pjbooks Chapter 265 Adjustment of YueDong's Equity Structure
Chapter 265 Adjustment of YueDong's Equity Structure
Chapter 265 Adjustment of YueDong's Equity Structure
Late autumn in Yinshan City always carries a touch of perfect languor, with the red maple leaves covering the mountains like a palette overturned by God, layer upon layer spreading to the edge of the city.
On the lawn, a heartwarming scene is unfolding.
Two beautiful women, one tall and one short, chased and played on the lawn, teasing two bulldogs with dog treats. Their silvery laughter drifted on the breeze, adding a touch of sweetness to the air.
Wenger leaned back in a wicker chair on the second-floor terrace, a steaming cup of Blue Mountain coffee in his hand. He turned his gaze from the lawn to the man leisurely sitting beside him, and said with a hint of teasing, "You're really living a comfortable life."
Ernst chuckled upon hearing this, raised an eyebrow, and deliberately dragged out his words, "Why do I detect a hint of envy in your tone? How about I talk to Casey about it? Let her find you a little one too, so you can sit back and enjoy your coffee while watching the fun on your own lawn, instead of envying my good life every day."
Wenger paused, holding his coffee cup, then chuckled, leaning forward slightly with a composed air about him. "Alright, go and talk to her. I'd like to see if Casey will nod first, or just grab a cleaver from the kitchen."
Ernst, who had been smiling, suddenly fell silent. His expression froze for a few seconds, then he coughed twice and decisively changed the subject, "Ahem, let's get down to business. Did you come here specifically today because the equity structure plan for YueDong Games has been finalized?"
His cowardly demeanor made Wenger burst out laughing, but he didn't continue teasing him.
The restructuring of YueDong Games' equity structure is the most important event in November, and it cannot be taken lightly.
The investment institutions did have requirements when we raised funds and cashed out last time.
First, there's the listing timeline for YueDong Games; the IPO must be launched within three months.
Second, the equity structure cannot be an A/B share structure; it must be a limited partnership structure.
Wenger's smile faded, and he took a neatly bound document from his briefcase and pushed it in front of Ernst. "Actually, it would have been much simpler for them to insist on a limited partnership structure."
"The general plan is for you and all the current shareholders of YueDong Games to jointly establish a limited partnership."
You will act as the GP, or general partner, in this company. All other shareholders will act as LPs, or limited partners. We will then hold all the shares of YueDong Games through this limited partnership.
Whether it's an AB share structure or a limited partnership structure, the degree of control the founder has over the company is actually about the same, and both can achieve absolute control.
However, the limited partnership structure is more advantageous for the founder's say. In the limited partnership structure, because he is the sole GP, he has 100% say in the limited partnership.
In other words, all major decisions regarding YueDong Games, such as adjustments to strategic direction and the appointment and removal of senior executives, will essentially be decided by him alone.
Although those LPs hold shares, they can only enjoy profit sharing and do not need to worry about any shareholder interference in the operation.
His fingers traced the surface of the document, his tone cautious. "What about the risks? How are they planned?"
Limited partnership structures are good, but the greater the returns, the higher the risks are.
GPs enjoy unlimited rights, but also bear unlimited joint and several liability for the enterprise.
To put it bluntly, if this limited partnership becomes heavily indebted and unable to repay its debts, there is no such thing as personal asset protection. As the general partner (GP), you will have to use your personal assets to repay the debt.
This is also the biggest difference between the limited partnership structure and the dual-class share structure.
In an AB share structure, regardless of how many voting rights each shareholder holds, everyone has voting rights. If the company encounters problems, all shareholders must bear corresponding responsibilities according to their shareholding ratio.
But the limited partnership structure is different. Those institutional shareholders are like retail investors in the stock market. They are purely investors. If the company does well, they receive dividends. If the company does poorly, they only lose some of their principal and do not bear any additional responsibility.
"That's easy to solve." He picked up his coffee and took another sip, seemingly deliberately whetting Ernst's appetite.
