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Shareholders and investor rights

M&A and corporate finance glossary: 31 entries in English and Polish

M&A and corporate finance glossary: shareholders and investor rights

M&A and corporate finance glossary

The entries in this section concern relations between shareholders and an investor’s rights in a company. They cover the shareholders’ agreement and the articles of association, transfer restrictions, drag-along and tag-along rights, preferences and anti-dilution protection, incentive plans, as well as corporate bodies, capital increases, and share redemption.

Prepared by the Capital One Advisers team. Entries last reviewed: November 12, 2026.

Entries from A to Z (31):

Anti-dilution protection

Polish: ochrona przed rozwodnieniem

Anti-dilution protection is a provision of an investment or shareholders’ agreement that protects an investor when the company issues new shares at a lower price than the investor paid (a down round). The investor can then usually subscribe for additional shares at par value, since shares cannot be issued below par (Articles 154 § 3 and 309 § 1 of the Commercial Companies Code, KSH; shares in a simple joint-stock company have no par value, Article 300² § 3 KSH), or receives an adjustment to the conversion price of its instrument, so that its average price matches an agreed formula. Issuing the additional shares requires a share capital increase resolution, so the other shareholders usually undertake in the agreement to vote for it and not to exercise their preemptive rights. Under full ratchet, the price used to calculate the investor’s entitlement is adjusted to the price of the new issue; under weighted average, the number of new shares is also taken into account, which is gentler on the founders.

See also: dilution, liquidation preference, pre-money and post-money valuation.

More in the article “A founder with 70% of the shares was to receive 51% of the price. One paragraph of the investment agreement decided the PLN 8.8 million difference”.

Articles of association

Polish: umowa spółki i statut

The articles of association (in Polish, umowa spółki for a limited liability company or a simple joint-stock company and statut for a joint-stock company) are the company’s basic constitutional documents. They set out the company’s name, registered office, business purpose, shares, corporate bodies, and the rights and obligations of shareholders, and in a limited liability company or a joint-stock company also the amount of share capital (Articles 157 § 1 and 304 § 1 of the Commercial Companies Code, KSH). The articles of a simple joint-stock company do not state the amount of its share capital (Article 300³ § 2 KSH). Amending the articles of a limited liability company requires a shareholders’ resolution recorded by a notary and registration (Article 255 §§ 1 and 3 KSH), and if the company was formed using the statutory template, the variable provisions of the template can also be amended by a resolution on the template in the online system (Article 255 § 4 KSH). Amending the articles of a joint-stock company or a simple joint-stock company requires a general meeting resolution recorded by a notary and registration (Articles 421 § 1, 430 § 1, 300¹⁰⁰ § 2, and 300¹⁰² § 1 KSH). They bind the company and all its shareholders, including future ones, while a shareholders’ agreement binds only its parties. In US usage, the closest equivalents are the certificate or articles of incorporation and the bylaws. Readers of English documents can easily confuse the articles of association with the shareholders’ agreement.

See also: personal rights of a shareholder.

Not to be confused with: shareholders’ agreement, SHA.

Cap table

Polish: tabela kapitalizacji

A cap table (capitalization table) is a summary of who holds how many shares or rights to acquire them, with each shareholder’s percentage of share capital or, in a simple joint-stock company, of the shares, and of the votes. It usually also includes options and warrants from incentive plans, convertible bonds, and convertible loans, showing holdings on a fully diluted basis. It is used to calculate the effects of a new funding round, dilution, liquidation preferences, and the split of sale proceeds. Its data on issued shares should match the company’s share ledger or shareholder register or, for shares registered with a securities depository and therefore not in the shareholder register (Article 328¹² of the Commercial Companies Code, KSH), the shareholder data available to the company, while the fully diluted view also includes rights to shares not yet issued.

See also: dilution, pre-money and post-money valuation.

Commercial power of attorney, prokura

Polish: prokura

A prokura is a commercial power of attorney granted by an entrepreneur required to be entered in the register of entrepreneurs of the National Court Register (KRS) or in CEIDG, covering authority for court and out-of-court acts related to running the business (Article 109¹ § 1 of the Polish Civil Code). Its scope cannot be limited with effect against third parties unless a specific provision states otherwise (Article 109¹ § 2 of the Civil Code), and it must be granted in writing, or it is void (Article 109² § 1 of the Civil Code). To sell the business, grant another party temporary use of it, or sell or encumber real estate, the holder of a prokura (prokurent) needs a power of attorney for the specific act (Article 109³ of the Civil Code). A prokurent is not a member of the management board, but in a company often represents it jointly with a board member.

