Co-founder relationships: How to protect your startup from a messy takeover in Armenia?

The reasons investors want to remove founders can vary greatly, from loss of aspiration by management to buying the company for the technology knowing that they can bring in their own team. There also may be unscrupulous investors who remove founders to gain cheap equity. So, protecting yourself as a founder is essential when deciding to take a venture capital investment. Here are some preventive measures from the founder’s perspective.

Retain control of at least Series B. Your investors may block a lucrative sale. The founders who had control of the board on average received more during any sale or takeover․ Having seats on the board and non-affiliated with VC independent directors is vital for strategic protection.
Drag right. As time goes on and as further investment rounds close, you may find your shareholding in the company diluted which can have an effect on your ability to influence decisions at the shareholder level. However, if you are likely to remain as the majority shareholder for a period post-investment, you should ensure that a “drag right” is included in the articles. If an offer is made to buy the company by a third-party purchaser, a drag right will allow the majority shareholder to compel the remaining shareholders to sell their shares to the purchaser, on the same terms as would have been offered to him.
Leaver provisions. In a funding scenario, the principal purpose of leaving provisions is to put the equity of the founders at risk if they leave the company, or if the company doesn’t perform as forecast during the pitch to investors. Because investors have established their valuation and invested based on the founders’ commitment to the business, it’s deemed fair that the founders lose some of their equity if they bail early. Were you to exit the company for any reason, and provided you’ve been diligent enough, you will not be required to give up your own shares. Certainly not straight away in any event. It’s entirely possible that investors will expect you to stay active in the company for a pre-agreed timescale, allowing a certain portion of the shares to vest each year.
Restrictive covenants. Likely, post-investment, you will be required to have a service agreement in place with the company, if you haven’t already got one. Included in your service agreement will be a number of restrictive covenants which will apply to you both during your employment and for a certain period of time after you cease to be employed. These restrictive covenants typically restrict you from working with or being involved in another business which competes with the startup and from poaching clients or employees. While it is entirely usual for an investor to require these terms to be included, as a founder, you will obviously want to ensure that they are limited in terms of time, location, and business sector, so that you are able to work in another business if you leave or are forced to leave earlier than you have anticipated.

Note, that Armenian law does not offer a wide variety of adaptable safeguards for the founder’s rights by default. The relevant special agreements should be signed to cover those gaps.

Redbridge recognized by IFLR1000 as “Notable Firm”

We are pleased to announce that Redbridge recognized by IFLR1000 as “Notable Firm” in Financial and Corporate Practice for Armenia according to 2022 results. The IFLR1000 – The Guide to the World’s Leading Financial Law Firms – has been a leading independent global guide to the world’s financial and corporate law firms since 1990, covering 120 jurisdictions around the world.

International Environmental Law and Armenia

Many countries are working to achieve their environmental objectives by systematically assuring compliance with environmental laws and regulations. In the transition economy of Armenia, this challenge comes at a point when concerted actions are also required to advance the rule of law and the credibility of governments.

A well-functioning system of environmental compliance assurance has a multitude of societal and economic benefits. It protects public health and the environment and helps countries implement environmental policies at lower overall costs. It promotes the rule of law and good governance, as well as the expansion of citizen engagement. Finally, it can boost investor confidence and stimulate the creation of new jobs. The legal and permitting framework has a direct impact on environmental compliance. The quality and clarity of environmental regulations, for example, affect the compliance behavior of regulated entities. A crucial question is whether environmental regulations sufficiently remove the benefits of non-compliance.

Armenia has in place most laws needed for addressing its environmental problems. Two pieces of recent legislation are noteworthy. The Law on Inspection Bodies, adopted in 2014, sets out key elements of compliance monitoring and enforcement activities across all sectors of the economy. Meanwhile, a Methodology and General Description of Criteria Determining Risks-Based Decree on the Risk Assessment Conducted by the Environmental Protection and Mining Inspection Body of Armenia was adopted in 2019. The methodology established three categories of risk for economic entities and described how to determine risk.

On 1 March 2021, Armenia’s Comprehensive and Enhanced Partnership Agreement (CEPA) with the European Union, signed in 2017, came into force. Draft environmental legislation in the country undergoes public consultation. Armenia ratified the Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters (the Aarhus Convention) in 2001. It has also been implementing the UNECE Maastricht Recommendations on Promoting Effective Public Participation in Decision-Making in Environmental Matters. Transparency in Armenia’s environmental legislation in the mining sector has improved significantly as a result of the country’s participation in the Extractive Industries Transparency Initiative since 2017. The EPMIB ensures compliance with Armenia’s legislation in the sphere of the environment and subsoil safety.

 

Remote work for everyone?

The ability to work from home after the pandemic has become a hotly debated topic around the world, with many office workers clamoring to hold on to their newfound flexibility and some CEOs remaining in favor of a return to offices. A new survey by McKinsey found that 87% of workers presented with the option to work from home or in a hybrid format are willing to take it. But many employers are still convinced that returning to office is the way forward.

Some countries are taking steps to enshrine working from home as a permanent legal right.

The Dutch parliament approved legislation to establish work-from-home as a legal right, making the Netherlands one of the first countries to grant remote working flexibility by law. The legislation was approved by the lower house of the bicameral parliament of the Netherlands on Wednesday last week. It still needs a nod from the Dutch senate before its final adoption.

In 2018, 14% of employed Dutch people worked remotely, according to data from Eurostat: the highest rate in Europe and well above the 5.2% average of EU citizens who worked from home. The Netherlands also ranked first in a 2019 survey by British internet service provider Plusnet that listed the best European countries to work remotely, based on factors including the percentage of people currently working remotely, internet quality, and cost of living.

Amendments would make the Netherlands one of the first countries to require businesses by law to grant their employees the flexibility to choose whether to work from home or in the office.

In countries like the U.S. or the U.K., no such protections have yet been approved on a national level, and employees have to negotiate remote work terms with their employer. In the U.K., for instance, employers can still decide to mandate a return to office for employees if they “have a good business reason for doing so,” according to the U.K. government’s official policy on flexible working.

Armenia has not yet demonstrated any bravery in this regard either. Only in instances of force majeure is remote work permitted under the Armenian laws. However, it is possible to organize work remotely in any situation by mutual agreement.

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