Shareholders Agreement Dilution

Cash call clauses allow shareholders to continue to invest funds in the company and reward shareholders who invest in the company when it is needed. Shareholders should consider the possibility of a cash-call in the event of an investment in a company with regard to their finances and liquidity. Percentage dilution reduces the relative power of a shareholder in defining management or business and controlling the operation. When a company issues new shares and a shareholder no longer buys them from the new issue, the number of shares it owns as a percentage of the total number of shares issued decreases. In order not to undergo percentage dilution, he must obviously buy at least the percentage of the new expense corresponding to his old share of ownership. For example, a member who owns 30% of the company before the issue must buy at least 30% of the new shares to remain the owner of 30% after the issue. Put options in ASAs give a shareholder the right, but not the obligation, to resell their shares to the company (or other shareholders) on a future date or at one or more specific events. Investors who want to be able to leave a company prematurely because it does not generate certain income on a given date often need a put option. A sell option may stipulate that a shareholder may resell all or part of his or her shares to the corporation (or other shareholders). With respect to put options, the entity or the remaining shareholders may not have the means to redeem the shareholder exercising the put.

One of the ways to mitigate this problem if there is to be a put option is to indicate that payments can be made in instalments, and until full payment, Put shares are held in trust. In this case, it would be important to indicate who will have the voting rights on the shares in the fiduciary service. . . .