Also, if the company decides to borrow an amount of money that creates heavy debt load and put the equity investment at risk the negative control provision can be implemented by the investor. It prevents the majority shareholders to decide something that may diminish the venture investors equity.Ī venture investor may choose to exercise this right on the occasion of the shutting down the company of selling it at an unsatisfactory price. The negative control provision is designed to provide veto right to the investors for protecting their investments. The venture investor can intervene only when the threshold is crossed. Generally, an upper limit of loan is mentioned in the agreement. The negative control provision covers a number of areas including dissolution, sales or merger of the company, sale of the assets, changing the company's charter, issuing senior or pari passu securities, giving away dividends, redeeming securities, taking a loan and changing the number of directors of the company. Including a negative control provision in an investment- agreement is a standard practice to protect the interest of the venture investors. They can exercise this right to stop an action that goes against their interest. The venture capital funds generally hold a minority position in a company, thus they have the negative control provision. In a company, the decisions are generally taken by the majority of the board and the majority of the shareholders through a vote.
Back to: Business Transactions How do Negative Control Provisions Work? Typically, this provision is called the protective provisions that allow the venture capitalists to unilaterally block different corporate actions of the company. The negative control provision is often a part of a venture investor agreements and is exercised though the use of veto rights.
Positive and negative control update#
Update Table of Contents What are Negative Control Provisions? How do Negative Control Provisions Work? Academic Research on Negative Control Provisions What are Negative Control Provisions?Ī negative control is a right to block some undesirable outcome.
0 kommentar(er)
