1.3.6. Protective Provisions
Protective provisions are a relatively standard feature of preferred stocks, often written into a company’s certificate of incorporation. Protective provisions permit preferred shareholders to veto certain actions by the company, such as the sale or merger of the company and the raising of capital. They are designed to protect the preferred stockholders, which are almost always the minority shareholders, from the dilution of their investment by the common shareholding majority. These veto rights extend to:
• Any sale or dissolution of the company
• The issue of new shares of stock
• The issue of new debt beyond some stated amount
• A change to the certificate of incorporation or bylaws
• Changes to any rights of other shar