A trustee is a person or entity that holds property in trust for the benefit of another person or entity. In the context of equity-based fundraising, a trustee is typically appointed by the company to hold the shares issued to investors. The trustee is responsible for safekeeping the shares and ensuring that they are properly transferred to the investors.
The trustee may also be responsible for:
- Distributing dividends to investors
- Enforcing the terms of the investment agreement
- Liquidating the company’s assets in the event of a bankruptcy
The trustee is a fiduciary, which means that they have a legal duty to act in the best interests of the investors. They must be impartial and avoid conflicts of interest.
The trustee is typically appointed by the company’s board of directors. However, the investors may also have a say in the appointment of the trustee. The trustee’s fees are typically paid by the company.
The use of a trustee is not always required in equity-based fundraising. However, it is often seen as a good practice, as it can help to protect the interests of the investors.
Here are some of the benefits of using a trustee in equity-based fundraising:
- It provides a layer of protection for investors. The trustee is a fiduciary, which means that they have a legal duty to act in the best interests of the investors.
- It can help to reduce conflicts of interest. The trustee is not an employee of the company, so they are not beholden to the company’s management.
- It can help to streamline the investment process. The trustee can handle the administrative tasks associated with issuing and transferring shares, which can free up the company’s management to focus on other things.
Here are some of the drawbacks of using a trustee in equity-based fundraising:
- It can be expensive. The trustee’s fees can be a significant expense for the company.
- It can add a layer of bureaucracy. The trustee may need to approve certain transactions, which can slow down the investment process.
- It can create a conflict of interest. The trustee may be tempted to favor one investor over another.
Ultimately, the decision of whether or not to use a trustee in equity-based fundraising is a decision that should be made on a case-by-case basis. The company should consider the specific circumstances of the fundraising and the needs of the investors before making a decision.
What is the normal Trustee fee?
The norm for trustee fees in equity-based fundraising can vary depending on the specific circumstances of the fundraising and the needs of the investors. However, a common fee structure is a flat fee plus a percentage of the amount raised. The flat fee may be in the range of $1,000 to $5,000, and the percentage fee may be in the range of 0.5% to 1%.
Here are some factors that can affect the trustee fee:
- The size of the fundraising
- The complexity of the transaction
- The level of risk involved
- The expertise of the trustee
If you are considering using a trustee in equity-based fundraising, you should get quotes from several different trustees to get an idea of the range of fees that are typically charged. You should also make sure that the trustee you choose is qualified and experienced in handling equity-based fundraising transactions.
Here are some of the questions you should ask when getting quotes from trustees:
- What is your flat fee?
- What is your percentage fee?
- What are the additional fees that you charge?
- What is your experience in handling equity-based fundraising transactions?
- Are you a fiduciary?
- Are you licensed to do business in the country/state?
This process can be handled by the company that is looking for raising fund. You should also get everything in writing, including the trustee’s fees and their obligations to you. This will help to avoid any misunderstandings down the road.
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