See also: management board and supervisory board.

Corporate governance

Polish: ład korporacyjny

Corporate governance is the set of rules by which a company is directed and supervised: the division of powers between shareholders, the management board, and the supervisory board, decision-making, internal control, transparency, and the management of conflicts of interest. In private companies, it derives from the Commercial Companies Code, the articles of association, the shareholders’ agreement, and the rules of procedure of corporate bodies, and in companies whose shares are listed on the regulated market of the Warsaw Stock Exchange (GPW) also from the Best Practice for WSE Listed Companies, which apply on a comply-or-explain basis. An investor coming into a family company usually expects its governance to be put in order, for example by setting up a supervisory board and regular reporting.

See also: shareholders’ meeting, general meeting; management board and supervisory board.

Deadlock clause

Polish: klauzula impasu

A deadlock clause is a provision of a shareholders’ agreement that sets out what happens when shareholders with equal or blocking stakes cannot reach a decision on an important matter. It usually provides for successive steps: a second vote, escalation to senior decision-makers on each shareholder’s side, mediation, and, if that fails, a separation mechanism, such as a shotgun clause (Russian roulette clause), put and call options, or a sale of the whole company. It protects the company from decision-making paralysis in joint ventures and 50/50 ownership structures.

See also: shotgun clause, Russian roulette clause; shareholders’ agreement, SHA.

More in the article “Partner splits most often begin with the company’s success”.

Deed of adherence

Polish: przystąpienie do umowy wspólników

A deed of adherence, in US practice usually called a joinder agreement, is a document by which a new shareholder, such as a buyer of shares or an incentive plan participant, accedes to the existing shareholders’ agreement and takes on the rights and obligations under it on the terms it sets. The existing parties usually consent in the shareholders’ agreement to the accession of new shareholders in advance. A shareholders’ agreement binds only its parties, so buying shares does not by itself make the buyer a party. The shareholders’ agreement therefore usually requires a selling shareholder to have the buyer sign a deed of adherence before the transfer, and the articles of a limited liability company can also make share transfers subject to the company’s consent or otherwise restrict them (Article 182 § 1 of the Commercial Companies Code, KSH).

See also: shareholders’ agreement, SHA; lock-up; management incentive plan, MIP.

Dilution

Polish: rozwodnienie udziałów

Dilution is the reduction in a shareholder’s percentage of a company, measured by share capital or, in a simple joint-stock company, by the number of shares, and usually of its votes, when others subscribe for new shares, such as an investor, participants in an incentive plan, or holders of convertible bonds or warrants. In economic terms, a shareholder usually loses value when the new shares are issued at a price below their value, and a lower share of the votes can also cost it control or the ability to block resolutions. Protection against dilution comes from the preemptive right to subscribe for new shares in a limited liability company (Article 258 § 1 of the Commercial Companies Code, KSH), preemptive rights in a joint-stock company (Article 433 § 1 KSH), and contractual anti-dilution clauses.

See also: cap table, pre-money and post-money valuation, anti-dilution protection.

Drag-along right

Polish: prawo pociągnięcia / prawo przyciągnięcia

A drag-along right is the right of a shareholder, usually the majority shareholder or a fund, to require the other shareholders to sell their shares to the same buyer on the same terms when it sells its own stake. It allows the shareholder to offer a buyer the whole company and lets a fund sell the whole company without a separate agreement from the other shareholders, provided the right was validly created and its conditions are met. It is set out in the shareholders’ agreement, often with a minimum price or valuation below which it cannot be exercised and with protection for the minority against a sale to a party related to the majority shareholder. Enforcing it requires a structure that obliges the minority to sign, such as an irrevocable offer or a preliminary agreement.

See also: shareholders’ agreement, SHA; right of first refusal, ROFR.

Not to be confused with: tag-along right.

More in the article “The second exit. Why the fund’s clock decides when the company is sold”.

