Carveouts to Antidilution Protection - Explained
What are Carveouts to Antidultion Protection?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What are Carveouts to Anti-Dilution?
Triggering anti-dilution protection can be detrimental to common shareholders, who are subject to dilution. As such, the common shareholder may attempt to negotiate barriers to triggering an anti-dilution provision (i.e., a change in the anti-dilution conversion ratio).
Back to: Business Transactions
What are the Common CarveOuts?
Below are common carveouts to corporate actions that that will not trigger anti-dilution provisions:
- Converted Shares - Preferred shareholders converting their shares to common shares,
- Exercise of Options - Issuance of common shares pursuant to exercise of options, warrants, or other convertible securities,
- Stock Dividends - Issuance of common shares as a dividend to preferred shareholders,
- Division of Shares - Increased number of shares pursuant to a stock split,
- Employee Compensation - Common s `hares (or share equivalents) issued to individuals (such as employees or contractors) pursuant to a compensation or vesting schedule,
- Re-stated Certificate - Issuances make pursuant to an authorized amendment to articles of incorporation, such as a stock split or authorization of another class of shares,
- IPO - Shares issued pursuant to an IPO,
- Merger or Acquisition - Any shares issued pursuant to M&A or board-approved joint venture,
- Commercial Transactions - Shares issued as part of a board approved debt financing, commercial transaction, real property transactions,
- Settlements - Shares issued pursuant to any board-approved settlement,
- Board Approved Relations - Shares issued pursuant to board-approved strategic or operational aspects, such as R&D, technology license, or partnerships,
- Shares to Suppliers - Shares issued to suppliers as part of a board approved transaction,
- Majority Vote - Shares issued pursuant to approval of a majority of preferred shareholders.
The amount or number of common shares issued that will not trigger anti-dilution is typically limited to a specific number, board approval (majority or unanimous), or approval of a majority of preferred shareholders. Also, an amendment to the articles of incorporation pursuant to the bylaws can be used to avoid a trigger.
Back to: LAW, RISK, and TRANSACTIONS
Back to: Entrepreneurship