The Most Important Contracts for Formal Communication With Investors

What Do Investors Expect When Communicating With a Startup?

Imagine yourself as a captain on the high seas. The investors are your crew, and your startup is the ship. You're navigating the unpredictable waters of entrepreneurship, and your crew is watching you to make sure they're on the right course. They expect regular updates, clear directions, and the opportunity to voice their opinions and concerns. Here are some of the key expectations investors have for communicating with their startup captain:

Openness and transparency: They want to be informed about the condition of the ship and the direction in which it is heading.
Regular updates: They want to be informed about new developments, progress and possible storms.
An open dialogue: They want to be able to express their thoughts and concerns in the hope that they will be heard and taken into account. Investors are not only financiers, they also want to actively participate in what is happening.
Professionalism and punctuality: They expect the information they receive to be presented precisely, on time, and in a form that they can easily understand and respond to.

In the wild, exciting world of entrepreneurship, communication between the captain and his crew can make the difference between a smooth ride and a shipwreck. So make your voice loud and clear and your ship will be safe and successful.

What Startups Can Hope for From Investors and How Good Communication Contributes to This?

Startups are at the beginning of a big journey — and as with any expedition, it is essential to have a well-equipped and dedicated crew on board. Investors are more than just financiers; they are navigators who can bring valuable expertise, industry-specific know-how and in-depth experience to the start-up journey. However, effective communication is crucial for these synergies to take full advantage. Here are some of the hopes that startups have for their investors:

Financial support: Investors provide the necessary financing to enable the startup to grow and expand.
Expertise and advice: Investors often bring industry-specific knowledge and valuable experience that can help startups make strategic decisions.
Network and contacts: Investors can offer access to a broad network of contacts that can potentially open up new business opportunities.
Moral support and trust: Through their investment, investors are showing their trust in the startup and its vision, which results in stronger moral support.

The importance of communication in achieving these hopes cannot be overstated. With effective communication, startups can clearly communicate their needs and challenges, obtain valuable feedback, and build a strong and supportive relationship with their investors. It is therefore essential to invest in clear, open and regular communication.

Advantages and Disadvantages of Formalized Communication

Communication between a dynamic start-up and its visionary investors — it can sometimes be seen as a balancing act between clarity and creativity, formality and flexibility. Like an improvised jazz session, the formalization of communication provides a structured framework, but can also slow down the creative flow at the same time.

In this jazz of communication between startups and investors, it is important to find the perfect groove — a point where clarity and creativity, formality and flexibility form a harmonious symphony. And as with all good music, the goal is to find a balance that meets both the needs of the company and the expectations of investors.

Benefits of Formalized Communication

In the vibrant heart of a startup, many melodies play at the same time. New ideas arise, products develop, teams grow and investors want to be informed about every progress. Between the steady beat of progress and the high notes of expectations, communication between companies and investors requires fine-tuned harmony. And this is exactly where the formalization of communication comes into play. Like a well-composed jazz song, the formalized communication provides a structure that makes it possible to present the startup's diverse melodies clearly and transparently, while at the same time setting the beat and ensuring the legality of the ensemble. Here are the main benefits of formalizing communication, divided into three harmonious sections:

Clear expectations: Formalized communication defines clear expectations and creates a common language. It is like the sheet of music that shows every musician where their use is and how their melody should sound on the whole. This shared comprehensibility significantly reduces the chance of misunderstandings that could lead to dissonance. This ensures that the Symphony of Progress always sounds in a harmonious key.
Efficiency and clarity: Formalized communication through regular and structured communications not only promotes transparency and accountability, but also increases work efficiency. It serves as a guideline for the procedure, prevents unnecessary inquiries and thus saves time and resources. It is comparable to a clearly coordinated score that shows the way for everyone involved and enables harmonious interaction in a startup orchestra.
surety: By ensuring compliance with all legal requirements, formalized communication offers legal protection. It is like the conductor's baton that sets the rhythm and ensures that everyone stays on the same beat and that the orchestra of legislation does not get out of sync. Should parties dance out of the ranks, the formal communication order ensures that runaways can be intercepted and are safely back in the orchestra's beats.

