SINGAPORE Law and Practice Contributed by: David He, Benjamin Teo, Kinnari Sahita and Binh Vong, Gunderson Dettmer Singapore LLP
anti-dilution protections to “reset” their entry valuation in the event of future down rounds, although this remains the minority approach. Sig - nificant governance oversight may be enforced through extensive reserved-matter rights, along with transfer restrictions on the shares of found - ers and other investors to prevent a premature exit. Lastly, investors may also negotiate for favourable terms in a future upside scenario, including super pro rata rights that exceed their post-closing ownership percentage. Minority Protection Under the Companies Act The Companies Act provides a number of statu - tory protections for minority shareholders. Sec - tion 74 provides minority shareholders with the ability to apply to cancel a variation or abroga - tion of their class rights in certain circumstances, and Section 216 provides the ability to apply for relief under the oppression remedy. 3.6 Corporate Governance Board- and Shareholder-Reserved Matters Investors exercise influence over governance and operations by stipulating consent require - ments for certain actions taken at the board and shareholder level. Board-level oversight is typi - cally required for operational matters, including: • the incurrence of debt; • entry into agreements outside the ordinary course of business; • significant deviations from the business plan and budget; • executive compensation and approval of equity awards for key personnel; and • hiring or firing of key personnel. Shareholder-level oversight is typically required for matters that directly impact the value of an investor’s ownership stake and the rights attached to their shares, including:
• amendments to the shareholders’ agreement and to the constitution; • the amount of equity reserved under the ESOP; • liquidity events; and • dilutive issuance of new securities. Board-level matters typically require the consent of a specified number of investor-nominated directors, whereas shareholder-level matters typically require the consent of investors hold - ing a specified percentage of preference shares. Ultimately, the enforcement of reserved matters is a matter of contract, and it may not be feasible to unwind actions taken without proper consent, especially when such unauthorised actions are effected by subsidiaries in foreign jurisdictions. Investors should consider implementing practi - cal measures to mitigate risk, including adopting robust banking policies requiring multiple sig - natories for large account withdrawals, to guard against the risk of misappropriation and embez - zlement. 3.7 Contractual Protection Founder Liability In early-stage financing rounds, founders may be liable on a joint and several basis with the company for breaches of warranties and under - takings provided in the subscription agreement. They may also be required to provide a personal indemnity for such breaches. While this position may be justifiable for an early-stage company with limited assets, founder liability is often omitted in subsequent rounds as the company matures and its recoverable assets increase. Indemnities General, and sometimes specific, indemnities are typically included in subscription agree - ments. Indemnities should be limited, including
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