FRANCE Law and Practice Contributed by: David-James Sebag, Donald Davy and Marie-Sophie Chevreteau, Gide Loyrette Nouel
• in most of the cases, that the holders of each type of securities giving access to the share capital give consent to such issuance of a new category of preferred shares. This process generates delays (and costs) and is only recommended if the company already has pre-existing statutory preferred shares. In addition, statutory preferred shares are not available to individuals eligible for certain ben - eficiary tax regimes in France (in particular the Plan d’Epargne en Actions – PEA). Ordinary Shares Labelled as Preferred Investors’ rights are solely provided in the shareholders’ agreement, not in the certificate of incorporation. There’s a stronger trend in the market favouring this structuring, even in the case of larger financings. Finally, please note that certain early-stage startup can issue “BSA AIR” (warrant), equiv - alent to a SAFE (Simple Agreement for Future Equity) in the US, with a cap, floor and/or dis - count over the next round to be negotiated. Note that, unlike a bond or note, there can be no cash repayment of BSA AIR investment in downside events (absence of financing or liquidity). 3.4 Documentation Key documents in VC transactions are as fol - lows. • Term sheet, generally non-binding, drafted by the lead new investors and executed by the company and, as the case may be, the found - ers and the main existing investors. One- to eight-page documents detailing the main conditions of the transaction and the provi - sions of the shareholders’ agreement. The company usually grants a three-to-six-week
exclusivity period for new investors to com - plete the transaction. • Main shareholders’ agreement executed by major investors and the founders detailing governance (composition and organisation rules of the board; veto rights on certain decisions; information and audit rights); share transfer rules (right of first refusal and tag- along rights); security issuance rules (priority or pre-emption right in new issue); liquidity (drag-along rights and liquidity process); liqui - dation preference; and specific provisions for the founders (leaver call option, non-solicit, non-compete and IP provisions). • Short-form shareholders’ agreement execut - ed by minority investors and ESOP holders with limited rights (full tag-along rights) and key undertakings (right of first refusal to the benefit of main investors/active founders, drag-along rights and acknowledgement of liquidity process) and liquidation preference, consistent with the main shareholders’ agree - ment. • Representations and warranties agreement providing for representations given by the founders and/or the company, and indemnifi - cation mechanism (generally through transfer or issuance of shares). • Investment agreement detailing the structure of the transaction; generally executed for larger transactions or complex investments (with several tranches or conditions prec - edent); the investment agreement usually includes the above-mentioned representa - tions and warranties. • Shareholders’ resolutions approving the transaction, the issuance of shares, the ESOP and appointing board members (generally through shareholders unanimous decisions deed). • Updated bylaws.
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