Disadvantages of Formalized Communication

Just as the improvised melody of a jazz saxophonist inspires the listener and captures the energy of the moment, free, unformed communication in a start-up also has its appeal and advantages. However, it can also have its pitfalls and cause dissonance if used incorrectly. The formalization of communication, despite its ability to create clarity and structure, can sometimes interfere with the free flow of creativity and flexibility that is so typical of a startup. It can also look like a crowded stage that overwhelms the listener with too much information. Let's take a closer look at these potential pitfalls and analyze their impact on the startup stage.

Time requirement: Like a soloist who finds his groove, a startup needs time to build and develop its business. Too much formalized communication can be time-consuming and steal precious time that would otherwise be invested in creative and productive processes.
Restriction of creativity: Formalizing communication can seem like an overly strict conductor, limiting the flexibility and spontaneity needed to respond quickly to market trends and changes. It's like a drum head that's too tight, which can hinder the startup's ability to find and adjust its own pace.
Overburdening: Like a bass solo that lasts too long, too much formal communication can overwhelm investors with information and distract them. There is a risk that the really important news that the company wants to communicate will be lost in the noise of data and facts.

Which Contracts Are Suitable For Formalizing Communication?

In the vibrant world of a start-up, communication with investors is like the steady rhythm of a bass drum that drives the pace of the company forward. It is a central part of the overall arrangement that, when executed correctly, plays the song of success. But how do we ensure that this rhythm is clear, consistent and legally compliant?

The answer lies in formally regulating this communication through specific contracts and documents. They are like the sheet music that tells musicians when and how they should play. Let us now lift the curtain and take a look at the most important contracts formally regulating communication with investors.

Communication with shareholders of a company is usually governed by a series of documents and contracts. Here are a few important ones:

Memorandum of Association/Statute: This is the basic document that regulates the formation and operation of a company. It usually contains provisions on communication with shareholders, including the frequency and form of communications that must be sent to shareholders.
Rules of procedure for management: In some cases, rules of procedure may establish further rules for communication with shareholders. This may include, for example, procedures for holding shareholders' meetings or convening special meetings.
Shareholder agreements: In some companies, shareholders can make additional agreements that regulate communication between them. These agreements may contain regulations on a wide range of topics, including the information rights of shareholders.
Rules of procedure for the Advisory Board: An advisory board can serve as an effective link between operational management and shareholders. The rules of procedure for the Advisory Board clearly define the rules and obligations of communication between the various parties, which helps to avoid misunderstandings and increase efficiency. It is important to note that the decision to set up an Advisory Board is optional and depends on the specific needs and goals of the company.

Just as a good jazz musician knows the strengths and weaknesses of his instrument, it is also crucial for a start-up to understand the advantages and disadvantages of formalizing communication. In the dynamic and often unpredictable world of entrepreneurship, choosing the right communication strategy can make the difference between harmonious interaction and dissonant confusion.

Studying the pros and cons helps us find the right rhythm, tone, and dynamic for our communication so that we can communicate effectively, efficiently, and in harmony with our investors. Because every startup, every company, grooves with its shareholders at a different rhythm.

What is a Statute or Social Contract?

The social contract - often also referred to as articles of association - acts as a legal guideline that defines the architecture and the elementary rules of the game for the operation of a company. This legal compass often contains essential information such as:

The type of company (e.g. GmbH, AG, UG, etc.)
The name and seat of the company
The purpose of society
The amount of share capital
The number and type of shares issued to shareholders
Rules for the administration and management of the company
decisionmaking
Decision-making
Information requirements
Provisions in the event of dissolution of the company

The rhythm of the start-up is set by the social contract. Like the conductor who determines the melody of the orchestra, this contract defines the basic structure and mode of operation of the company. This score influences the complex harmonics of the business, from decision-making to the distribution of success and failure to settlement in the event of dissolution or sale. Now that we have understood the basic rhythm, we can better understand the relevance of the statutes for communication with investors, who are always listening to our startup symphony.

