Preferred Stock Provisions
Joseph W. Bartlett, Special Counsel, McCarter & English LLP, Co-Founder of VCExperts
McCarter & English LLP
2002-08-02
The typical statute requires that the rights and privileges of each class of stock be set out in the charter, meaning and including the preferred stock agreement, unless authority is delegated to the board of directors to fix the terms of the preferred stock on such basis as the board shall deem appropriate at the time of issuance, thereby creating so-called blank-check preferred. Practitioners have generally elected to leave the details of the preferred stock to the directors, the exact drafting to take place when the occasion arises to issue the stock. Blank-check preferred has acquired a pejorative gloss recently since it has become significant in the public corporation arena as an antitakeover (or "shark repellent") provision. Nonetheless, it remains convenient for most start-ups to pursue the less cumbersome course: let the directors fix the terms. If the investors want a say in fixing the terms of the preferred stock to be issued in the future, the thought is that they should so provide by agreement.