MALTA Law and Practice Contributed by: Dr Josef Cachia Fenech Gonzi and Cherise Abela Grech, GTG Legal
need to be resolved prior to the finalisation of the deal. • The drafting and negotiation of key legal documents such as the share purchase agreements, shareholders agreements, amendments to the MAA of the company, and others. • If the target is licensed by a regulatory author - ity such as the MFSA or the MGA (Malta Gaming Authority), such agreement needs to be notified and approved by the relevant authorities before it can proceed. This author - isation may take some time depending on the extent of the change. The investors are also subject to significant due diligence require - ments by the regulatory authorities. This sub - mission may also require additional specific documents, such as an updated business plan, if the target will substantially change its business model following the investment. • The preparation, execution, filing and regis - tration of the final transfer documents which need to be registered with several authorities, such as the Malta Business Registry and the tax authorities. This is a formality, but the process may be time consuming. Similarly to a traditional M&A transaction, the interests of all the parties need to be balanced and safeguarded to ensure that the transac - tion is finalised. While the investor will seek to enhance their potential investment, the original owners will seek legal protections and assuranc - es. Such agreements would then be governed through shareholders’ agreements between the parties. Share class and class rights are also very common in such transactions, and these serve to distinguish between the different class - es of owners. Class rights carry different voting rights, dividend rights and so forth. The nego - tiating phase is hence critical as both sides of the transaction need to agree on the terms of
the deal, which can also impact the timeline of the transaction. While the due diligence process would require more hours to complete, negotia - tions with investors typically take longer due to various interests which need to be aligned, as well as due to the multiple advisors required on each front. 3.3 Investment Structure There are various options for investors in early- stage financing to invest in a company, other than ordinary shares. In all cases, this is done through different classes of shareholding, which include the following. • Preference shares: these shares offer holders a preferential dividend at a fixed rate. Holders of preference shares are not considered equi - ty holders and are paid dividends before any are paid to ordinary equity holders. Investors are allotted preference shares when they want to invest monies into an enterprise but want a fixed rate of return, which is paid before any dividends to ordinary equity shareholders. • Convertible preference shares: these shares have the same elements of ordinary prefer - ence shares but are convertible to ordinary shares or a specific class of ordinary shares on the occurrence of a specified event. This would allow preference shareholders to become equity shareholders on the materiali - sation of certain events. • Participating preference shares: these shares have the same elements of ordinary prefer - ence shares but also provide the right to receive an additional dividend which ranks equally with ordinary shareholders. • Redeemable preference shares: these shares have the same elements of ordinary prefer - ence shares but can be redeemed upon a decision being taken or upon the materialisa - tion of a specified event.
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