Good leaver and bad leaver

Polish: good leaver i bad leaver

Good leaver and bad leaver are categories of departing shareholders, usually founders or managers, that determine what happens on departure to their shares and rights to acquire shares, including any obligation to sell and the buyback price. A good leaver leaves for reasons regarded as justified, such as illness or termination by the company through no fault of their own, and usually receives market value. A bad leaver resigns before an agreed date or is dismissed for cause, for example for breaching a non-compete, and usually receives a lower price, often par value or the original purchase price. The definitions and prices are set by the shareholders’ agreement or the incentive plan rules.

See also: vesting; management incentive plan, MIP.

More in the article “Management incentive plan. The owner gets exactly what he pays for”.

Information rights

Polish: prawa informacyjne inwestora

Information rights are a shareholder’s rights, usually a minority investor’s, to receive regular information about the company: monthly or quarterly results, the annual financial statements, the budget and business plan, and notice of major events, as well as meetings with management. They are set out in the investment or shareholders’ agreement, with deadlines and report formats. They supplement statutory rights. In a Polish limited liability company, every shareholder may at any time inspect the company’s books and documents and ask the management board for explanations (Article 212 § 1 of the Commercial Companies Code, KSH), unless the board refuses on the grounds in Article 212 § 2 or the articles of a company with a supervisory board or audit commission (komisja rewizyjna) exclude or limit this right (Article 213 § 3 KSH). Every shareholder of a simple joint-stock company has the same inspection right (Article 300²⁴ KSH), while a joint-stock company shareholder is entitled to information mainly during the general meeting, on matters on the agenda (Article 428 § 1 KSH). An investor in a joint-stock company therefore has particular need of contractual information rights.

See also: shareholders’ agreement, SHA; investment agreement; reserved matters and veto rights.

Liquidation preference

Polish: uprzywilejowanie likwidacyjne

A liquidation preference is an investor’s right, usually a venture capital fund’s, to priority in the distribution of proceeds from a sale or liquidation of the company, or another event defined in the agreement, up to a set amount, most often equal to its investment (1x), before any money goes to the other shareholders. Despite the name, it applies mainly to a sale of the whole company or a controlling stake. With a non-participating preference, the investor receives either the preference amount, capped at the proceeds available, or its percentage of the proceeds, whichever is greater; with a participating preference, it first receives the preference amount and then its percentage of the remaining proceeds, sometimes up to an agreed cap on its total payout. In a share sale, the buyer pays each seller separately, so allocating proceeds by preference requires undertakings in the investment or shareholders’ agreement. In a liquidation of the company, the articles of association must set different rules for distributing the assets, for example a preference attached to particular shares (Articles 174 § 3, 286 § 3, 300²⁵ § 2, 351 § 2, and 474 § 4 of the Commercial Companies Code, KSH).

See also: anti-dilution protection, preferred shares.

More in the article “A founder with 70% of the shares was to receive 51% of the price. One paragraph of the investment agreement decided the PLN 8.8 million difference”.

Lock-up

Polish: zakaz zbywania udziałów lub akcji

A lock-up is a shareholder’s undertaking not to sell or otherwise dispose of its shares for a set period. In a shareholders’ agreement, it protects the stability of the shareholder base after an investor comes in and keeps the founders in the company. An agreement restricting the disposal of shares in a joint-stock company may be concluded for no more than five years from its date (Article 338 § 1 of the Commercial Companies Code, KSH), and in a limited liability company restrictions on share transfers are usually written into the articles of association (Article 182 § 1 KSH). A separate variant is the lock-up that bars the sale of shares for a set period after an IPO.

See also: shareholders’ agreement, SHA.

Not to be confused with: IPO lock-up.

Management board and supervisory board

Polish: zarząd i rada nadzorcza

The management board runs the company’s affairs and represents it, and the supervisory board exercises ongoing oversight of its activities (Articles 201 § 1, 219 § 1, 368 § 1, and 382 § 1 of the Commercial Companies Code, KSH). In a limited liability company and a joint-stock company, they are separate bodies: a member of the management board may not also sit on the supervisory board (Articles 214 § 1 and 387 § 1 KSH). A simple joint-stock company can have a board of directors that runs the company’s affairs, represents it, and oversees the conduct of its affairs (Articles 300⁵² § 1 and 300⁷³ § 1 KSH). A joint-stock company must have a supervisory board (Article 381 KSH), and a limited liability company must have a supervisory board or an audit commission (komisja rewizyjna) if its share capital exceeds PLN 500,000 and it has more than twenty-five shareholders (Article 213 § 2 KSH). The English word board can therefore mean the management board, the supervisory board, or the board of directors of a simple joint-stock company, which matters when translating contracts.

