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EOR

What is an EORs (Economic Ownership Rights)?

 

An Economic Ownership Rights (EORs) is a type of financial instrument that gives the holder the right to receive equity in a company based on a set of predefined conditions. These conditions typically include specific performance milestones or a particular time frame. EORs are often used to align the interests of investors and the company, especially in joint ventures or partnerships.

EORs-1

What are the Benefits of EORs?

Incentive-driven

EORs encourage key stakeholders to work toward common goals, benefiting both the company and the investors.

Flexible 

EORs can be tailored to fit a wide range of business models, financing needs, and partnership structures.

Less immediate dilution 

Like convertible loans, EORs allow companies to delay issuing equity until certain conditions are met.

Why Set Up EORs?

Align interests

EORs help align the interests of investors, partners, and key stakeholders with the long-term goals of the company.

Retain control

The company retains control by using EORs instead of issuing equity directly, which would cause immediate dilution.

Incentivize performance

EORs can be tied to specific performance metrics, incentivizing stakeholders to meet certain objectives before equity is granted.

How to Set Up EORs?

Define the conditions

Establish clear performance milestones that must be met for the EOR to convert into equity.

Document the agreement

Formalize the EOR in a legal document that specifies all terms and conditions.

Specify the conversion terms

Outline how and when the EOR converts to equity, whether upon reaching specific financial goals, time frames, or other events.

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Examples of Companies Using EORs

Airbnb

When expanding globally, companies like Airbnb could use EORs to incentivize local partners or investors to meet key growth targets before awarding equity.

Unilever

Large corporations like Unilever may use EORs to align incentives with joint venture partners or key stakeholders in emerging markets.

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