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What Is A Co-Sale Agreement

The venture capital firm helps manage and carry out the business. Five years later, she wanted to sell her share of the company and found a buyer, Company A, who offered to buy the shares for z.B. $20 each. Because minority shareholders have co-sale rights, they can join the venture capital firm and sell their shares to Company A for $20. It is not uncommon for preferred investors to require start-up creators to enter into a co-sale contract. Co-sale rights entitle investors,… A venture capitalist`s decision to invest in a business is often largely based on the technical and management experience of founders and management. It does not want these people to sell their shares in the company as long as it remains an investor. As a result, investors often need a ROFR and co-sale/day rights on any share sale by a key founder or manager. In fact, they may sometimes require a ban on founders and key managers from selling shares for a certain period of time. On the other hand, if many of your investors use their co-sales rights, you can expect a radical change.

A new investor with a majority can throw a lot of weight. This weight continues to increase when he or she receives even more co-sales shares. If the investor receives most of your company`s shares, that investor can replace all directors, partners, officers and other executives as much as he wants. However, this is only the most pessimistic scenario. Co-sale rights are generally good for minority shareholders because they can benefit from an agreement that another shareholder can enter into. In particular, a majority shareholder may have access to potential buyers and negotiate terms or prices that are better than minority shareholders. In addition, it can be difficult to find buyers for shares of private companies; Co-sale rights allow minority shareholders to seize a chance to obtain cash. In the event that the company proposes the transfer of shares, it is entitled to purchase the shares on the same terms as the proposed sale. If the company does not exercise its prerogative, Preferred holders have a reference right (in proportion to the privileged holders) with respect to the proposed transfer. [The rights to purchase unsubs purchased shares are redistributed in proportion to other legitimate preferred holders.] To the extent that the rights of the first refusal are not exercised, Preferred holders have the right to participate in the proposed transfer on a pro-rata basis (as for the purchaser and the owners of privileged persons).