A full anti-dilution ratchet clause offers the greatest protection to investors. However, it is a restrictive clause. This type of clause protects existing shareholders against dilution when a new share issue takes place at a lower price than that initially paid by the existing shareholder. In practice, the complete anti-dilution of the ratchet ensures that existing shareholders retain their percentage stake without incuring additional costs if the company creates additional funding cycles. This is done by lowering the conversion price to allow existing shareholders to convert their preferred shares into a certain percentage of common shares. Under these conditions, the shareholder receives more shares for his first investment. In summary, when acquiring additional capital, the first shareholders should consider the impact that an anti-dilution clause may have on their business. As has already been said, a pay-to-play clause can yield better results. We successfully plan and prepare shareholder agreements.
Contact us, your florida business attorney, to help you develop an anti-dilution clause or other relevant provisions in the shareholders` agreement. Dilution protection is a term that is present in almost all installation transactions. From the founders` point of view, especially in the case of a start-up or early-stage company, it is very important to understand the implications of such a provision in the shareholder agreement (SHA). . . .