EIS Compliant Liquidation Priority provision

Description

Last updated on March 6th, 2020 at 12:37 pm

Below we explain the practical impact of such a provision along with the areas where your input will be required on the template.

Article breakdown
The idea behind this provision is that the A ordinary shares are held by the investors and the founders hold ordinary shares. Upon a share sale, if the proceeds you expect to receive per equity share is a relatively low figure then these proceeds get shared between all of the shareholders (both A ordinary shareholders and ordinary shareholders). However, until their investment money is repaid the proceeds are split so that the A ordinary shareholders receive 99.5% (or whatever figure you wish to insert) of the proceeds and the ordinary shareholders receive 0.5% (or whatever figure you wish to insert). Once their investment monies have been received in full, the remaining proceeds will be distributed pro rata between the ordinary shareholders.

Where the expected proceeds per equity share are of a significant value (whatever you decide) then the proceeds will be distributed between all equity shareholders pro rata in accordance with the number of shares held.

Where your input is required on the template
By way of summary, you will need to insert or amend the following information:

Page 1

• The company name;
• The date the articles were passed by special resolution;
• The nominal value of the A ordinary shares;
• The liquidation priority provision’s article number;
• The nominal value of the ordinary shares; and
• The subscription price for each A ordinary share.

Page 2

• The maximum figure with which you wish the liquidation priority provision to apply;
• The percentage of the proceeds to be split between the A ordinary shareholders and the ordinary shareholders; and
• The amount per equity share where, if the proceeds per equity share are greater than that amount, you wish the liquidation priority provision to no longer apply.