As a general rule, the preferred share is in accordance with the stock of common shares, unless a particular class or series vote is required by the “guarantees” contained in the incorporation of a company or by the applicable legislation. In addition, most of the constituent certificates contain a non-application clause. These clauses are generally provisions that generally prohibit a company from avoiding or altering the rights of preferred shares. The Supervisory Tribunal found that no impairment clause, such as other preferred stock provisions, was subject to a very strict interpretation. A generic “non-impairment” clause does not offer the preferred action any special protection beyond what is expressly provided for in the certificate of incorporation. it`s important that you`ll probably spend a lot of time here with your lawyer. Although considered a single mandate, the “Safeguarding Provisions” section of your agenda generally describes up to 12 decisions that investors can veto. These provisions are not common for risk financing on the West Coast, but are more common for venture capital transactions on the East Coast and venture capital transactions for Cayman companies. In practice, almost all of these provisions will require the approval of the Board of Directors for good corporate governance. The question is whether, despite the majority agreement of the Board of Directors, the Director of Series A should be able to veto these measures. This type of control may be useful in a joint venture, but it may not be reasonable if the Series A director represents only a small fraction of the outstanding shares. But we have already weakened the guarantees.
And I`ve seen other entrepreneurs do it. I even have one (East Coast!) -Investors argue that guarantees are not really necessary as long as the board is neutral, z.B. 1 favorite, 1 common and 1 independent that can be removed from both parties. Over the past few weeks, I`ve been studying some of the most confusing terminology in VC term sheets. In my last speech, I talked about who would control the board after Serie A funding.