Importance of the Statutes For Communication With Investors

The social contract acts as a decisive pillar in communication with the shareholders of a company. It makes a significant contribution to avoiding misunderstandings and conflicts. Now let's take a closer look at why this aspect is so important:

Clear lines in the jungle of shareholders' rights and obligations: The articles of association act as a guide that precisely defines the responsibilities and privileges of the individual shareholders.
Decision-making rules: The articles of association often determine how decisions are made in the company. This may include issues such as the number of votes each shareholder has, the majority required for certain types of decisions, and the voting process.
Information and reporting requirements: The articles of association may contain specific provisions that regulate the company's information and reporting obligations vis-à-vis the shareholders. These provisions specify what information the company must regularly share with its shareholders in order to ensure transparency and enable them to make informed decisions.
Procedure for the dissolution or sale of the company: The articles of association may contain rules in the event that the company is dissolved or sold. This can help ensure that such situations are handled in a way that is fair and transparent for all shareholders.
Framework for resolving disputes: The articles of association may also contain provisions that determine how disputes between shareholders are to be resolved. This can help ensure that such disputes are dealt with in a way that does not unnecessarily burden the company and its relationships with its shareholders.

When it comes to information and reporting obligations, the following points are usually taken into account in order to meet investors' information needs and to cover the basic principles of formalized communication:

Financial reporting: The company may be required to prepare regular financial reports that give shareholders insight into the financial situation and performance of the company. This could include, for example, annual financial statements, profit and loss statements, or cash flow reports.
Business development: The company may be required to communicate information about general business development, future plans and strategies, or significant changes in business activities or in the market environment.
Management decisions: Depending on the type of company and the provisions of the articles of association, the company may be required to notify the shareholders of certain decisions of the management or the board of directors or to obtain their approval.
Convening shareholders' meetings: The articles of association usually also stipulate the rules for convening shareholders' meetings, including the deadlines for the invitation and the information to be provided.

A thoroughly thought-out social contract can act as an arbitrator that minimizes potential disputes among shareholders. At the same time, it can serve as a showcase that brightens up the company for potential investors by providing a clear view of the structure and operation of the company.

However, just as a good captain is familiar with international maritime law, it is also important to know that in certain countries - Germany, for example - the social contract needs the blessing of a notary and must be enshrined in the commercial register in order to have legal support. It is therefore advisable to get a legal guide on board when drafting a articles of association.

What Are a Company's Rules of Procedure?

The rules of procedure of a company are an internal document that regulates the organizational processes and procedures within the company. It is used to structure work processes and create transparency. There are rules of procedure for various corporate bodies, such as the Executive Board, the Supervisory Board or the Executive Board.

The rules of procedure usually contain rules on the following points:

Tasks and responsibilities: It defines the tasks and responsibilities of the members of the respective body or departments of the company.
Workflows and decision-making processes: It defines the processes by which decisions are made, including how meetings are held and how voting is carried out.
Reporting and information flows: It determines how information is to be shared and communicated within the company, including the reporting obligations of members of the respective body or departments.
Cooperation rules: It may also contain rules for cooperation between members of the respective body or between different departments.

The rules of procedure serve to structure and optimize the internal organization of the company and can help prevent conflicts and increase efficiency. However, it is generally not legally binding in the same sense as the articles of association or the company's articles of association. However, it is important that it is complied with by all parties involved in order to ensure the smooth functioning of the company.

What is the Relationship Between the Rules of Procedure and the Statute?

Within every company, there is a balanced set of rules that work like a well-oiled transmission. The statutes and rules of procedure together form this set of rules, but in a clearly defined hierarchical structure.

The statutes, as the heart and foundation of a society, form the basic framework and set the pace for organization and administration. It was created as soon as it was founded and is the binding backbone for every single member of society. But changing this Basic Law is no easy task — it requires a certain consensus among shareholders and the official stamp of a notary.

The rules of procedure, on the other hand, are like the fine-tuned gear train, which provides more specific regulations for day-to-day business and possibly also for the Advisory Board or Supervisory Board. Although its existence is not mandatory, when created, it entails obligations on the management and supervisory board. Nevertheless, it always remains subordinate to the statutes.

This hierarchical structure means that the rules of procedure must always follow the footsteps of the statutes. It cannot be misused to circumvent or ignore the basic provisions of the statute. In the rare case of a conflict between the rules of procedure and the statute, the statute always has the last word.

