Facebook movie and ethical dilution of partners
Issuing shares solely for the purpose of diluting one partner would generally be a violation of ethical and legal standards, as I understand it. How would one protect himself from this without owning a majority? How often does this happen?
I've heard of VCs "cleaning the cap table." This sometimes seems justified, but who decides and how can it be done legally and ethically?
If the cap table is just temporary, and can be changed by the board through dilution, what meaning does it have? However, if it can not be changed and there is a deadbeat partner, some sort of action like this may be necessary. In facebook's case, as show in the film, I'm guessing they did this damn-the-consequences figuring they would pay Eduardo off some day, rightfully presuming it would be cheaper than leaving him with a huge stake.
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[ 4.5 ms ] story [ 9.4 ms ] threadSo, it is important, if you are a minority shareholder to have an anti-dilution clause in your agreements.