See also: corporate governance; shareholders’ meeting, general meeting; commercial power of attorney, prokura.

Management incentive plan, MIP

Polish: program motywacyjny dla zarządu i pracowników

A management incentive plan (MIP; in Poland often called an ESOP, although in the US an ESOP is a specific employee retirement plan) is a plan under which managers or employees receive shares, the right to acquire them, or the right to part of the company’s value, so that their pay depends on the growth of that value. It can take the form of shares acquired at a preferential price, subscription warrants with a conditional share capital increase, options, or a phantom plan in which participants receive cash linked to the full value of the shares or to their increase in value without becoming shareholders. The plan defines the participants, the pool, targets, the vesting schedule, good leaver and bad leaver rules, and what happens on a sale of the company. Private equity funds usually set one up at the time of a buyout to tie management to the outcome of the exit.

See also: vesting, good leaver and bad leaver, sweet equity, management ratchet, subscription warrants.

More in the article “Management incentive plan. The owner gets exactly what he pays for”.

Management ratchet

Polish: ratchet menedżerski

A management ratchet is a mechanism that increases management’s share of the capital or of the sale proceeds if the private equity fund achieves a set return on exit, measured as a multiple on invested capital (MOIC) or an internal rate of return (IRR). It works through the redemption of some of the fund’s shares, a transfer of shares to the managers, or a change in how the proceeds are split. A ratchet can also work the other way and reduce management’s share if performance is weaker.

See also: management incentive plan, MIP; sweet equity.

Personal rights of a shareholder

Polish: prawa osobiste wspólnika

Personal rights of a shareholder are special rights granted in the articles of association to a particular shareholder as a person, rather than attached to specific shares. The articles of a joint-stock company may grant an individually named shareholder personal rights, such as the right to appoint or remove members of the management board or supervisory board, and make the grant subject to the performance of specified obligations, the lapse of a set time, or a condition. These rights expire at the latest when the holder ceases to be a shareholder (Article 354 §§ 1, 2, and 4 of the Commercial Companies Code, KSH). In a limited liability company, special benefits granted to a shareholder must be precisely defined in the articles of association, or they are ineffective against the company (Article 159 KSH). In a simple joint-stock company, the articles may grant such individual rights to a named shareholder and provide that they survive the loss of shareholder status (Article 300²⁸ KSH). Investors use these rights to secure influence over the composition of the company’s bodies.

See also: articles of association, reserved matters and veto rights, preferred shares.

Preferred shares

Polish: udziały i akcje uprzywilejowane

Preferred shares are shares to which the articles of association attach special rights, in particular as to voting, dividends, or the distribution of assets in liquidation (Articles 174 §§ 2 and 3 and 351 §§ 1 and 2 of the Commercial Companies Code, KSH). The Polish category is broader than US preferred stock, since it also covers shares with only a voting preference. In a limited liability company, a voting preference can give at most three votes per share (Article 174 § 4 KSH), and in a joint-stock company at most two votes per share, and it is not available in a public company (Articles 351 § 2 and 352 KSH). In a simple joint-stock company (prosta spółka akcyjna), a preference may concern in particular voting, dividends, or the distribution of assets, and founder shares keep a set minimum proportion of total votes when new shares are issued (Articles 300²⁵ and 300²⁶ § 1 KSH). In a joint-stock company, shares with a dividend preference can carry a dividend at most 50% higher than the dividend on non-preferred shares and have no priority of payment over other shares (Article 353 §§ 1 and 2 KSH). The same cap applies to shares in a limited liability company, but there the articles may grant priority of payment (Article 196 KSH). Neither limit applies to non-voting shares (akcje nieme), although the dividend cap still applies to interim dividends (Article 353 §§ 1–3 KSH). Venture capital funds often take preferred shares to anchor their liquidation preference.

