Protective provisions give preferred shareholders veto power over specific decisions.
Protective provisions are the list of corporate actions that require preferred shareholder consent, regardless of board or common shareholder approval. They exist to protect investor economic interests. The list is negotiable — some provisions are non-negotiable market standard, others are aggressive and worth pushing back on.
Amend charter or bylaws in ways that adversely affect preferred. Issue new preferred senior to or on parity with existing preferred. Change authorized number of directors. Sell the company or all/substantially all assets. Redeem or repurchase shares. Take on debt above a threshold ($5-10M typical at Series A).
Vetoing operating decisions (budget approval, executive hires, product decisions). Requiring investor consent for hiring/firing above a low threshold. Requiring consent for any new customer contract above a certain size. Any provision that lets a single small investor block routine operations.
Class voting: all preferred vote together on protective provisions. Series voting: each round's preferred votes separately (Series A preferred, Series B preferred, etc.). Class voting is founder-friendly; series voting gives each round veto rights separately and compounds control over time.
Each new round typically adopts the prior round's protective provisions plus additions. By Series C, the list can span 15-20 items. Track the cumulative effect: it's easy to inadvertently give small investors veto power over important decisions by signing the standard document at each round.
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