However, it is essential that both the statutes and rules of procedure do not conflict with the higher-level laws, such as the GmbH Act in Germany. They are not intended to circumvent or disregard these higher-level legal norms, but they must exist in harmony with them.

How Can the Rules of Procedure Be Used to Ensure Better Communication With Investors?

The rules of procedure — a true communication anchor. In the dynamic world of managing a company and its investors, it has the potential to strengthen and structure the bridge of understanding. Let us therefore take a look at some of the mechanisms that can achieve this goal:

Regular reports: The rules of procedure could stipulate that management must send reports to investors at regular intervals. These reports could include information about the current state of business, financial performance, future plans, and other relevant topics.‍
Clear responsibilities: By defining clear responsibilities in the rules of procedure, it can be ensured that there is a specific point of contact for investors. This could be, for example, the CEO, the CFO or an investor relations manager.‍
Regular investor meetings: The rules of procedure could stipulate that regular investor meetings are held. These meetings provide a platform for direct communication between management and investors.‍
Higher transparency through disclosure: The rules of procedure could include rules that promote transparency in management decision-making. This could be achieved, for example, by publishing minutes of board meetings or through other disclosure practices.‍
Specific communication channels: The rules of procedure could also require the use of certain communication channels to ensure that important information is effectively communicated to investors.‍
Reporting standard: The rules of procedure could require the use of a specific reporting standard to standardize and simplify communication with investors. This could include, for example, compliance with certain journalistic principles such as clarity, accuracy, fairness and transparency in reporting.‍
Using specific templates for reporting: The rules of procedure could require the use of specific templates for communication with investors. These templates could define the format, structure, and content of the reports and help present the information in a clear and consistent way. This could include, for example, using a specific structure for annual reports, quarterly reports, or press releases.

While the rules of procedure lay down the basic rules of the game and provide general direction for the company, the shareholder agreement provides detailed instructions and clarity for specific situations. It expands the rules set out in the articles of association and can make more specific and individual regulations that meet the unique needs of the company and its shareholders. More about that in the next section.

What is a Shareholder Agreement?

A shareholder agreement (also known as shareholder agreement) is a contractual agreement between the shareholders of a limited liability company (GmbH). It is in addition to the articles of association and can clarify certain aspects of the company's operation that are not sufficiently regulated in the articles of association or that go beyond the minimum legal requirements.

The purpose of the shareholder agreement is to regulate the rights and obligations of the shareholders, to avoid conflicts and to ensure smooth management. It can help to avoid disputes between shareholders by setting rules for various situations.

The exact content of a shareholder agreement may vary depending on the specific needs and goals of the shareholders, but frequently included points include:

Management regulations: Here you can determine who will take over the management and what powers this person has.
Voting rights and resolution: Here you can determine how decisions are made, e.g. which majorities are required for certain decisions.
Capital contributions and profit distributions: It can be regulated here how much capital each shareholder must contribute and how profits are distributed.
Rules in case of departure of a shareholder: Here you can determine what happens when a shareholder leaves, e.g. whether and how his shares can be sold.
Succession planning: It can be defined here what happens if a partner dies or is no longer able to fulfill his role as a shareholder for other reasons.
Non-competition clauses: Here, it can be determined whether and to what extent the shareholders may act in competition with the company.
Confidentiality and protection of intellectual property: This can regulate how confidential information and the company's intellectual property are handled.

Advantages of the Shareholder Agreement Compared to the Articles of Association

Flexibility: A shareholder agreement can be more flexible than a shareholder agreement. It can be adjusted as needed to respond to changing circumstances without the need for a formal amendment to the statutes.
Confidentiality: In contrast to a shareholder agreement, which can be viewed publicly, a shareholder agreement is usually private and only accessible to the parties involved. This can be particularly important if the agreement contains sensitive information.
Other areas of regulation: A shareholder agreement can cover topics that are not sufficiently regulated in the shareholder agreement or that go beyond the minimum legal requirements. For example, it may contain regulations on issues of management, profit distribution, the departure of shareholders and succession planning.
Conflict resolution: A shareholder agreement may also include conflict resolution provisions, such as arbitration or mediation, which can help resolve disputes between shareholders without the need for legal proceedings.