"We can register your GP as another limited liability company. The registered capital doesn't need to be much, one million US dollars will be enough. In this way, the unlimited joint and several liability that you originally had to bear personally will be transferred to this limited liability company."
Ernst's eyes lit up instantly, and he leaned forward slightly. "You mean—even if Leap Games runs into big problems in the future, like being in debt for 10 billion US dollars and GP has to bear unlimited joint liability, it will only be this company with a registered capital of one million US dollars that will bear the burden? At most, it will just be that one million US dollars that will be paid out, and my personal assets will not be affected?"
"That's right." Wenger nodded, his smile widening. "And that's not the most crucial point. There's another benefit: it will solve our biggest headache."
"Oh?" Ernst looked at him curiously, his eyes full of anticipation. "What benefits?"
Wenger raised an eyebrow. "Why are those investment firms so insistent on the limited partnership structure? Is it really to make you bear unlimited joint and several liability?"
"That means the liquidity of stocks has been largely resolved."
Ernst immediately became interested. The reason why investment institutions require the establishment of a limited partnership structure is not for unlimited joint liability, because they know that this will not hold them back, and there are too many ways to circumvent it.
The main reason these institutional shareholders are doing so is because the limited partnership structure imposes strict restrictions on the GP's equity. To put it bluntly, they are afraid that Ernst will use YueDong Games to set up a trap, run away with the money, and ruin all the investors.
In an AB share structure, Class A shares can generally be freely traded on the securities market. Although the liquidity of Class B shares may be restricted, such as not being able to be transferred within a certain period, or automatically converting to Class A shares after transfer, Class B shares have higher voting rights. As a founder, you only need to hold a few percent of the shares to firmly control the company.
However, the limited partnership structure is different; the liquidity of equity is usually severely restricted by the partnership agreement.
For example, if you want to transfer your shares, you must get the consent of all the other partners and go through a bunch of cumbersome procedures.
Simply put, they want to lock up Ernst's shares so he can't move them freely, preventing him from suddenly selling the stock and running away one day.
As the largest shareholder, Ernst's refusal to reduce his stock holdings will naturally create liquidity issues for YueDong Games' shares.
He looked at Wenger and asked, "The benefit you're referring to is solving the issue of stock liquidity?"
"Yes." Wenger nodded, a hint of pride in his voice. "Because now GP is a limited liability company, instead of you directly holding the shares. This means that, to some extent, you can transfer shares without being subject to those previously stringent conditions."
He paused, then held up a finger to indicate 25. "Theoretically, if we operate properly and through various compliant procedures, you can sell up to 25% of the shares again to realize cash. And this process doesn't require the consent of those LPs; you can decide for yourself."
"25%?" Ernst repeated in a low voice, then laughed.
enough.
Even without that 25%, it doesn't matter. Leap Games is not some money-grabbing scheme. His goal is to build the company into the world's number one game company.
As long as the company continues to thrive, the shareholders would love for him to dilute his stock even more.
The more a stock is diluted, the higher its liquidity, the more shares can be traded on the market, and the more manipulable the stock price becomes, making it more valuable.
At that point, he won't even need to say anything; Wall Street will proactively advise him to sell more stocks.
Ernst leaned back in his wicker chair and let out a long sigh of relief. Wenger's equity structure design was indeed very well thought out.
It not only solved the hard requirements put forward by the investment institutions, but also avoided potential risks for him, and even left him a way to cash out. It was as if he had put a golden bell on him in advance.
If nothing bad happens in the future, all will be well; even if something does happen, he's not afraid.
"Then it's settled." Ernst looked at Wenger, his tone carrying a hint of satisfaction.
Wenger nodded and then asked, "What about the IPO timeline? Investors are demanding a launch within three months. What are your plans?"
Ernst glanced at the two figures still playing with their dog on the lawn in the distance. "Since we're going public, the sooner the better. Now that the equity structure plan is out, let's hurry up and prepare the materials, clarify all the preparations and the company's articles of association, and submit the IPO application directly."
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