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What types of matters are usually subject to investor consent in a shareholders' agreement relating to a private limited company subject to private equity or venture capital investment?

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Published on LexisPSL on 23/05/2017

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • What types of matters are usually subject to investor consent in a shareholders' agreement relating to a private limited company subject to private equity or venture capital investment?

What types of matters are usually subject to investor consent in a shareholders' agreement relating to a private limited company subject to private equity or venture capital investment?

Provisions which generally restrain a company from acting without the prior consent of an investor in that company are often seen in the context of companies in which an investment has been made by a private equity or venture capital fund. These provisions, which are known as veto rights or negative covenants, can usually be found in the shareholders' agreement relating to a company. By way of example, these provisions typically provide that the company will not (and will procure that none of its group companies will not) carry out certain steps/actions set out in the relevant shareholders’ agreement, ie certain ‘reserved matters’, without the consent of the investor. This consent is typically expressed to be provided either by the investor directly in writing or by its relevant director appointee to the board of the company, ie an investor director. If the company has more than one investor, consent may be provided by the written approval of:

  1. investors holding a certain percentage of all the company's shares issued to investors, eg 75% or more of all company shares issued to investors

  2. a 'Lead Investor', ie a person chosen among the investors as the party to approve investor

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