Here we'll explain what is in Vestd's standard Articles of Association
All companies on the Vestd Platform have the option to adopt the standard Vestd Articles of Association for free. These are based on the British Venture Capital Association’s template articles of association, which are adopted by many early stage companies.
Our lawyers have added some additional clauses that provide some further functionality for companies.
In terms of investment:
- The Articles have been drafted with the intention that existing or future SEIS & EIS shareholders will not be impacted, with respect to meeting HMRC qualifying criteria (n.b. you must not be an existing shareholder for SEIS/EIS to be applicable). This includes allowing dividends to be paid differentially to different share classes, but ensuring that any share class subject to SEIS/EIS may not be given more dividends than any other share class, and thus does not put that class' SEIS/EIS eligibility at risk. Please check with your lawyers if you have any concerns about these being right for you.
- The Articles are compatible with and should not preclude any future crowdfunding.
In terms of exits:
- The Articles include “drag along and tag along” clauses in case of an exit. This ensures that any minority shareholders will have the right to be bought out in the case of the company changing hands, and the company can ensure that they are bought out, if they so want.
- The Articles are drafted to limit any issues in the event of a non-cash acquisition of the company, such that the purchase to go ahead without problem (Article 20).
In terms of buybacks or transfers:
- Buybacks are explicitly allowed by the Articles (subject to Board and Shareholder approval).
- The company has the option to buyback the shares of a leaving employee under certain specific conditions (if Articles adopted after June 2020).
- Price will be as agreed between seller and Board or based on a fair market value determined by independent valuer.
- Unless a share transfer is to a Permitted Transferee (by the Board), then all existing shareholders (excluding 'growth share' shareholders) have pre-emption rights up to the whole transfer, unless oversubscribed, in which case they access it pro-rata with their shareholding.
- It should be noted that buybacks can negatively impact SEIS and EIS relief.
In terms of enabling growth shares, the specific elements are:
If you wish to issue growth shares on the platform, you will need to adopt the Vestd Articles. The Vestd Articles:
- Allow for the issue the growth shares (called V Shares in the Vestd Articles) which can be either non-voting (Vn) or voting (Vv) shares.
- Ensure that, in the event of a reward requirements not being met, the growth shares in question can be partially or fully converted by the Directors into worthless “deferred shares” (Article 8).
- Allow V shares to be issued even after there is tangible value in the business without causing an income tax exposure to the recipient. Growth share only benefit in the value growth of the business from the point of issue, so the recipient is not exposed to income tax on award, only capital gains tax on sale of the shares.
- Ensure that the value of the business will be shared correctly amongst the various shareholders on a liquidation event, depending upon the value of the business at the point at which the shareholder had originally received the shares (Article 5).
- Contain a mechanism by which we (acting via Vestd Nominees) can hold the V shares on behalf of their owners, so the share capital table is not fragmented with multiple legal owners (a fragmented “cap” table can put off VCs).
Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal or financial advice'.