Preferred Stock Agreement for the United States

Preferred Stock Agreement Template for United States

A Preferred Stock Agreement is a legal document that establishes the rights, privileges, and restrictions associated with preferred stock issuance in a U.S. corporation. It details dividend preferences, liquidation rights, voting rights, and conversion terms. The agreement must comply with federal securities laws, state corporate laws (particularly Delaware law for Delaware corporations), and applicable SEC regulations.

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What is a Preferred Stock Agreement?

The Preferred Stock Agreement is essential when companies seek to raise capital while offering investors preferential rights over common stockholders. This document, commonly used in the United States, outlines critical terms including dividend rights, liquidation preferences, and conversion privileges. The agreement must adhere to both federal securities regulations and state corporate laws, particularly in Delaware where many corporations are registered. It serves as the foundational document for preferred stock investments, protecting both the issuing company's and investors' interests through clearly defined terms and conditions.

What sections should be included in a Preferred Stock Agreement?

1. Parties: Identification of the corporation and preferred stockholders

2. Background/Recitals: Context of the preferred stock issuance and key terms

3. Definitions: Key terms used throughout the agreement

4. Authorization and Issuance: Details of stock authorization and issuance terms

5. Dividend Rights: Terms of dividend payments and preferences

6. Liquidation Preferences: Rights in case of liquidation or sale

7. Voting Rights: Voting privileges and restrictions

8. Conversion Rights: Terms for converting preferred to common stock

What sections are optional to include in a Preferred Stock Agreement?

1. Anti-dilution Provisions: Protection against dilution of ownership - include when investors require protection against future down rounds

2. Registration Rights: Rights to register shares for public trading - include when investors anticipate future public offering

3. Right of First Refusal: Priority rights to purchase new securities - include when investors want protection against ownership dilution

4. Tag-Along Rights: Rights to join in sale of shares - include when minority shareholders need protection

What schedules should be included in a Preferred Stock Agreement?

1. Schedule A - Stockholder Information: List of preferred stockholders and their holdings

2. Schedule B - Capitalization Table: Complete ownership structure post-investment

3. Schedule C - Corporate Resolutions: Board and shareholder resolutions authorizing issuance

4. Appendix A - Form of Stock Certificate: Template for preferred stock certificates

5. Appendix B - Conversion Calculations: Detailed methodology for stock conversion calculations

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

United States

Publisher

Genie AI

Document Type

Purchase Agreement

Cost

Free to use
Relevant legal definitions
Industries

Securities Act of 1933: Federal law governing registration and disclosure requirements for securities offerings, including preferred stock issuances

Securities Exchange Act of 1934: Federal law establishing ongoing reporting requirements for publicly traded companies and regulating securities trading

Sarbanes-Oxley Act 2002: Federal legislation establishing enhanced corporate governance standards and financial disclosure requirements

Dodd-Frank Act: Comprehensive financial reform legislation affecting corporate governance and investor protection

State Corporate Laws: State-specific laws governing corporate formation and operation (e.g., Delaware General Corporation Law)

Blue Sky Laws: State-specific securities laws regulating the offering and sale of securities within each state

SEC Regulations: Rules and requirements established by the Securities and Exchange Commission for securities offerings and trading

Internal Revenue Code: Federal tax laws affecting the treatment of preferred stock, dividends, and related transactions

Dividend Rights: Legal provisions governing the payment and priority of dividends to preferred stockholders

Liquidation Preferences: Rights determining the order and amount of payment to preferred stockholders in case of company liquidation

Conversion Rights: Terms governing the ability to convert preferred stock into common stock

Anti-dilution Provisions: Protections for preferred stockholders against dilution from future stock issuances

Registration Rights: Rights allowing preferred stockholders to require the company to register their shares for public trading

Protective Provisions: Special voting rights protecting preferred stockholders from adverse corporate actions

Transfer Restrictions: Limitations on the ability to transfer preferred stock to third parties

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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