Veto right

A veto right (droit de veto) is a contractual right in a shareholders' agreement giving its holder the power to block specified decisions — typically significant strategic, financial or governance actions — regardless of their ownership percentage. Veto rights are a core minority investor protection mechanism, compensating for the absence of majority control. They are typically exercised on decisions such as: acquisitions above a threshold, new debt issuance, equity capital increases, CEO appointment or dismissal, and dividend policy changes. Poorly calibrated veto rights can create operational deadlock — a key structuring risk to manage carefully.

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Example: in a Series A investment, the fund receives veto rights over: any acquisition or disposal above CHF 2.0 million, any equity capital increase, any change to the CEO, any debt issuance above CHF 500,000 and any dividend distribution. These rights — exercisable regardless of the fund's 25% ownership — effectively give it co-control over strategic decisions, partially offsetting its minority position and justifying a lower illiquidity discount in the investment valuation.

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Hectelion advises on veto right scope and calibration in shareholders' agreements to balance investor protection with operational flexibility for management.