See also: personal rights of a shareholder, liquidation preference.

Put and call options

Polish: opcja put i opcja call

A call option is the holder’s right to require another party to sell it specified shares, and a put option is the right to require another party to buy them, in specified situations and at a fixed price or a price set by an agreed mechanism. In shareholders’ agreements, they secure an investor’s exit (put), the purchase of shares from a departing founder or manager (call), or a way out of deadlock. Under Polish law, they are usually structured as an irrevocable offer to sell or buy or as a preliminary agreement. The holder can sue for the final agreement to be concluded if the preliminary agreement meets the requirements on which the validity of the final agreement depends, in particular as to form (Article 390 § 2 of the Polish Civil Code).

See also: shareholders’ agreement, SHA; deadlock clause.

More in the article “Partner splits most often begin with the company’s success”.

Reserved matters and veto rights

Polish: sprawy zastrzeżone i prawo weta

Reserved matters are a list of company decisions that require the consent of a specific shareholder, usually a minority investor, or a qualified majority in a corporate body. They usually include amendments to the articles of association, share issues, the budget and business plan, borrowing and granting security above set thresholds, disposals of major assets, acquisitions, dividend payments, related-party transactions, and appointments to the management board. Veto rights are set out in the shareholders’ agreement and, to work within the company as well, are written into the articles of association to the extent the Commercial Companies Code allows, for example as a requirement for supervisory board consent or as a shareholder’s personal right.

See also: shareholders’ agreement, SHA; majority and minority stakes; personal rights of a shareholder.

More in the article “The first hundred days after the deal. What the price does not show”.

Right of first offer, ROFO

Polish: prawo pierwszej oferty

A right of first offer (ROFO) is a right, usually of the other shareholders, under which a shareholder that wants to sell shares must first give the holder the chance to make an offer, or present its own offer to the holder, before approaching third parties. The agreement sets the procedure. If the parties do not reach agreement within the agreed time, the shareholder may sell to a third party, but usually not at a lower price than the one previously offered to or by the holder and only within a set period. The holder decides here before a buyer has been found, whereas with a right of first refusal it decides only after the agreement with the buyer has been signed. In a joint-stock company, an agreement granting such a priority right to buy shares may restrict their disposal for no more than ten years from its date (Article 338 § 2 of the Commercial Companies Code, KSH).

See also: shareholders’ agreement, SHA.

Not to be confused with: right of first refusal, ROFR.

Right of first refusal, ROFR

Polish: prawo pierwokupu

A right of first refusal (ROFR) is the priority right of the holder, usually the other shareholders, to buy shares when a shareholder sells them to a third party. The shareholder may sell to the third party only on condition that the holder does not exercise the right and must promptly notify the holder of the terms, and the holder can then buy the shares on the same terms (Articles 597 § 1 and 598 § 1, read with Article 555, of the Polish Civil Code). The holder exercises the right by a statement to the seller within the reserved period or, failing that, within one week of receiving the notice, and in the same special form, if any, that the sale requires (Articles 597 § 2 and 598 § 2 of the Civil Code). In a limited liability company, a right of first refusal is usually included in the articles of association as a restriction on share transfers (Article 182 § 1 of the Commercial Companies Code, KSH). An agreement establishing a right of first refusal over shares in a joint-stock company may restrict their disposal for no more than ten years from its date (Article 338 § 2 KSH). A shareholder that sells to a third party unconditionally or fails to notify the holder is liable for the resulting loss (Article 599 § 1 of the Civil Code).

See also: shareholders’ agreement, SHA.

Not to be confused with: right of first offer, ROFO.

Share capital increase

Polish: podwyższenie kapitału zakładowego

A share capital increase is an increase in a company’s share capital through the creation of new shares or an increase in the par value of existing ones, most often to raise money from an investor or to accept a contribution in kind. In a limited liability company, it generally requires an amendment to the articles of association (Article 257 §§ 1 and 2 of the Commercial Companies Code, KSH), and in a joint-stock company an amendment to the articles (Article 431 § 1 KSH). Existing shareholders of a limited liability company have a preemptive right to subscribe for the new shares unless the articles or the resolution provide otherwise (Article 258 § 1 KSH), and shareholders of a joint-stock company have preemptive rights. The general meeting can exclude them in the company’s interest, generally by a majority of at least four-fifths of the votes, if the exclusion was announced in the agenda and the management board presented a written opinion giving the reasons for the exclusion and the proposed issue price or the method of setting it (Article 433 §§ 1 and 2 KSH). The increase takes effect on registration (Articles 262 § 4 and 441 § 4 KSH), or, under a conditional share capital increase in a joint-stock company, when the shares are allotted to the holders of subscription rights, that is, on entry in the shareholder register or credit to a securities or omnibus account (Articles 451 § 2 and 452 § 1 KSH).

