What is a Side Letter?

Side letters are agreements between Investees and Investors providing certain rights, privileges, and obligations outside the standard investment document’s terms. A side letter acts as an auxiliary document that is attached to an existing contract in order to support, clarify or amend specific clauses therein.

Side letters are commonly used in venture capital deals to grant certain investors specific rights or privileges that are outside the parameters of the standard investment document terms. Side letters are written and signed by both parties to the main contract.

Common Side Letter provisions

Side letters are frequently used to confirm additional information that is vague once the main documents are completed or to clarify certain issues. They may also serve as legal proof of an agreement between two parties to a multi-party transaction, whether or not that agreement was made known to the other parties. Privileging an investor over another should be carefully considered. Some investors' added value to your company is worth more than others and thus might receive priority in side letter requests.

Typical Side letter requests include, but are not limited to:

•Board Seat or observation rights

•Transferability rights

•Pro rata rights

•Preferential rights

•Management consultation rights

Are Side letters legally binding and enforceable?

Side letters have the same legal requirements as contracts in order to be enforceable, including an offer, acceptance, consideration, clarity, and the desire to establish a legal relationship. Oral side letters are also possible, but they are more challenging to prove and uphold in court.

The information contained herein is neither exhaustive nor does it constitute legal counsel. You can write to us if you require legal advice about your business via contact@legalpreneurconsulting.com or contact +234 8154141095