As a general rule, investors will have a minority stake, i.e. together they will hold less than 50% of the company`s shares after the completion of an initial investment. Historically, however, it is not uncommon for investors to quickly hold a majority stake in life sciences companies, especially when the company needs more than one round of investment because of the size of each investment and the amount of money often required to develop a life sciences company`s products. Under English corporate law, many shareholders` business can be decided either by the majority of shareholders or by at least 75% of the shareholders. These are the steps to be taken after the closing of the first tranche of investment: there is often discretion for the board to waive this requirement and there is an exclusion for those exercising options. By signing proof of commitment, the new shareholder is subject to the same rules as the existing rules. It also ensures that the new shareholder obtains the rights granted to other shareholders under the shareholders` pact. This necessary provision is binding only on signatories, unlike the company`s bylaws, which apply to all shareholders under the 2006 Companies Act. If you want to benefit from a minority stake as an investor, you can use the investment agreement to ensure that you have adequate rights and protection, established in writing, to ensure that your money is being used as you imagined and that you have an appropriate say in the company`s strategy to justify your investment. In the end, you need a legally binding contractual document, which explains how you get a return on investment. It is very common in start-ups to force investors to invest in capital on different company-sized stones.
The tranches are generally related to product development, revenue targets or other operational indicators. During the conclusion of an investment agreement, you can use a model for the investment agreement for preferred shares to integrate several closing tranches, which allows you to obtain more investment income during the business. On the other hand, a shareholder contract protects the rights of existing shareholders, unlike new parties who wish to acquire ownership of the company, as described in an investment agreement. Although the specific conditions of a shareholders` pact depend on the specific interests of shareholders, standard provisions apply: investors specify that certain conditions must be met before the first tranche of the investment can be closed. These conditions may include that if the investment is made in a start-up life sciences company, with the exception of IP guarantees, the remaining guarantees in their application will be quite limited due to the company`s limited business history. IP guarantees in life sciences investments, regardless of the phase of the business, are, in most cases, more detailed and important than others, because of the value, breadth and complexity of the IP they own or the products they want to create and/or develop.