the Board of Directors.
  • Certain decisions will require a unanimous vote of directors, meaning that the minority Director can block Director’s decisions they do not agree on.
  • Certain decisions will require a unanimous vote of shareholders, meaning that the minority shareholder can block shareholder’s decisions that they do not agree on.
  • A right of first refusal to buy shares if there is a new share issue so that they maintain the same percentage.
  • Tag along rights so that they can sell their shares at the same price as the majority shareholders if the majority shareholders sell out.

Conclusion

LegalVision’s corporate and commercial lawyers have considerable expertise in helping companies negotiate and agree with investors, and in advising investors. We have assisted many companies and investors, and we would be delighted to answer any of your questions. Please get in touch on 1300 544 755.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Ursula Hogben

Get a Free Quote Now

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • We will be in touch shortly with a quote. By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.

Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy