When it comes to starting a new business, one of the most important factors is securing funding. In the world of startups, there are several funding rounds that companies go through to raise capital. Each round is designed to help the company achieve certain goals, such as developing a prototype, expanding into new markets, or preparing for an IPO.
Pre-seed funding: This is the earliest stage of funding for startups. It typically involves friends and family, angel investors, or accelerator programs. Pre-seed funding may be used to develop a concept, build a prototype, or conduct market research.
Example: A startup with a new idea for a mobile app may raise $50,000 in pre-seed funding from an angel investor to develop a prototype and conduct market research.
Seed funding: This round of funding is used to help startups develop their products or services and start generating revenue. Seed funding may come from angel investors, venture capital firms, or crowdfunding platforms.
Example: A startup that has developed a prototype for a new software application may raise $500,000 in seed funding from a group of angel investors to further develop the product and start generating revenue.
Series A: This funding round is used to help startups expand their operations and reach a wider audience. Series A funding may come from venture capital firms or private equity investors.
Example: A startup that has developed a successful product and has generated revenue may raise $5 million in a Series A round from a group of venture capital firms to expand into new markets.
Series B and beyond: Once a startup has reached a certain level of success, it may continue to raise funds through additional funding rounds, such as Series B, C, D, E, and so on. These rounds are typically used to help the startup accelerate its growth, make acquisitions, or prepare for an IPO.
Example: A startup that has become a major player in its industry may raise $100 million in a Series C round from a group of venture capital firms, with the goal of expanding its operations and making strategic acquisitions.
In conclusion, startups can raise funds through different funding rounds to achieve various goals. From pre-seed funding to Series A, B, C, and beyond, each funding round helps startups raise the capital they need to succeed. By understanding the different funding rounds and their purposes, startups can plan their fundraising efforts better and achieve their growth objectives.
Regville Associates offers end-to-end legal, secretarial, tax and compliance service for companies. Our services aid companies in achieving and sustaining compliance with regulations.
A shareholders agreement is a legal document that outlines the rights and responsibilities of the shareholders of a company. It serves as a contract between the shareholders, and it is designed to protect their interests in the company. The agreement can cover various issues, including ownership rights, management control, decision-making, dispute resolution, and exit strategies. This article provides an overview of the importance of a shareholders agreement, what it should contain, what it shouldn’t, and some examples of clauses.
IMPORTANCE OF A SHAREHOLDERS AGREEMENT
A shareholders agreement is crucial in protecting the interests of shareholders in a company. It clarifies the rights and obligations of shareholders and helps to prevent disputes and disagreements. It also provides a clear framework for decision-making, management control, and ownership rights, which helps to avoid misunderstandings and conflicts. A well-drafted shareholders agreement can be beneficial in several ways, including:
1. PROVIDING CLARITY ON OWNERSHIP AND MANAGEMENT CONTROL: A shareholders agreement outlines the ownership structure of the company and the rights and obligations of each shareholder. It also outlines the roles and responsibilities of the management team and helps to prevent disputes and misunderstandings about management control.
2. PROTECTING SHAREHOLDER INTERESTS: A shareholders agreement provides protection for minority shareholders, ensuring that they are not unfairly treated by majority shareholders. It also sets out the rights of shareholders in the event of a company sale or liquidation.
3. SETTING OUT DECISION-MAKING PROCESSES: A shareholders agreement outlines the decision-making process for significant company decisions, such as mergers and acquisitions, and helps to avoid disputes over these issues.
4. RESOLVING DISPUTES: A shareholders agreement can provide a clear framework for dispute resolution, which can help to avoid expensive legal battles and preserve the relationships between shareholders.
WHAT A SHAREHOLDERS AGREEMENT SHOULD CONTAIN
A shareholders agreement should be tailored to the specific needs of the company and its shareholders. However, there are some key provisions that most agreements should include:
1. SHAREHOLDERS’ RIGHTS AND OBLIGATIONS: This section should outline the rights and obligations of each shareholder, including voting rights, dividend entitlements, and the transfer of shares.
2. MANAGEMENT AND CONTROL: This section should outline the management structure of the company, including the roles and responsibilities of directors and officers.
3. DECISION-MAKING: This section should outline the decision-making process for significant company decisions, including mergers and acquisitions.
4. DISPUTE RESOLUTION: This section should outline the dispute resolution process for any disputes between shareholders.
5. EXIT STRATEGIES: This section should outline the process for a shareholder to sell their shares, including any restrictions on the sale of shares.