It should be noted, however, that a shareholder agreement is not intended to replace the shareholder agreement, but to supplement it. Both documents play an important role in structuring and managing a company. It should also be noted that a shareholder agreement, like any contract, should be carefully drafted to ensure that it is legally enforceable and takes due account of the interests of all parties involved.

How Can An Explicit Company Be Used to Ensure Better Communication With Investors?

With a shareholder agreement as a navigation map, communication with investors is no longer a dizzying minefield, but becomes a clearly defined path. In today's fast-paced business world, transparency and regular communication are essential to gain and maintain investors' trust. With clear requirements in the shareholder agreement, the transfer of information to investors can be managed smoothly.

These are the key points that you should keep in mind:

Responsibilities: Who is taking on the role of ambassador to build a bridge to investors? It could be a shareholder, a managing director, or even an investor relations manager appointed specifically for this purpose.
Communication plan: How often and in what form should we communicate with investors? Quarterly briefings, annual reports, or regular emails may be on the communication schedule.
Exchange of information: What is the core information that we should provide to investors? Financial reports, strategy updates, news about products or services could be essential information.
Confidentiality: We must find a healthy balance between openness and maintaining the confidentiality of sensitive or proprietary information.
Crisis communication: A plan is needed for unexpected storms. It is important to have a crisis communication process to ensure that investors are informed quickly and correctly about important negative events or changes.

With these points enshrined in the shareholder agreement, a company can be sure that it has a solid basis for open and effective communication with its investors. This makes communication a strengthening bond between investors and companies, rather than a potential stumbling block.

What is an Advisory Board and Now and Why Can it Make Sense to Found an Advisory Board?

Nowadays, a GmbH can form an advisory board or supervisory board regardless of the number of its employees. This is required by law if the GmbH employs more than 500 people, and the Council must consist of at least 12 natural persons if more than 2000 workers are employed.

But when does it really make sense to form an Advisory Board, particularly for communication reasons? The answer is not as simple as it seems at first glance. There is no magic number or a specific milestone at which setting up an Advisory Board becomes mandatory. Rather, it depends on the specific needs and challenges of the company.

Additional expertise for management: An advisory board can be the missing piece of the puzzle that a company needs to exploit its full potential. With his expertise in areas where current management may not be as savvy, he can provide valuable insights and advice. Whether it's strategy, marketing, financing, legislation, or technology, an Advisory Board can provide the critical expertise a company needs to be successful.
Expanding the network: In addition, an Advisory Board can bring a valuable network of contacts and relationships in the industry. These relationships can be invaluable when developing business, forming partnerships, or seeking new investment opportunities.
Objective advice and sparring: Another important aspect is objective advice. Sometimes a company's management can get too close to business and lose track of things. Here, an Advisory Board can offer an objective, independent perspective that can help keep the company on course.
Better and easier communication: And finally, there is communication. An advisory board can serve as a bridge between shareholders and management. In companies with many shareholders or in situations where there is tension between shareholders and management, an advisory board can play a decisive role in improving communication and resolving conflicts.

Overall, setting up an Advisory Board can be a strategic decision that can take a company to the next level. However, it is not a panacea and should be carefully considered. But in a world that is constantly changing and becoming ever more complex, the right advisory board can make all the difference.

Conclusion

It is time to end the journey into the world of formalized communication with investors. Similar to the finale of a symphonic performance, we want to end with a summarizing crescendo.

Formalizing communication with investors through the use of articles of association, shareholder agreements and rules of procedure is the key to a well-orchestrated company. It creates clarity, understanding and a solid basis for cooperation between shareholders, management and the Advisory Board.

Why does formalizing communication make sense? Because it helps to avoid misunderstandings, set clear expectations and define a uniform direction for the company. It is a valuable tool for harmonizing the interplay between the various actors and forming a harmonious whole.

But as with any melody, balance is also important here. Too much formality can stiffen communication and stifle the creative and dynamic nature of a startup. Organizations must find a healthy middle ground where they take advantage of formalization without sacrificing the flexibility and agility that are essential to succeed in today's business world.

The trick is to find the right balance between structure and flexibility — like a conductor who leads the orchestra but at the same time gives every musician space to develop. With the right mix of formalized communication and open dialogue, your company can rise to new heights and play a symphony of success.