Financing Term Sheet Deep Dive: Redemption Rights

Whether you’ve only recently decided to seek out capital for your business or you’ve already received (or made) your first offer, the term sheet (or “letter of intent”) is an integral part of the process.  

In this series we’ll look to shed some light on the legal language contained in that term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both Company and Investor.  Check out an overview here.

Financing Term Sheet Deep Dive will be published each Monday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

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Earlier in this series when we initially discussed the concept of dividends, we equated the idea to that of lenders receiving interest payments on the “loan” they made to the company.  In that context, “Redemption Rights” are the rights held by a company’s investors to call that “loan”; to force the company to buy them out.

While redemption rights are rarely, if ever used by the Investors that hold them, like so many rights that we have discussed in this series (and will discuss in the future), they are important because they set the playing field for future discussions.

In other words, they establish leverage; the nature of which you can see indicated in the header image to this post.

Start-Up Entrepreneur Series: Where Should I Form My New Business?

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com. 

One of the most common questions I receive from folks looking to start their first business (or who were not previously included in organizational discussions) is “Where should I form my Company?”.

Like most legal questions, the answer can be complicated (and must always be tailored to the specific facts and circumstances at hand), but there are a few “rules of thumb” that should be considered at the start.