Understanding Share Holding through Legal Entities for Founders
The Basics: Section 2.5.2 Explained
According to Section 2.5.2 of the Founders Agreement, if a founder opts to hold shares via a legal entity, known as a "Founder HoldCo," they automatically assume personal responsibility for any obligations that their HoldCo incurs under the agreement. This includes, for clarity, the articles of association. Importantly, there's a cap on this liability, specified in euros, but it signifies a key deviation from the usual benefits of creating a holding company.
The Limited Liability Dilemma
One of the primary reasons founders use holding companies is to benefit from limited liability, which essentially protects personal assets from business debts. However, Section 2.5.2 challenges this advantage by establishing a "surety obligation" for the founder. This means the founder is personally liable for their holding company's obligations, much like a guarantor for a loan. This linkage inherently narrows the protective gap that limited liability aims to create.
A Real-World Impact: The COVID-19 Example
The repercussions of such terms became starkly evident during the COVID-19 pandemic. Founders who had tied personal assets like family homes as security for business loans faced significant financial strain. The downturn in business affected not just their company finances but also put personal assets at risk, demonstrating the heightened vulnerability that comes with such surety obligations.
Limiting Your Liability
The silver lining in Section 2.5.2 is the mention of an "aggregate maximum liability," which caps the amount a founder might owe. For founders, the goal should be to negotiate this cap to as low a figure as feasible, one that they can realistically cover if necessary. Ideally, removing this clause would align better with the fundamental principle of limited liability entities, preserving the founder's personal asset protection.
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