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Model documents for early-stage investments

The BVCA has revised and re-launched its standardised documents for early stage venture capital investment after a review involving the BVCA’s Legal & Accounting and Venture Capital Committees, and a working group comprised of experts from the investor and legal community.

December 2017

Our aim is simple: to promote industry-standard legal documentation in the UK so investors and entrepreneurs can focus on deal-specific matters. This will inevitably save both time and money and follows the precedent seen in the US. We encourage all parties to adopt these documents as the starting point for their investments.

In October 2014, the BVCA published a revised version of its model Term Sheet, Subscription and Shareholders’ Agreement and Articles of Association together with an accounting briefing on the treatment of preferred shares (as either debt or equity in the company’s accounts). In September 2015, the Model Articles of Association were amended for changes to the Companies Act 2006 relating to the statutory requirements which applied to companies when undertaking share buy backs.

In 2017, limited changes were made to the Articles of Association and Subscription & Shareholders’ Agreement including those to address the PSC Register requirements and the language on deferred shares and drag-along.

Practical Law has also prepared drafting notes to accompany the Model Articles of Association and Subscription & Shareholders’ Agreement. These are an excellent and beneficial addition to the suite of documents.

These documents have been drafted for use on a Series A funding round. They envisage a significant investment being made in whole or in part by fund investors. They are not suitable for seed investment and further information to assist entrepreneurs in this area can be found in the drop down tab on the right.

The BVCA would like to thank Susanna Stanfield (JAG Shaw Baker), John Heard (Abingworth), Sally Roberts (Accel), Jon Tilley (Practical Law), Andrew Wigfall and David Strong (both Marriott Harrison) for their continued support throughout this project. We remain grateful to the previous contributors to this project: Simon Walker (formerly Taylor Wessing), Alastair Breward (formerly Amadeus) and Steve Parkinson (formerly EY).

We would also welcome feedback ahead of our next review in 2019.

Note on form of Subscription and Shareholders' Agreement

The Subscription and Shareholders' Agreement has been drafted for signature as a contract under hand, which avoids the execution formalities required for deeds. This approach is generally supported by opinion of Counsel (available here) with the caveat that specific legal advice must always be sought for each particular situation.

Legal disclaimer: Neither the BVCA nor any member of its committees or working groups takes any responsibility for the content of the documents or the consequences of using them and that it is essential that legal advice is sought before using the documents.These documents are intended to serve as starting point only and should be tailored to meet your specific legal and commercial requirements. None of the documents should be construed as legal advice for any particular facts or circumstances.

Classification of shares: Accounting standards (including international and UK accounting standards) establish principles for presenting financial instruments as liabilities or equity. Firms should review the terms and rights attached to shares (and in particular preferred shares) to determine the classification and presentation of these instruments in the financial statements of a company. Depending on the facts or circumstances, certain types of shares could be classed as debt under accounting standards. Firms will need to consult with their auditors before the articles are finalised if they want to ensure that preferred shares are treated as equity in the accounts of the company.

BVCA Model Articles of Association

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Practical Law Drafting Notes for the Model Articles of Association

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BVCA Model Subscription & Shareholders' Agreement

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Practical Law Drafting Notes for the Subscription & Shareholders' Agreement

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BVCA Model Term Sheet for a Series A Round

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BVCA Model Subscription & Shareholders' Agreement (Opinion)

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BVCA Technical Briefing - Accounting Treatment of Preferred Shares

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Documents for seed investments

The BVCA model documents have been drafted for use on a Series A funding round. They envisage a significant investment being made in whole or in part by fund investors. In the view of the BVCA, the model documents are not appropriate for use in connection with a seed funding round. Such rounds are typically documented using shorter form documents which are either replaced or updated for a Series A round.

Many law firms, entrepreneur networks and other organisations offer template documents suitable for seed investing, which are available over the internet. The BVCA does not make a specific recommendation on which suite is most suitable, due to the wide variety available and the range of seed investing circumstances.

However, in choosing a suite for a seed funding round, the following factors should be borne in mind:

  • Is the suite appropriately detailed for the specific circumstances (e.g. a £20,000 loan from one individual would need less detail than a £1,000,000 equity seed round with multiple investors including institutional VC funds).

  • Where relevant in the light of the above, does the suite contain all the documents you will need such as:

    • Term Sheet (high level summary of the agreed arrangements, not usually legally binding save as to certain provisions like confidentially and sometimes exclusivity)
    • Confidentiality Agreement (to protect materials disclosed to investors to help them evaluate investment)
    • Investment/Shareholders agreement(s)
    • Articles of Association

    And do all of the above work together fluently?

  • Is the suite written in plain English and as short-form as is compatible with the objectives of the documents?

Further information

FOR FURTHER INFORMATION PLEASE CONTACT THE BVCA

 +44 (0)20 7492 0400

policy@bvca.co.uk