{"id":214146,"date":"2022-02-22T16:51:03","date_gmt":"2022-02-22T03:51:03","guid":{"rendered":"https:\/\/legalvision.co.nz\/?p=214146"},"modified":"2023-05-03T13:04:06","modified_gmt":"2023-05-03T00:04:06","slug":"3-ways-startup-founders-protect-interests-nz","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/startups\/3-ways-startup-founders-protect-interests-nz\/","title":{"rendered":"3 Ways Startup Founders Can Protect Their Interests in New Zealand"},"content":{"rendered":"\n

As a startup founder, you may<\/span> worry that other founders, investors, and shareholders<\/a> may dilute your business interests. In addition, your decision making and voting rights may be decreasing, causing another point of concern. Although you may have legal documents outlining the relationship between you and your shareholders, other factors can influence it. Furthermore, any changes can affect your business and interests, making it essential that you can protect your legal interests. This article will outline the three main ways you can protect your interests in your startup as a startup founder.<\/span><\/p>\n\n\n\n

Establish a Founders Agreement<\/h2>\n\n\n\n

In the initial stages of your business, you may want to e<\/span>stablish an agreement with your fellow founders. Founders typically use a founder agreement to provide for some claw-back of founder shares if they stop working within a certain period of time or fail to contribute to the company. This is commonly referred to as founder vesting and is looked upon favourably by investors.<\/span><\/p>\n\n\n\n

The matters typically included in a founder agreement can also be built into a shareholders agreement. Suppose you have a founder agreement in place, and later undergo an extensive capital raising round with external investors. In this case, the matters in your founder agreement can be built into a new shareholder agreement with those investors. For example, it may be that your shares are now fully vested, so this is no longer required).<\/span><\/p>\n\n\n\n

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For example, you and your co-founder agree that your shareholdings are subject to a three year vesting period. Suppose your co-founder leaves the company within three years. In that case, the company has an option to repurchase any unvested shares for the price initially paid for those shares by that founder (i.e. nil if the shares were issued on incorporation).<\/span><\/p>\n<\/div>\n\n\n\n

Have a Constitution and Shareholders Agreement<\/h2>\n\n\n\n

Having a shareholders agreement<\/a> ensures everyone k<\/span>nows their rights and responsibilities. Y<\/span>ou will usually draft a shareholders agreement to interlock with your company constitution. While not mandatory, a constitution enables you to benefit from a broader range of powers than those which would otherwise apply as the default provisions under the Companies Act. <\/span><\/p>\n\n\n\n

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A shareholders agreement is a confidential document that regulates everyone’s behaviour and can protect your legal interests in the startup. If your startup has many shareholders, misunderstandings will inevitably arise. A shareholders agreement can resolve these misunderstandings and give shareholders certainty of where they stand in such issues. <\/span><\/p>\n<\/div>\n\n\n\n

For instance, your shareholders agreement can include terms governing:<\/span><\/p>\n\n\n\n