US Corporate Law 20 Episodes (15)
Silicon Valley Without Gambling? Investor's death gold medal, founder's deed of sale | Is there a gambling agreement in the United States? The Interpretation of the Jiumin Minutes on the VAM Agreement | What Does the Valuation Adjustment Mechanism Mean? Which is valid between the gambling agreement with the founder and the gambling agreement with the target company?
In the last issue, we talked about the basic types of VAM agreements and various judgments over the past ten years. It seems that people are getting more and more confused. Then in this issue, we will talk about the conclusion of the VAM agreement. documents, the 2019 Supreme Court's "Minutes of Nine People", and the situation of gambling agreements in the United States.
1. Jiu Min Ji Yao
Until November 14, 2019, the Supreme People's Court issued the "Minutes of the National Court Civil and Commercial Trial Work Conference" (Law [2019] No. 254), which took effect immediately. This is the ninth meeting minutes issued by the Supreme People's Court, and it focuses on civil and commercial trial work, so it is called "Nine People's Minutes".
Among them, the bet between investors and founders is fully supported. That is basically nothing to say, who asked you to sign the deed of prostitution, admit it yourself.
In addition, the betting between investors and start-up companies is also supported in principle. However, the "Minutes of the Nine Peoples" also mentioned that the validity of the VAM agreement and the implementation of the VAM agreement are two different things. Effective may not necessarily be implemented. Basically, anyone who has ever had a lawsuit knows that the case must not only win the trial, but also win the execution, otherwise it will be a waste of money.
How to say?
(1). The equity repurchase type mentioned above, the Jiumin Minutes said, this kind of gambling agreement in which the company repurchases shares and the investor withdraws capital if the bet loses, the premise of execution is that the company must pass the capital reduction procedure. The capital reduction procedure requires the approval of more than 2/3 of the company's shareholders. Investors who sign this gambling agreement are often a minority. It's impossible to get 2/3 unless someone else supports it.
Explain what, basically impossible to actually implement.
(2). In addition to the cash compensation type, the Jiumin Minutes also said that this kind of gambling agreement that loses tens of millions of dollars, the premise is that the company has profits available for distribution. If not now, when will it be returned.
What profit can the startup company have to distribute, even if it owes a lot of debt.
Explain what, basically can not be implemented.
In addition to these two, don't we also mention an equity-to-gambling type, that is, investors who lose the bet will get more shares unconditionally. The Nine People's Minutes didn't say anything, but I still think this is valid, but unenforceable. Because this is the corresponding capital increase procedure, which also requires the approval of 2/3 shareholders, it is impossible for one investor to account for such a large proportion.
In general, the founder's bet is effective and enforceable, and the target company's bet is effective but difficult to implement. In fact, it basically returns to the situation of the Haifu case at the beginning.
The most important reason is that the foundation of company law has three principles of capital: capital maintenance, capital unchanged, and capital determination. In fact, it means that once the money is invested in the company, it cannot be taken away casually. If some people can guarantee the harvest during drought and flood, others will definitely not.
Someone wants to ask, you have been talking for a long time, and it seems that you are talking about the Chinese Fa, but not the United States?
I said that you may not believe it. The United States has no gambling agreement at all. I have been doing venture capital investment in start-up companies for several years, and I have never seen a local company in the United States sign a gambling agreement. I'm also worried that my qualifications are too low. So for this matter, I specifically consulted several corporate law partners of large law firms, and the answers I got were never heard of.
Some people say, no, you can see that the encyclopedia says that the gambling agreement originated in the United States. I also looked at Encyclopedia and found that Encyclopedia also gave the gambling agreement a foreign name, Valuation Adjustment Mechanism Agreement, referred to as VAM Agreement). Does it have to be a foreign product if it has a foreign name? You can try to put this Valuation Adjustment Mechanism Agreement on Google and search it, and you will find that there are indeed a few decent articles, but when you go in, they are all written by Chinese.
In the book "The Rules of Capital" by Professor Zhang Wei of Fudan University, there is an article called "No Gambling in Silicon Valley", which specifically examines the "valuation adjustment mechanism" and finds that in Silicon Valley, where venture capital is the most developed, in fact, There is no so-called VAM.
In addition, from a case I actually did in California, it finally reached the court, and the court did not consider the gambling agreement at all.
Some people may also ask, seeing from the Internet that both Morgan Stanley and Goldman Sachs have signed a gambling agreement for the companies they invested in. But you can take a look at their so-called gambling content, which is an option.
So whether the gambling agreement is effective in the United States, I should not need to say more. As a founder, when you see investors come up with this scare thing in the future and tell you that this is a standard contract, will your head be much clearer?
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