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Preferred Stock Agreement

Preferred Stock Agreement Template for Canada

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Key Requirements PROMPT example:

Preferred Stock Agreement

"I need a Preferred Stock Agreement for a Series B investment round closing March 15, 2025, with 8% cumulative dividends, 1x liquidation preference, and full participating rights, including strong anti-dilution protection for a Canadian technology company."

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Document background
The Preferred Stock Agreement is a crucial document used when a Canadian corporation seeks to raise capital by issuing preferred shares to investors. This agreement, governed by Canadian federal and provincial legislation, particularly the Canada Business Corporations Act (CBCA), outlines the specific rights and preferences attached to the preferred shares, including dividend payments, liquidation preferences, voting rights, and conversion options. It's commonly used in growth-stage companies, restructuring situations, or when companies need to attract investors with specific rights and preferences over common shareholders. The document must comply with both federal corporate law and provincial securities regulations, making it essential for structuring investment deals in the Canadian market while protecting both corporate and investor interests.
Suggested Sections

1. Parties: Identifies the corporation issuing the preferred stock and the investor(s) purchasing the shares

2. Background: Provides context for the agreement, including the corporation's desire to issue preferred stock and the investor's interest in purchasing

3. Definitions: Defines key terms used throughout the agreement

4. Authorization and Issuance: Details of the authorized preferred shares, including number of shares, series, and par value

5. Purchase Price and Closing: Specifies the price per share and closing mechanics for the transaction

6. Dividend Rights: Details of dividend preferences, rates, and payment terms

7. Liquidation Preference: Describes the preferential rights in case of liquidation or sale of the company

8. Voting Rights: Specifies voting rights attached to the preferred shares

9. Conversion Rights: Terms and conditions for converting preferred shares to common shares

10. Anti-dilution Protection: Provisions protecting preferred shareholders from dilution

11. Information Rights: Rights of preferred shareholders to receive financial and other company information

12. Transfer Restrictions: Limitations on the transfer of preferred shares

13. Representations and Warranties: Standard representations and warranties from both the company and investors

14. Covenants: Ongoing obligations of the company to preferred shareholders

15. Termination: Circumstances under which the agreement can be terminated

16. General Provisions: Standard boilerplate provisions including notices, amendments, governing law, etc.

Optional Sections

1. Preemptive Rights: Rights of first refusal on new share issuances, included when investors want protection against dilution

2. Registration Rights: Rights to register shares for public trading, included when IPO is contemplated

3. Board Representation: Rights to appoint directors, included when investors want direct board involvement

4. Protective Provisions: Specific veto rights on certain corporate actions, included for stronger investor protection

5. Drag-Along Rights: Rights to force other shareholders to join in sale, included for exit flexibility

6. Tag-Along Rights: Rights to join in sale of shares by other shareholders, included for minority protection

7. Redemption Rights: Rights to require company to repurchase shares, included for investor exit options

8. Participation Rights: Rights to participate in distributions beyond preferred dividend, included for upside participation

9. Most Favored Nation Provision: Protection against better terms given to other investors, included in early-stage investments

Suggested Schedules

1. Schedule A - Share Certificate: Form of preferred share certificate

2. Schedule B - Capitalization Table: Current and post-investment capitalization of the company

3. Schedule C - Articles of Amendment: Amendments to articles of incorporation creating the preferred shares

4. Schedule D - Disclosure Schedule: Exceptions to representations and warranties

5. Schedule E - Shareholders' Rights Agreement: Detailed terms of shareholder rights and obligations

6. Schedule F - Form of Legal Opinion: Form of legal opinion to be delivered at closing

7. Schedule G - Conversion Calculations: Detailed methodology for share conversion calculations

8. Schedule H - Required Consents: List of required third-party and governmental consents

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

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Affiliate
Articles of Amendment
Board of Directors
Business Day
CBCA
Change of Control
Class A Preferred Shares
Closing
Closing Date
Common Shares
Company
Conversion Price
Conversion Rights
Conversion Shares
Deemed Liquidation Event
Dividend
Dividend Payment Date
Dividend Rate
Dividend Period
Exit Event
Fair Market Value
Fully-Diluted Basis
Holder
Initial Issue Price
Investment Amount
IPO
Junior Securities
Liquidation
Liquidation Preference
Material Adverse Effect
Original Issue Date
Parity Securities
Participating Rights
Person
Preferred Directors
Pro Rata Share
Qualified IPO
Redemption Date
Redemption Notice
Redemption Price
Registration Rights
Securities Act
Senior Securities
Series
Shareholders Agreement
Subsidiary
Transfer
Triggering Event
Voting Rights
Clauses
Share Issuance
Purchase Price
Dividend Rights
Liquidation Preference
Voting Rights
Conversion Rights
Anti-dilution Protection
Preemptive Rights
Information Rights
Registration Rights
Board Representation
Transfer Restrictions
Tag-Along Rights
Drag-Along Rights
Redemption Rights
Representations and Warranties
Covenants
Protective Provisions
Confidentiality
Assignment
Amendments
Notices
Governing Law
Dispute Resolution
Termination
Force Majeure
Severability
Entire Agreement
Counterparts
Further Assurances
Relevant Industries

Financial Services

Technology

Healthcare

Manufacturing

Real Estate

Energy

Mining

Telecommunications

Biotechnology

Consumer Goods

Infrastructure

Clean Technology

Agriculture

Transportation

Media and Entertainment

Relevant Teams

Legal

Finance

Corporate Development

Treasury

Investor Relations

Compliance

Board of Directors

Executive Leadership

Corporate Governance

Risk Management

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Corporate Lawyer

Investment Banker

Corporate Secretary

Board Director

Chief Legal Officer

Investment Manager

Private Equity Manager

Venture Capitalist

Financial Controller

Compliance Officer

Corporate Development Manager

Treasury Manager

Investor Relations Manager

Industries
Canada Business Corporations Act (CBCA): Federal legislation governing the incorporation and operation of corporations, including provisions for share classes, shareholder rights, and corporate governance
Provincial Securities Acts: Provincial legislation regulating the issuance and trading of securities, including preferred shares, within each province
Income Tax Act: Federal legislation governing tax treatment of preferred shares, including dividend payments and tax implications for both issuing corporations and shareholders
Investment Canada Act: Federal legislation governing foreign investment in Canadian corporations, which may be relevant if preferred shares are issued to non-Canadian investors
Provincial Business Corporations Acts: Provincial legislation governing corporations incorporated under provincial law, including provisions for share structures and shareholder rights
Competition Act: Federal legislation that may be relevant if the preferred stock issuance involves significant ownership changes or control issues
National Instrument 45-106 Prospectus Exemptions: National securities regulation governing prospectus exemptions for private placements of securities, including preferred shares
National Instrument 51-102 Continuous Disclosure Obligations: Regulations regarding ongoing disclosure requirements for public companies issuing preferred shares
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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