WHAT A SHAREHOLDERS AGREEMENT SHOULDN’T CONTAIN
A shareholders agreement should not contain any provisions that are illegal, contrary to public policy, or discriminatory. Additionally, it should not contain provisions that give one shareholder an unfair advantage over others, or that limit the ability of minority shareholders to exercise their rights.
EXAMPLES OF SHAREHOLDERS AGREEMENT CLAUSES
Here are some examples of common clauses that may be included in a shareholders agreement:
1. DRAG-ALONG RIGHTS: This clause allows the majority shareholders to require minority shareholders to sell their shares in the event of a company sale.
2. TAG-ALONG RIGHTS: This clause allows minority shareholders to sell their shares along with the majority shareholders in the event of a company sale.
3. RIGHT OF FIRST REFUSAL: This clause gives existing shareholders the right to purchase any shares that another shareholder intends to sell.
4. NON-COMPETE CLAUSE: This clause prevents shareholders from starting or participating in a competing business while they are shareholders in the company.
5. DEADLOCK RESOLUTION CLAUSE: This clause outlines the process for resolving a deadlock between shareholders on a significant company decision.
CONCLUSION
A shareholders agreement is an essential document for any company with multiple shareholders. It provides clarity on ownership and management control, protects the interests of shareholders, and outlines the decision-making process for significant company decisions. A well-drafted shareholders agreement can help to prevent disputes and misunderstandings, and provide a clear framework for dispute resolution.
When drafting a shareholders agreement, it is essential to ensure that it is tailored to the specific needs of the company and its shareholders. The agreement should contain key provisions, including shareholders’ rights and obligations, management and control, decision-making, dispute resolution, and exit strategies. However, it should not contain any provisions that are illegal, contrary to public policy, or discriminatory.
Finally, it is essential to seek the advice of legal professionals when drafting a shareholders agreement. They can help to ensure that the agreement is legally binding, enforceable, and protects the interests of all shareholders. With a well-drafted shareholders agreement in place, shareholders can feel secure in their ownership rights and confident in their ability to manage the company effectively.
Regville Associates offers end-to-end legal, secretarial, tax and compliance service for companies. We assist Companies in becoming and staying regulatory compliant.
Delaware incorporation has become a common trend among Nigerian startups in recent years, and for good reason. The state of Delaware has a business-friendly environment that offers many benefits to startups, including strong legal protections, tax advantages, and access to a well-established legal system.
According to a recent report by Crunchbase, over 60% of Nigerian startups that have received funding have been incorporated in Delaware. This trend is a significant shift from a few years ago when most startups in Nigeria were incorporated locally. So, what has caused this shift, and why are more Nigerian startups incorporating in Delaware?
One significant factor contributing to the popularity of Delaware incorporation is its strong legal system, which provides businesses with significant protection. Delaware courts are well-known for their expertise in corporate law and their willingness to rule in favor of businesses. Additionally, Delaware has a well-established legal infrastructure that provides fast, efficient, and consistent court decisions, which is essential for startups looking to establish and grow their business.
Another reason why more Nigerian startups are choosing Delaware incorporation is the tax advantages it provides. Delaware has no sales tax, and its corporate income tax is relatively low compared to other states in the US. This means that startups can save money on taxes, which can be reinvested back into their businesses.
Moreover, Delaware is home to many venture capital firms and investors, which makes it an attractive location for startups looking to raise capital. Many investors prefer investing in Delaware-incorporated companies because of the legal protections and other benefits it provides.
Finally, incorporating in Delaware can also provide a level of credibility to startups. By incorporating in a state known for its business-friendly environment, startups can signal to investors and customers that they are serious about their business and are willing to take the necessary steps to protect their interests.
To illustrate the trend of Nigerian startups incorporating in Delaware, we can look at some examples. Flutterwave, a Nigerian fintech company that raised $170 million in a recent funding round, is incorporated in Delaware. Another example is Paystack, a Nigerian payments startup that was acquired by Stripe in 2020 for over $200 million. Paystack was also incorporated in Delaware.
In conclusion, the trend of Nigerian startups incorporating in Delaware is a significant shift in the country’s startup ecosystem. The benefits of incorporating in Delaware, including strong legal protections, tax advantages, access to venture capital firms, and credibility, are driving more and more Nigerian startups to incorporate there. As Nigeria’s startup ecosystem continues to grow, it is likely that more startups will follow this trend and choose Delaware incorporation as their preferred option.
Regville Associates offers end-to-end legal, tax and compliance service for companies. We assist Companies in becoming and staying regulatory compliant.
In our last article, we wrote about the Goods exempted from Value Added Tax (VAT), in this article we shall continue on the services exempted from VAT in Nigeria. VAT as earlier defined is a tax levied on the value added to goods and services in the process of production and distribution.
