MALTA Law and Practice Contributed by: Dr Josef Cachia Fenech Gonzi and Cherise Abela Grech, GTG Legal
• Pre-emption rights: these rights are provided to all or to specific classes of shareholders to the effect that should another shareholder wish to sell their shares, these shares must first and foremost be offered to the other shareholders at the same price and condi - tions as those offered to third parties. • Dilution protections: similarly to pre-emption rights, anti-dilution provisions are typically inserted to ensure that in the event that the company would like to increase its share capital and allot new shares, such shares are first offered to the current shareholders so as not to dilute their stake in the company. • Drag-along and tag-along rights: these rights are typically granted to shareholders to ensure that investors are allowed a fair exit opportunity in the event that a majority shareholder would like to exit their invest - ment. Such rights allow the remaining share - holders to sell their shares or for the majority shareholder to force the minority shareholders to sell their investment at the same price and terms as the majority shareholder. • Transfer restrictions: such restrictions, akin to the pre-emption rights, are inserted to restrict potential sales to third parties, typically in ear - ly-stage financing to ensure that the founders do not exit the company before the enterprise has fully developed. • Voting limitations: various kinds of voting limi - tations can be included under different share classes. These would include shareholders with no voting rights, shareholders with veto rights, rights to appoint directors by specific shareholders, and other similar rights. 3.4 Documentation The typical documents in a such a transaction are as follows.
• The initial MOU/terms sheet/preliminary agreement: an initial non-binding agreement is typically used in the initial phase of the negotiations of an investment transaction. This is common in VC transactions as well as in traditional M&As. The document is usually not binding, however specific binding provi - sions such as those related to confidentiality may be inserted. • The share purchase agreement: the share purchase agreement is a formal agreement between the sellers and the buyers which formally sets out the rights and obligations of the parties in a share transfer transaction. The document would typically contain various provisions on intellectual property, warranties and restrictive covenants, amongst others. This document is a private document, and a separate short form share transfer instrument is utilised when registering a transfer with the authorities. • The shareholders’ agreement: the share - holders’ agreement is a private document, signed by the shareholders, which deals with various aspects of the company such as specific share rights, income rights, decision making, governance and management. The shareholders’ agreement is frequently used to ensure that certain arrangements remain private and is common in any form of invest - ment transaction. • The MAA: the memorandum is the statute of the company, the general format of which is standard. While the articles of association allow for a great deal of customisation, the memorandum of association has a predefined format which must be followed, as specific clauses must be inserted as a matter of valid - ity. The MAA can have specific provisions related to share rights, governance and man - agement, but these are often listed in private shareholders’ agreements. If the company
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