This is the fourth supporting post, further elaborating on “In Tough Times, your Acquisition Offer Might be an Asset Sale.”
4. Do you need the approval of your shareholders for the asset sale? Generally the answer is yes! And what terms will investors try to impose or are imposed by existing agreements?
If you are doing an asset sale as your exit, they want as much of that money as they can get, but that is almost certainly not in your best interest (mitigated somewhat if you also got yourself preferred stock, as I have suggested!)
You need to look at, and ask for legal counsel to look at, the terms of any fundraising rounds you have conducted. What approvals are required in an asset sale? Are there preferences that will apply right away, or does all the proceeds of the sale go into the remaining shell for the management team to apply to expenses as needed before distributing.
As much as possible, don’t distribute the proceeds right away, although a partial distribution might buy investor support for the shutdown process so that they know they have at least some of the cash.
An important element of the legal side of things is the protection and appropriate transfer of IP of all flavors. A good IP attorney can and should help here!
Each part of the series is available at the links below.