EMPEA Guidelines – 10

EMPEA Guidelines

10. Ability to contract freely, with minimum prescription by statute

Markets with greater private equity investment afford private equity investors and their investee companies sufficient flexibility to execute their strategies efficiently, including allowing a business and its investors to contract freely, to freely negotiate the terms of loans, bonds, shares and other securities, and to choose foreign law to govern their contracts, with the goal of providing businesses and their investors with the freedom to implement transaction structures and instruments that incorporate best available practices for their industry.

 

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10.1 Freedom to implement a diverse range of transaction structures and instruments

  1. A country’s legal and regulatory regime should be sufficiently flexible to allow businesses to execute their strategies, including their financial strategies, efficiently. 
  2. Such business flexibility can be achieved through the ability to contract freely, without statutory limitations on the types of potential transaction structures, so that businesses can employ flexible and creative financial instruments, such as convertible bonds, preferred equity, financial leasing, mezzanine financing, warrants, put and call options and a variety of other instruments.
  3. Many of these instruments can assist local companies in raising the necessary capital without the founding shareholders giving up complete ownership and/or control.

10.2 Freedom to employ jurisdictional discretion

  1. Countries should also consider the merits of allowing companies to take advantage of successful corporate regimes and structures in other legal jurisdictions.
  2. Such flexibility allows for additional avenues of investing that may actively encourage new investors to take minority stakes or debt rather than equity positions. 
  3. By allowing parties to choose foreign law to govern their contracts and elect to resolve their disputes in international courts or through international arbitration, countries promote not only inward investment but also the success of local companies in the global economy. 
  4. Permitting foreign investors and local companies to take advantage of the protections found in the laws of jurisdictions whose courts and laws are universally recognised as investor-friendly will assist those companies in attracting capital and growing their businesses.

 

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