FINLAND Law and Practice Contributed by: Christoffer Waselius, Jaakko Huhtala and Niko Markkanen, Waselius
“Bad leaver” provisions for manager sharehold - ers typically relate to situations where the relevant shareholder has materially breached the shareholder agreement, the company has terminated the manager shareholder’s employment or service agreement on personal grounds stipulated under Finnish employ - ment laws, or the manager shareholder has decided to resign from the company. “Good leaver” provisions, on the other hand, typically relate to situations where the manager shareholder’s employment or service agreement has ended or been terminated on other grounds, such as due to the death, retirement or dis - ability of the manager shareholder. Vesting provisions usually offer a linear vesting of the management’s shares during a period of approximately three to six years from the investment. In a good leaver situation, the purchase price is usu - ally determined based on the market value of the shares, whereas in a bad leaver situation the purchase price is usually established based on the lower of the original purchase price of the shares (or as a material discount) or market value. 8.4 Restrictions on Manager Shareholders Restrictive covenants on the manager shareholders (and the rest of the shareholders) are usually includ - ed in a shareholder agreement, and typically include provisions on share transfer restrictions and, subject to certain limitations, non-compete and non-solicita - tion undertakings, among others. Depending on the circumstances at hand, the non-compete and non- solicitation undertakings may become unenforceable if they are deemed unreasonable and extensive. Non-compete covenants are further usually imposed in the purchase agreement but they may, as a rule, only apply to controlling shareholders. The maximum duration of non-compete covenants that can be con - sidered permissible depends on the circumstances. Usually, they are considered justified for periods of up to three years if the acquisition includes transfer of goodwill and customer base as well as know-how. If know-how is not included, non-compete undertakings are, generally, justified for periods of up to two years. In employment or service agreements entered into with management members, it has generally been
deemed permissible to include non-compete and non-solicitation undertakings for the term of the agreement and a maximum period of 12 months after the expiry of the agreement. A non-compete obliga - tion requires a particularly weighty reason related to the employer’s operations or the employment relation - ship. A non-compete undertaking does not bind the employee if the employment is terminated for a reason attributable to the company, for instance, if the com - pany has terminated the employment due to financial or production-related reasons or for reasons arising from reorganisation of the company’s operations. Rules on Compensation Payable to the Employee An employee is always entitled to compensation for a non-compete obligation that remains in force after the termination of the employment. The monthly compen - sation to be paid during the term of the non-compete obligation is equal to 40% of the employee’s monthly salary if the duration of the non-compete obligation is six months or less, and 60% of the employee’s monthly salary if the duration of the non-compete obli - gation exceeds six months. Under the current rules, the employer must observe a notice period before the employer may terminate the non-compete clause included in the employment agreement. The applica - ble notice period is two months if the term of the non- compete obligation is six months or less, and equal to a third of the term of the non-compete obligation if the term exceeds six months. Furthermore, the company may not unilaterally terminate the non-compete clause after an employee has terminated their employment. 8.5 Minority Protection for Manager Shareholders Manager shareholders may, depending on the size of their shareholdings, enjoy certain minority protection rights in relation to the decision-making of the compa - ny and the right to demand a minimum dividend (being at the outset one half of the profits of the company of the preceding accounting period), among others. Those provisions apply to all limited liability compa - nies, but the shareholders usually agree to deviate from the minority shareholder rights in the shareholder agreement to the extent this is enforceable under law. Private equity investors often require the shareholder agreement to include certain anti-dilution provisions in order to secure their equity share but these are less
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