Here are some of the services that are VAT-exempt in Nigeria:
1. EDUCATIONAL SERVICES: Educational services provided by approved institutions, including primary and secondary schools, colleges, and universities, are exempt from VAT. This is to encourage the growth of education in Nigeria and reduce the cost of education for students.
2. HEALTH SERVICES: Health services provided by approved hospitals, clinics, and other health care providers are exempt from VAT. This is to ensure that essential health services are affordable and accessible to all Nigerians.
3. RELIGIOUS SERVICES: Religious services provided by approved religious organizations, including churches and mosques, are exempt from VAT. This is to support the activities of religious organizations and ensure that they can provide essential services to the public.
4. CHARITABLE SERVICES: Charitable services provided by approved non-profit organizations, including those that provide relief to the poor and the vulnerable, are exempt from VAT. This is to support the activities of charitable organizations and ensure that they can continue to provide essential services to the public.
5. EMERGENCY SERVICES: Emergency services, including firefighting and rescue services, are exempt from VAT. This is to ensure that essential services are accessible and affordable to all Nigerians in times of emergency.
6. TRANSPORTATION: Both transportation services and shared transport systems, such as Uber and Bolt, are exempt from VAT. Additionally, public transportation and commercial airlines are also free from VAT. This exemption helps to keep transportation costs low for the general public and makes essential services more accessible and affordable for all.
7. MICROFINANCE AND MORTGAGE SERVICES: Services rendered by unit microfinance banks and mortgage institutions are exempt from VAT. This is to support the growth of these essential financial services and to encourage their development in Nigeria.
8. EXPORTED SERVICES: All exported services are exempt from VAT. This is to encourage the growth of Nigeria’s export industry and to make Nigerian services more competitive in the international market.
9. AGRICULTURAL EQUIPMENT RENTAL AND LEASING: The rental or lease of tractors and other agricultural equipment for agricultural purposes is exempt from VAT. This is to support the growth of Nigeria’s agricultural sector and encourage investment in this industry.
In conclusion, Nigeria’s VAT-exempted services aim to reduce the tax burden on the general public and support essential services. The government recognizes the importance of these services in the daily lives of Nigerians and wants to ensure that they are accessible and affordable to all.
Regville Associates offers end-to-end legal, tax and secretarial service for companies. We assist Companies in becoming and staying regulatory compliant.
A convertible note is a type of debt financing that allows investors to loan money to a company in exchange for the option to convert their loan into equity at a later date. This type of funding is often used by early-stage companies that have not yet reached a point where they can issue traditional equity.
Here are five features of convertible notes:
1. Convertible notes have a maturity date: The notes are typically issued with a maturity date of one to three years from the date of issuance. At the maturity date, the company will either have to pay back the loan or convert the notes into equity.
2. Convertible notes have a conversion price: The conversion price is the price at which the notes will convert into equity. This price is typically set at a discount to the price of future equity rounds.
3. Convertible notes accrue interest: The notes accrue interest at a rate that is typically lower than the rate for a traditional loan.
4. Convertible notes have a cap: A cap is the maximum valuation at which the notes can convert into equity. This cap is typically set at a higher valuation than the current valuation of the company.
5. Convertible notes are typically used by early-stage companies: Convertible notes are often used by companies that are in their early stages of development and have not yet reached a point where they can issue traditional equity.
It’s worth noting that the terms of convertible notes may vary depending on the company’s situation, the stage of the company, and the investors.
A hypothetical scenario where a convertible note is used.
A startup company, called “ABC Inc.” is looking for $500,000 in funding to help them develop their product and expand their team. They decide to issue a convertible note to a group of angel investors.
The maturity date of the note is set at 18 months from the date of issuance.
The conversion price is set at a 20% discount to the price of the next equity round.
The interest rate on the note is set at 5% per year.
The cap is set at $5 million, which is higher than the current valuation of the company.
The angel investors loan $500,000 to ABC Inc. in exchange for the convertible notes. The company uses the money to develop their product and expand their team.
After 18 months, the company has made significant progress and is ready to raise more funding. They hold a Series A round and are able to secure a valuation of $10 million. At this point, the angel investors have the option to convert their notes into equity at a 20% discount to the Series A price. So, the conversion price would be $8 million (10 million * 0.8). Since the cap is set at $5 million, the angel investors can convert their notes into equity at $5 million.
It’s important to note that this is a simplified example and in reality the terms of convertible notes can be more complex depending on the company’s situation, the stage of the company, and the investors.
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