Legal & Compliance
Protective Provisions
Contractual veto rights held by preferred stockholders over major company decisions like raising capital, selling the company, or amending the charter.
Protective provisions give preferred stockholders (VCs) the right to block certain major corporate actions without their approval. Typical protective provisions include: issuing new equity, selling or merging the company, amending the certificate of incorporation, changing preferred stock rights, paying dividends, taking on significant debt, and liquidating the company. These provisions protect VCs from having their rights unilaterally changed by majority common stockholders or the board. A majority (or sometimes supermajority) of preferred holders must consent — this prevents individual small investors from holding the company hostage. Founders should ensure protective provisions require a broad threshold of preferred approval, not the consent of any single investor.