CHILE Law and Practice Contributed by: Francisco Barreda, Barreda Legal Tech
A typical vesting period of four years with a one- year cliff is usually established, during which the beneficiary gradually acquires rights over the shares. Reverse vesting is also used, especially for founders, where the company has the right to repurchase shares in the event of early depar - ture. These instruments are usually tied to the benefi - ciary staying with the company, and the shares can be fully or partially lost if the employment or business relationship ends. It is important to note that the reason for the departure is relevant in these cases, and it could determine the forfei - ture of the shares in the event of early departure. 5.3 Taxation of Instruments From the worker’s perspective, generally, the stock option and vesting do not trigger taxation. In the case of exercising the option, if there is an increase in value (between the market value of the shares at the time of exercise and the price paid by the worker), the worker may or may not be taxed, depending on whether they have an individual or collective employment contract that addresses this right to stock options. If the ben - efit is established in the employment contract, taxation will only occur when the worker sells their shares (if there is a higher value), and not when they exercise the option. Otherwise, they will be taxed both when they exercise the option and upon the future sale of the shares (if there is a higher value in either case). It is important that these instruments are addressed from both a tax
ing ownership stakes. The option pool generally ranges between 5-10%. The dilution resulting from the incentive plan can be absorbed by the founders or by both the founders and investors. Typically, it is the founders who propose the option pool, and the discussion usually focuses not on the need for the option pool itself, but on who will bear the dilution resulting from it.
6. Exits 6.1 Investor Exit Rights
In Chile, the provisions that establish investors’ rights in the event of an exit or liquidity event are typically included in shareholder agree - ments. These mainly include preemptive rights, tag-along, drag-along, and liquidation prefer - ences. These rules ensure that investors can exit their investment in events such as a trade sale, an initial public offering (IPO), or any other liquidity event. Tag-along rights allow minority investors to participate in the sale if the majority shareholder sells, while drag-along rights com - pel minority shareholders to sell if the majority shareholder decides to sell. Liquidation prefer - ences ensure that existing shareholders have the right of first refusal to acquire shares from other shareholders who wish to sell. Additionally, since exits are uncommon in Chile, investors often create funds with longer dura - tions and set longer conversion conditions (eg, in a SAFE). Future investment rounds typically allow investors to sell all or part of their shares to other funds, even when a sale or IPO does not occur. These practices provide greater flex - ibility for investors in an environment with few liquidity events.
and labour perspective. 5.4 Implementation
Investors in venture capital rounds typically request that the employee incentive plan be defined by the time the investment is closed. This ensures clear visibility of the fully diluted share capital and helps avoid future surprises regard -
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