or more information on this post contact Scott Preece.
It is fairly typical in UK transactions, for Investors to insist that founders cannot sell or transfer their shares without the consent of the Investor. This helps protect the Investor from the founders selling out early (although the reality is, that the shares are pretty illiquid and it is very difficult to sell the shares until an exit (or upon an investment if there is investor demand).
Regardless of whether the documents contain a veto on founder transfers, it is standard for investors to require Right of First Refusal (or "ROFR") provisions.
ROFR provisions require a founder and/or other shareholders, to first give the Company or the Company and thereafter certain shareholders the right to purchase shares, before selling any shares. Any such offer would be on the same terms and conditions for the proposed third-party sale. This right helps protects Investors from having to deal with unknown outsiders becoming shareholders.
In practice ROFR provisions are rarely used, however the items typically negotiated include:
The Anatomy of a Term Sheet series can be found in full here.
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