Company’s Capital Enhancement: Partnership With An Investor
How An Investor “Enters” Into A Company
An investor’s entry into a corporate scheme (let’s limit it to a Société anonyme) can be made in different ways. The purchase of existing shares or the participation in the share capital increase are the most common ones. There is, in addition, the case of a bond loan convertible into shares when the lender exercises its relative right to convert its financial claim into shares.
Investor’s Participation In Capital Enhancement
In each case of an investor’s entry into the share capital of a company, some of the first issues to be clarified are:
(a) if the shareholding shall be a minority shareholding or a majority shareholding,
(b) what will the amount to be paid by him be, and
(c) what will be the percentage of the share capital to which his participation shall correspond.
Please note that some percentages of the share capital are assessed as critical for the operation of a Société anonyme, with the clarification that when we refer to majority shareholding as a mean of participation, we may face the issue of the company’s acquisition. Additionally, the investor will always aim to an increased number of shares, while the entrepreneur to the less possible. From the legal perspective, there are always the appropriate tools to implement the object of the (participation) agreement.
Common Objective And Investor’s Assurance
The main reason for any investment (either of a high or of a low risk) is earning business profits.
The profit (: common objective) is interwoven, among other things, with the successful implementation of the business plan, which has been agreed between the entrepreneur and the investor. It also corresponds to the percentage of the share capital each one of them holds as well as to the policy for the distribution of profits.
The investor always claims, in order to safeguard his interests:
(a) close and multilevel monitoring of the operation of the company (including the legal and financial aspects of the company’s operation),
(b) participation in the administration and formulation of the (company’s) strategy,
(c) a veto right in critical decisions,
(d) shareholders’ commitments (e.g. limitation or prohibition of the transfer of shares) and so on.
The investor often seeks a binding agreement with regard to earning his profit and to withdrawing from the investment. This agreement (also known as the “exit strategy”) includes, among other things, the time, the conditions and the amount the investor expects to receive at the time of withdrawal.
For the success of such a venture, it is necessary to have secure contractual commitments, an extraterrestrial shareholder agreement and / or statutory amendments. A crucial parameter for the success of the whole venture is always the detailed and accurate recording of everything that has been agreed, the rights and obligations of each party. In any case, it is desirable that the parties involved do not appeal to third parties for the interpretation and implementation of the agreements, at any time in the future.
P.S. This article has been published in Greek in MAKEDONIA Newspaper and portal makthes.gr (October 9, 2018)