editione1.1.4
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Definition A management rights letter is a statement from a company that outlines the extent of an investor’s power to review and influence how the company operates. Term sheets may specify that the company provide this letter when the financing deal is closing and/or at the investor’s request.
Pension funds are subject to heightened rules for fund management under the Employee Retirement Income Security Act (ERISA), which protects individuals’ retirement and health savings, and they may act as limited partners in venture capital funds. When this happens, venture capital funds run the risk of also being subjected to the ERISA rules. To avoid this, they often seek management rights letters to support a claim that they should be exempt from ERISA.*
Definition An assignment provision in a term sheet specifies that the investor may transfer some or all of their shares to a partner or closely related entity. This provision allows investors to move shares between funds and make distributions to their limited partners.*
danger Many standard assignment provisions require the recipient of the transferred shares to agree to the same terms as the investor. Founders should be wary of an assignment clause if it does not include this requirement or, even worse, if it uses language that explicitly allows assignment without the recipient taking on the investor’s obligations under the original investment agreement(s).
You may also see the word assign, or assignment, elsewhere in the term sheet. In these cases, it refers to any situation in which one individual or entity transfers a right to another.*