Design of the share classes
Definition of the financial rights (priority dividend, liquidation preference, ratchet), political rights (double voting, vetoes, board seats) and exit rights (drag, tag, conversion).
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Preferred shares are the most flexible structuring tool in company law: they make it possible to align the interests of investors, managers and founders by customising financial, political and exit rights. We design share classes tailored to the company's strategy, the cap table and the tax constraints.
→ What we cover
Definition of the financial rights (priority dividend, liquidation preference, ratchet), political rights (double voting, vetoes, board seats) and exit rights (drag, tag, conversion).
Preferential return mechanisms on a sale: 1x non-participating, 1x participating capped, specific multiples for successive Series. Coordination with the waterfall.
Clauses protecting investors in the event of a lower-valuation round (down round): full ratchet, weighted average, adjusted conversion.
Conversion into ordinary shares in the event of an IPO or a trigger event (full sale, achievement of objectives). Secures the clarity of the cap table at exit.
Preferred shares dedicated to managers (sweet equity, ratchet on outperformance), articulated with BSPCE and bad leaver / good leaver clauses.
Drafting of the articles of association, the issuance terms, the corporate resolutions (extraordinary general meeting, contribution auditor's report if applicable), registry formalities and updating of the transfer register.
→ Our approach
01
Analysis of the current cap table, the objectives (fundraising, retention of managers, alignment of interests), the tax constraints and the contemplated exit strategy.
02
Definition of the share classes (Series A, B, management), their respective rights and their articulation. Modelling of the exit waterfalls under different scenarios.
03
Drafting of the amended articles of association, the updated shareholders' agreement, the issuance terms, the subscription forms and the corporate resolutions.
04
Holding of the extraordinary general meeting, paying-up of the capital, deposit of the funds, updating of the transfer register, filing with the registry and legal publication.
→ Who we help
Creation of a class of Series A preferred shares: 1x non-participating liquidation preference, weighted-average anti-dilution, qualified vetoes, board seat, conversion at IPO.
Preferred shares for managers with sweet equity (subscription at market value) and a ratchet triggered in the event of the fund's outperformance, articulated with bad/good leaver clauses.
Issuance of preferred shares with a priority dividend and a privileged exit right to align a non-founder executive with long-term value creation.
Creation of a class of preferred shares for the new investors providing fresh money, with a reinforced preferential return to compensate for the risk.
→ Q&A
French law offers great freedom: financial rights (priority dividend, liquidation preference), political rights (multiple voting or removal of voting, vetoes), information rights, conversion rights, withdrawal rights. Only abuse of law or abusive breach of equality is struck down.
In a non-participating liquidation preference, the investor recovers its investment (1x or more) THEN chooses between keeping that amount or converting into ordinary shares to share in the surplus. In a participating preference, the investor recovers its investment AND participates in the surplus, which is more favourable but often capped.
Yes in certain cases: the issuance of preferred shares carrying special advantages requires the appointment of an ad hoc auditor who produces a report on the valuation and justification of the rights granted. An essential formality to secure the transaction.
BSPCE are issued over an underlying class of shares: preferred shares make it possible to ring-fence the managers' rights without diluting the political rights of the founders and investors. A frequent combination in growth-stage startups.
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