See also: investment agreement, preemptive right, dilution.

Share redemption and cancellation

Polish: umorzenie udziałów lub akcji

Share redemption and cancellation (in Polish, umorzenie) extinguishes shares. It can be voluntary, with the shareholder’s consent, or compulsory, without it, and the grounds for compulsory redemption are set out in the articles of association. In a limited liability company and a joint-stock company, redemption is possible only if the articles of association provide for it, and voluntary redemption takes place through the company acquiring the shares (Articles 199 § 1 and 359 § 1 of the Commercial Companies Code, KSH). In a simple joint-stock company, voluntary redemption takes place with the shareholder’s consent, without the company acquiring the shares, and the articles need to provide only for compulsory redemption (Articles 300⁴⁴ §§ 1 and 3 and 300⁴⁵ § 1 KSH). Redemption generally requires a resolution of the shareholders’ meeting or general meeting, but the articles of association may provide for redemption on the occurrence of a specified event, without a resolution (Articles 199 § 4, 359 § 6, and 300⁴⁶ KSH). In a limited liability company, and as a rule in a joint-stock company, a redemption that requires a reduction of the share capital takes effect when the capital is reduced (Articles 199 § 7 and 360 § 4 KSH). In a compulsory redemption, the consideration may not be lower than the net assets attributable to the share, calculated from the net assets shown in the financial statements for the last financial year less the amount to be distributed to shareholders (Articles 199 § 2 and 359 § 2 KSH), and in a simple joint-stock company it may not be lower than the fair value of the shares (Article 300⁴⁵ § 2 KSH).

See also: shareholder buyout, valuation for legal purposes.

More in the article “Partner splits most often begin with the company’s success”.

Shareholder buyout

Polish: wykup udziałów wspólnika

A shareholder buyout is the acquisition of a departing shareholder’s shares by the other shareholders, the company, or a third party or, more broadly, the redemption of that shareholder’s shares for consideration, most often because of a dispute, a change in personal plans, or succession. It can take place through a sale agreement, the exercise of a put or call option under the shareholders’ agreement, or a redemption of shares. The price is often the main point of dispute, so the shareholders’ agreement sets the valuation method and the choice of expert in advance. A company can acquire its own shares only in cases provided for by law, for example in order to redeem them (Articles 200 § 1, 362 § 1(5), and 300⁴⁷ § 1(1) of the Commercial Companies Code, KSH). In a limited liability company, a court can also exclude a shareholder for important reasons relating to that shareholder at the request of all the other shareholders, if they hold more than half the share capital, and the articles may give the right to bring this action to fewer shareholders who also hold more than half, in which case they must sue all the remaining shareholders, including the one to be excluded (Article 266 §§ 1 and 2 KSH). The court sets the price for the excluded shareholder’s shares at their actual value on the day the statement of claim is served (Article 266 § 3 KSH).

See also: put and call options, share redemption and cancellation, valuation for legal purposes.

More in the article “Partner splits most often begin with the company’s success”.

Shareholders’ agreement, SHA

Polish: umowa wspólników

A shareholders’ agreement (SHA) is an agreement between a company’s shareholders, often with the company as a party, that governs their mutual rights and obligations beyond what follows from the Commercial Companies Code and the articles of association. It usually covers the composition and appointment of corporate bodies, reserved matters and veto rights, funding of the company, restrictions on share transfers, a right of first refusal, drag-along and tag-along rights, options, deadlock resolution, a non-compete, and exit terms. A shareholders’ agreement is not filed with the register and binds only its parties, so the main provisions are also written into the articles of association.

See also: drag-along right; tag-along right; right of first refusal, ROFR; deadlock clause.

Not to be confused with: articles of association.

