CHILE Law and Practice Contributed by: Francisco Barreda, Barreda Legal Tech
clauses, it sets the foundation for subsequent negotiations. • Capital Increase with Issuance of Paid Shares: This is an agreement where investors agree to contribute capital in exchange for shares in the company. Additionally, it may be agreed in parallel to purchase a certain number of shares from the founders, provid - ing them with some liquidity. • Shareholders’ Agreement: This is a crucial document that regulates the relationships between shareholders, including economic and political rights, drag-along and tag-along clauses, restrictions on share transfers, preemptive rights, and more. • Statutory Modifications: These are legal documents that reflect the formal approval of the transaction by the company and any amendments to the by-laws agreed upon with the investor (typically, a new board of direc - tors and governance structure is established). • Supplementary Agreements: Depending on the case, these may include vesting contracts for founders (typically reverse vesting), stock option plans for employees, non-compete and confidentiality agreements, or specific clauses related to corporate control. In Chile, there is no set of standardised, man - datory documents; however, it is common for ecosystem participants – particularly VC funds and incubators/accelerators – to refer to certain clauses from international models, especially those from the NVCA (National Venture Capital Association) in the United States, adapting them to Chilean legislation. 3.5 Investor Safeguards • Downside Scenario: In recent years, due to the current market conditions, clauses have been strengthened to protect inves - tors during critical periods of the company,
especially during liquidation. It is common for VC investors to have preferential rights to the proceeds in case of liquidation. Gen - erally, these clauses allow them to recover their investment first (and in some cases, a multiple of it) before distributing the remain - ing proceeds among the founders and other shareholders. However, it is important to note that not all preference clauses have value. In a formal liquidation process under Law No 20.720 (the Law on Business and Personal Reorganization and Liquidation), the legal priority of credits applies, and creditors have precedence over shareholders in the distribu - tion of the company’s assets. • Anti-dilution Clauses: SAFEs, commonly used in the early stages, usually do not include anti-dilution clauses because they are designed to be simple, quick, and favour - able to start-ups at early stages. The original model from Y Combinator (widely used in Chile and adapted to our legislation) does not include anti-dilution clauses. “Weighted average” or “full ratchet” (to a lesser extent) are used in more advanced and growth-stage rounds. The most common mechanism is the “weighted average” , which adjusts the con - version price of preferred shares in the event of a future round at a lower valuation. • Pre-emption Rights: These are standard clauses in almost all shareholders’ agree - ments. They grant investors the right to participate proportionally in future fund - ing rounds, allowing them to maintain their ownership percentage and avoid dilution. Like anti-dilution clauses, these are more commonly used in later-stage rounds and are rarely included in SAFEs. • Additional Common Rights: In situations of greater uncertainty, clauses such as veto rights over key decisions, greater participa - tion in the board of directors, and “pay-to-
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