The National Venture Capital Association’s model legal documents are industry-standard venture capital financing documents that act as a baseline for emerging and venture capital companies, consisting of the certificate of incorporation (charter), stock purchase agreement, investors’ rights agreement, right of first refusal and co-sale agreement, and voting agreement as well as other ancillary documents. The model documents are widely used in the marketplace—for both very early and late-stage companies—and there can be tremendous movement within the documents depending on the stage of the company and the investor.
Despite deal-specific variance and negotiation, the model legal documents provide a common-ground starting point to help emerging company and venture capital transactions move more efficiently.
The updates to the model documents have been more frequent as of late. The bulk of the updates came in 2023, with additional amendments in January, April, and July of 2024 to address developments in Delaware case law, particularly regarding the Moelis decision. We expect further updates to the model documents may continue to be forthcoming as practitioners and dealmakers react to amendments to the Delaware General Corporation Law that have since been passed into law in response to Moelis as well as in response to other ongoing Delaware case law.
In West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., the Delaware Court of Chancery held that a number of provisions in a stockholder agreement between a company and its founder were facially invalid because they unlawfully constrained the board’s discretion in violation of DGCL § 141(a). These provisions required the board to obtain the founder’s consent before taking various actions, limited the board’s discretion over board size and composition, and required the board to ensure significant founder representation on all committees.
The court held that under DGCL § 141(a) such constraints on the board’s ability to exercise its judgment may only be implemented through amending a company’s certificate of incorporation. The case is likely to embolden challenges to provisions in stockholder and activist settlement agreements that grant a particular investor, or its director designee, special governance rights.
That said, Delaware’s Legislature passed amendments to the DGCL in June 2024, partially in response to Moelis, and these amendments were signed into law by Governor John Carney on July 17, 2024, to become effective on August 1, 2024 (and will apply retroactively).
Among other things, these amendments, which are incorporated into a new subsection 18 to DGCL § 122, are intended to effectively overturn the ruling in Moelis to authorize the entry into stockholders’ agreements which do not violate a company’s certificate of incorporation or the DGCL if the provisions of such stockholders’ agreements were otherwise included in the company’s certificate of incorporation. In order to comply with existing case law, the amendments require that companies must obtain some form of consideration for entering into such stockholders’ agreements, such as placing restrictions on stockholder actions or transfers.
Certificate of Incorporation
Stock Purchase Agreement
Investors’ Rights Agreement
Voting Agreement
The updates to the model legal documents reflect evolving norms in the venture capital industry and updates to state and federal laws applicable to venture-backed companies in the United States. There will be adjustments in the marketplace as parties digest, react to, adopt, and tweak the new model language. Preferences will emerge on adoption of specific points. The model legal documents are intended to serve as a starting point and should be tailored by a legal professional to align to the specific transaction and deal points. Continue to monitor for further updates to ensure you are using the most recent model forms.
For more on the 2023 & 2024 model legal documents updates >>