This presentation is an advise on what to you should ask yourself before partnering with anyone, covers what good Shareholder Agreement should have and explains vesting in Finland. Presentation prepared for Nordic Founders Meetup (http://www.meetup.com/NordicFounders/).

1. STARTUP SHAREHOLDER
AGREEMENT IN FINLAND,
DO’S AND DON'TS
Sergey Gerasimenko
Nordic Founders Meetup
with Aaltoes

2. PARTNERSHIP IS LIKE MARRIAGE, ASK
YOURSELF FEW QUESTION FIRST:
Is this person dependable? Does person deliver what is promised? If something would
happen to you, would your partner step in and make business flourish? Avoid
inconsistent unpredictable people at all costs.
Does this person want to work for combined interest of all partners, or mostly seem to
peruse own interest and benefit?
Does this person working hard or hardly work? If anyone claims to work 24/7 it means
that they are either terrible in planning or not qualified do the job during normal
working hours. Chronic overwork always leads to a burnout.
Is this person spender or saver in relationto personal finances?
Would any of personal commitments (family, kids, bad habits, hobbies) will affect
working relationship?
How much you can trust this person? Would lend a money? Would you let your partner
to take care of your dog or a house for a few days? What about a kid?
Can you stand this person for more than few hours? Imagine your working side by side
in good times and in bad, in sickness and in health, until a successful exit do you apart.
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3. HAVE AN OPEN TALK
Does any of you have any financial obligations? Big personal loans, antimonies or any other regular
payments partner would have to make, could mean problem if company will have to delay salaries.
Are there any open/past legal disputes on a personal level? Even personal disputes can cause a serious
shadow for company.
Would anything be revealed during background checks? Mandatory requirement for most large companies
in Finland, often omitted by startups.
What are religious and political views, bad habits, working styles or anything else than can cause a conflict.
What are you personal, educational or any other obligations do you have? Leaving work at 15:00 to pick
up children or doing volunteer work on regular basis should be openly discussed and understood.
How would you like to structure partnership in terms of equity, capital, salary and commitment. Best
approach is to structure everything equally, especially it if a first time you form a startup.
What do you expect from this partnership? If one person wants an exit in 2 years and another want to
simply make a living with this business there will be a problem.
What situation would mean for you end of partnership?
If any of those answers false or incomplete, what actions you would like partners to take?
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4. GOOD SHAREHOLDER AGREEMENT
SHOULD MENTION THE FOLLOWING
All founders, working shareholders or investors.
Company also should a part of the agreement.
Explicitly define qualifying majority (usually 2/3 of all votes).
Commitment of working shareholders (can be done with employment
contract as well, but without it add it to SHA).
Explicitly mentioning how shares are traded (avoid giving any veto
rights to a single shareholder even if is an investor).
Mention how to deal with deadlock situation (where votes split
50/50).
Right of first refusal – if anyone wants to sell shares, they have to be
offered to remaining shareholder first (never to outsiders directly).
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5. GOOD SHAREHOLDER AGREEMENT
SHOULD MENTION THE FOLLOWING
Drag along case - majority decides to sell, rest have to join and can’t object.
Tag along case – majority sells a portion on their shares, minority have a right to
join the deal on the same terms.
Explicit clause for information confidentiality.
Explicit clause for IPR ownership, all IPR has to be property of the company.
Explicit clause for non-competition and non-solicitation for all working shareholders.
Always mention type of business company operates and what would be a
competing business.
Penalty for breaching agreement (usually 50.000 euros).
Any dispute resolution has to be done in arbitration court (hearing takes up to 6
months), district court cases can take up to 18 months in waiting.
Good to discus what happens when any of shareholder dies (get a will in place) or
gets a divorce.
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6. VESTING IN FINLAND
US model of awarding with shares over time is not legal in Finland
Instead all shares have to be played for and later sold when person
leaves before vesting schedule ends
Example:
­ Company has 3 founders with equal equity split (33.3% each)
­ Vesting schedule is 48 month, with monthly accumulation of shares
­ One of founders decide to quite in 12 months, thus this person can keep 8.325%
(33.3%/48 months of vesting * 12 months worked)
­ Rest (33.3%-8.3%) needs to be sold to remaining shareholders at the moment of exit
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7. VESTING IN FINLAND AND PROTECTION
AGAINST SLACKERS
Termination of a working contract for any shareholder can be
problematic after 1 year. Lots of labor union related policies needs to
be taking into consideration.
Instead make “director” contracts for all founders (or any other
working shareholder with large equity stake).
Director’s contract are not subject to union policies and thus can be
terminated at any point of time by the board.
This prevents from situation when one of the founders underperforms
or gets into a conflict after 1 year but does not want to sell unvested
shares.
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8. SHAREHOLDER AGREEMENT TEMPLATE
Freely available under CC license at
www.seriesseed.fi
Also, remember to check Limited Liability Companies Act that your
shareholder agreement complies with the Finnish law:
http://www.finlex.fi/en/laki/kaannokset/2006/en20060624.pdf
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