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Startup Equity Contract

Startup Equity Contract Template for Hong Kong

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Startup Equity Contract

Need a Startup Equity Contract under Hong Kong law for our fintech company's initial shareholding structure, allocating 70% to three co-founders and reserving 30% for future investors, with standard drag-along and tag-along rights.

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Document background
The Startup Equity Contract is a fundamental document in Hong Kong's startup ecosystem, typically used when formalizing equity arrangements between founders, early employees, and investors. This contract type is essential when establishing or restructuring shareholding in a startup, particularly during investment rounds or when implementing employee share schemes. It must comply with Hong Kong's Companies Ordinance and related regulations, making it suitable for both early-stage startups and growing companies seeking additional investment. The document typically includes detailed provisions on share classes, voting rights, transfer restrictions, and corporate governance mechanisms, while also addressing specific requirements of the Hong Kong business environment and legal framework.
Suggested Sections

1. Parties: Identification of all parties involved in the agreement, including the company, existing shareholders, and new investors

2. Background: Context of the agreement, including company status and purpose of the equity arrangement

3. Definitions: Detailed definitions of key terms used throughout the agreement

4. Share Capital and Ownership: Details of the company's share capital structure and current ownership

5. Share Subscription: Terms of the share subscription, including number of shares, price, and payment terms

6. Completion: Conditions precedent, completion mechanics, and timing of the share issuance

7. Representations and Warranties: Statements of fact and assurances from the company and existing shareholders

8. Shareholder Rights: Voting rights, dividend rights, and other shareholder privileges

9. Transfer Restrictions: Limitations on transfer of shares and right of first refusal provisions

10. Tag-Along and Drag-Along Rights: Rights of shareholders to participate in or be required to join in share sales

11. Board Composition: Structure and appointment rights for the board of directors

12. Reserved Matters: Decisions requiring special shareholder approval

13. Confidentiality: Obligations regarding confidential information

14. Dispute Resolution: Procedures for resolving disputes between parties

15. Governing Law: Specification of Hong Kong law as governing law and jurisdiction

Optional Sections

1. Anti-Dilution Protection: Protection for investors against future down rounds, used when dealing with sophisticated investors

2. Founder Commitments: Specific obligations and commitments of founders, including non-compete and time dedication

3. Employee Share Option Pool: Terms for establishment and management of ESOP, if applicable

4. Liquidation Preference: Special rights on liquidation or exit, typically for preferred shareholders

5. Information Rights: Special information access rights for certain shareholders

6. Pre-emptive Rights: Rights of existing shareholders to participate in future funding rounds

7. Conversion Rights: Terms for converting preferred shares to ordinary shares, if applicable

8. Good/Bad Leaver Provisions: Consequences for founders/key employees leaving the company

9. IPO Rights: Special rights and obligations in case of an IPO

Suggested Schedules

1. Schedule 1: Cap Table: Detailed breakdown of shareholding before and after the transaction

2. Schedule 2: Particulars of the Company: Company details including registration number, registered office, directors, etc.

3. Schedule 3: Warranties: Detailed list of warranties given by the company and existing shareholders

4. Schedule 4: Reserved Matters: Comprehensive list of matters requiring special approval

5. Schedule 5: Completion Requirements: Detailed list of documents and actions required for completion

6. Schedule 6: Key Terms of ESOP: Details of employee share option scheme if applicable

7. Appendix A: Share Certificate Form: Template for share certificates

8. Appendix B: Deed of Adherence: Template for new shareholders joining the agreement

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Agreement
Articles of Association
Board
Business Day
Business Plan
Completion
Completion Date
Confidential Information
Control
Director
Drag-Along Notice
Drag-Along Right
Encumbrance
ESOP
Exit Event
Fair Market Value
Financial Year
Fully Diluted Share Capital
Good Leaver
Bad Leaver
Group
Hong Kong
Independent Valuer
Initial Public Offering
Intellectual Property Rights
Investment Amount
Investor Director
Investor Shares
Key Employees
Liquidation Event
Liquidation Preference
Material Adverse Change
New Securities
Ordinary Shares
Permitted Transferee
Pre-emption Rights
Preferred Shares
Pro Rata Share
Qualified IPO
Related Party
Reserved Matters
Share Capital
Shareholders
Shareholders' Agreement
Subscription Price
Subscription Shares
Tag-Along Notice
Tag-Along Right
Transfer
Valuation
Warranties
Clauses
Share Subscription
Payment Terms
Completion Conditions
Representations and Warranties
Share Transfer Restrictions
Pre-emptive Rights
Tag-Along Rights
Drag-Along Rights
Board Composition
Reserved Matters
Information Rights
Anti-dilution Protection
Liquidation Preference
Dividend Rights
Conversion Rights
Exit Provisions
Non-compete
Confidentiality
ESOP Provisions
Put and Call Options
Good/Bad Leaver Provisions
Founder Commitments
Share Capital Structure
Voting Rights
Management Provisions
Dispute Resolution
Governing Law
Assignment
Notices
Amendment
Termination
Severability
Entire Agreement
Further Assurance
Costs and Expenses
Relevant Industries

Technology

E-commerce

Financial Services

Healthcare

Biotechnology

Software Development

Artificial Intelligence

Clean Energy

Consumer Products

Educational Technology

Digital Media

Manufacturing

Logistics

Real Estate Technology

Food and Beverage

Relevant Teams

Legal

Finance

Corporate Development

Executive Leadership

Investment

Compliance

Corporate Secretarial

Business Development

Strategy

Mergers and Acquisitions

Relevant Roles

CEO

Founder

Co-founder

Chief Financial Officer

General Counsel

Legal Counsel

Company Secretary

Investment Manager

Venture Capital Partner

Angel Investor

Corporate Lawyer

Investment Director

Chief Operating Officer

Board Director

Compliance Officer

Chief Legal Officer

Executive Director

Private Equity Manager

Startup Advisor

Investment Analyst

Industries
Companies Ordinance (Cap. 622): Primary legislation governing company formation, share capital structure, shareholders' rights, and corporate governance in Hong Kong
Securities and Futures Ordinance (Cap. 571): Regulates securities offerings, trading, and investor protection measures, including restrictions on share transfers and private placements
Inland Revenue Ordinance (Cap. 112): Covers tax implications of share issuance, transfer, and equity-based compensation
Employment Ordinance (Cap. 57): Relevant for equity arrangements involving employee share schemes or founder employment terms
Contracts (Rights of Third Parties) Ordinance (Cap. 623): Affects how third parties might enforce rights under the equity contract
Competition Ordinance (Cap. 619): Relevant for any restrictive covenants or non-compete clauses in the equity agreement
Personal Data (Privacy) Ordinance (Cap. 486): Governs the handling of personal data of shareholders and related parties
Hong Kong Stock Exchange Listing Rules: Important if there are future IPO considerations or if the startup plans to eventually list on the HKEX
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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