Non-distributable reserves definition

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Private equity investment—ratchets

Private equity investment—ratchets A ratchet in private equity is a mechanism to vary the amount of equity held by founders, managers and employees post-investment. In a venture capital context, ratchets operate as anti-dilution provisions. They protect early-stage investors from dilution by subsequent fundraisings at lower entry prices. In a buyout context, they are generally used to reward management, whose proportion of overall equity ownership may change as a consequence of the performance of the business in line with forecasts and projections and the investor’s target return. In this context, ratchets usually have the effect of increasing management’s shareholding when the business has performed well. Ratchets will vary significantly from investment to investment. They often involve complex financial and mathematical concepts and need to account for a variety of circumstances, including differing exit scenarios and forms of consideration. Tax effectiveness Managers who have the benefit of ratchet provisions will be keen to ensure that they are as tax efficient as possible. The issue with ratchets is that the proportion...

UK AIFM regime—disclosure, reporting and anti-asset stripping requirements

UK AIFM regime—disclosure, reporting and anti-asset stripping requirements This Practice Note explores the provisions in the Alternative Investment Fund Managers Regulations 2013, SI 2013/1773 (AIFM UK Regulations), and the Financial Conduct Authority (FCA) Handbook, specifically, the Investment Funds sourcebook, chapter 3 (FUND 3), which transposed into UK law the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) (AIFMD) requirements on UK alternative investment fund managers (AIFMs) relating to investor disclosure, annual reports, reporting to regulators, private equity disclosure, and anti-asset stripping requirements. Additional related information can be found in the following Practice Notes: • Practice Note: UK regulation of alternative investment fund managers—essentials — Authorisation on the information requirements when applying for authorisation as an AIFM • Practice Note: UK AIFM regime—transparency rules and the prospectus on the requirements concerning transparency and the information which must be disclosed to potential investors prior to making a decision to invest • Practice Note: EU AIFMD disclosure, reporting and anti-asset stripping requirements on the equivalent requirements under the EU AIFMD regime For...