More in the article “The first hundred days after the deal. What the price does not show”.

Shareholders’ meeting, general meeting

Polish: zgromadzenie wspólników i walne zgromadzenie

The shareholders’ meeting (in a limited liability company) and the general meeting (in a joint-stock company or a simple joint-stock company) are the bodies in which shareholders adopt resolutions. Their powers include approving the financial statements, granting discharge to members of the company’s bodies, and approving a sale of the business or an organized part of it (Articles 228, 393, and 300⁸¹ of the Commercial Companies Code, KSH), as well as amending the articles of association. In a limited liability company, resolutions can be adopted without a meeting if all shareholders agree in writing to the decision to be made or to a written vote (Article 227 § 2 KSH).

See also: corporate governance, management board and supervisory board.

Shotgun clause, Russian roulette clause

Polish: klauzula shotgun / klauzula rosyjskiej ruletki

A shotgun clause (also called a Russian roulette clause) is a mechanism for separating shareholders, usually used in deadlock: one shareholder names a price per share, and the other must either sell its shares to it at that price or buy the proposer’s shares at the same price per share. The proposer does not know which option the other shareholder will choose, so it has a reason to name a price that reflects the value of the shares, provided both shareholders have similar access to financing. It favors the shareholder with easier access to financing, so a smaller or financially weaker shareholder should negotiate its terms carefully.

See also: deadlock clause, put and call options.

More in the article “Partner splits most often begin with the company’s success”.

Sweet equity

Polish: sweet equity

Sweet equity is the common shares acquired or subscribed for by management in a private equity buyout that give managers a larger percentage of the common equity than their contribution to the total investment. The fund puts in most of its capital as interest-bearing shareholder loans or preferred shares with a set return, while the managers acquire common shares for a small amount, and these common shares capture the growth in value above that capital. Once the company’s value exceeds what is owed to the fund on its loans and preferred shares, further growth can give management a much higher rate of return than the fund earns on its whole investment, depending on the financing structure and the exit price. These shares are usually subject to good leaver and bad leaver rules.

See also: management incentive plan, MIP; equity rollover.

More in the article “The CEO was preparing the sale of the company to a competitor. In the end he bought it with his team for PLN 61.1 million”.

Tag-along right

Polish: prawo przyłączenia

A tag-along right is a minority shareholder’s right to require a selling majority shareholder to have the same buyer also purchase, on the same terms, all of the minority shareholder’s shares or the same percentage of them as the majority shareholder is selling of its own stake. It protects the minority against a situation in which the majority shareholder sells control together with the control premium and the minority is left in the company with a new controlling shareholder it did not choose. It is set out in the shareholders’ agreement, specifying the size of sale that triggers it and the procedure for joining the sale. The shareholders’ agreement does not bind the buyer, so the majority shareholder usually undertakes not to sell unless the buyer also buys the minority’s shares, or promises that the buyer will, and is liable for the loss if it does not (Article 391 of the Polish Civil Code).

See also: shareholders’ agreement, SHA; right of first refusal, ROFR.

Not to be confused with: drag-along right.

More in the article “The second exit. Why the fund’s clock decides when the company is sold”.

Vesting

Polish: nabywanie uprawnień w czasie

Vesting is a mechanism under which a founder, manager, or employee acquires rights to shares or options gradually, as time served with the company passes or targets are met. A typical schedule spreads vesting over several years, often with a cliff before which nothing vests. A holder who leaves early loses unvested rights, and vested ones may be subject to buyback under good leaver and bad leaver rules. Vesting is set out in the shareholders’ agreement or the incentive plan rules and implemented, for example, through subscription warrants or options. A variant is reverse vesting: the shareholder holds the shares from the start, and the investor’s or another shareholder’s right to buy them, or the option to redeem them, lapses over time.

See also: good leaver and bad leaver; management incentive plan, MIP.

More in the article “Management incentive plan. The owner gets exactly what he pays for”.

If you are planning to bring an investor into your company, see the service page Capital acquisition.

Other sections of the glossary: Deal basics and types, Sale process and documents, Due diligence, Valuation, Price and settlement, SPA and risk allocation, Financial statements and metrics, Stock exchange, Corporate banking. Index of all entries: M&A and corporate finance glossary.