SINGAPORE Law and Practice Contributed by: David He, Benjamin Teo, Kinnari Sahita and Binh Vong, Gunderson Dettmer Singapore LLP
Finally, “good” and “bad” leaver scenarios and associated claw-back rights in founder equity are staple terms in shareholders’ agreements. A bad leaver is typically defined as a founder who has been terminated for “cause” or has resigned without “good reason” , and the defini - tions of “cause” and “good reason” are heavily negotiated. In a bad leaver scenario, the company and, occasionally, other investors, may have the right to purchase some or all of the vested equity held by a founder at nominal value or a discount to the “fair value” of such shares. Fair value of ordinary shares may be assessed by an inde- pendent third-party appraiser or be pegged to a percentage of the latest preference share price. In a good leaver scenario, vested equity may not be subject to a right of purchase, or may be subject to such a right only at fair value. In both good and bad leaver cases, unvested equity is purchasable by the company at nominal value. 3.4 Documentation Singapore Forms for Pre-seed and Later- Stage Rounds Singapore companies raising pre-seed invest - ments typically use convertible notes or simple agreements for future equity (SAFEs) on widely adopted industry forms. When raising the first (and subsequent) priced equity round(s), the key definitive documents are: • a subscription agreement, governing the subscription terms of the preference shares being issued; • a shareholders’ agreement, governing the rights and obligations between the incoming and existing shareholders and the company; and • an amended and restated constitution, pro - viding for other corporate governance matters
and replicating certain key provisions of the shareholders’ agreement. If there is any inconsistency between the share - holders’ agreement and the constitution, the shareholders’ agreement generally prevails. Relevance of US NVCA Model Forms The documents published by the US National Venture Capital Association (NVCA) are rarely relied upon by regional investors. However, when drafting and negotiating Singapore law- governed shareholders’ agreements, the stand - ards set by the NVCA remain a useful point of reference due to the developed and sophisticat - ed venture market in the USA and the prevalence of US VCs investing in Singapore-headquartered companies. 3.5 Investor Safeguards Please refer to Structured Rounds and Downside Protections in the Singapore Trends and Devel - opments chapter of this guide for a discussion of the structures and terms used by investors in recent down cycles. Common Terms in a Down Round The starting point for structuring any down round is to ascertain whether the requisite consents required by the shareholders’ agreement and constitution (and any other documents) can be obtained. For example, new investors in a down round may expect anti-dilution protections to be waived by existing investors, so as not to severely penalise founders who often bear the burden of the anti-dilution adjustment. A down round investor will usually expect sen - iority in liquidation preference, dividends and redemption terms. Investors may also negotiate for a multiple on their liquidation preferences, and for participation rights, as well as ratchet
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