Corporations want to make
their stock offerings as attractive as possible to investors. To accomplish
this, they will often grants a variety of privileges in addition to the rights
granted a stockholder under the law. These rights and privileges usually
include:
-Distribution rights and/or preference –typically
preferred stockholders have mandatory priority to any distributions by the
company for a predetermined amount.
-Voting
Rights – general rule of thumb is that if a corporation has only one class of
stock, which is undivided into series, the single class must have full voting
rights (i.e. one-vote-per share). However, if there are several classes or
series of stocks, one or more of those classes or series may have limited or
expanded voting rights.
-Liquidation preference – preferred stockholders are frequently given a
preference upon dissolution or liquidation of the corporation. They in essence
hold a comparable position to that of a secured creditor. If any monies were
available after a business was dissolved, they would be given priority for
receiving payment over any other shareholder.
-Preemptive rights – the right of the shareholder to maintain a proportionate
ownership interest in the corporation. Therefore, if the corporation issues
additional shares of stock, the existing shareholder has the right to buy their
proportionate shares of the new stock. (Note: some states automatically
grant, while others specifically deny, this right under statute, unless it is
specifically addressed in the articles of incorporation).
-Anti-dilution rights –protects the stockholder against certain types of stock
events that may potentially harm the value of a stock, i.e. stock splits,
dividends, future cheap issuances, etc.
-Conversion rights – grants the shareholder the right to convert common stocks
to another form of stock based on a specific formula.
Remember: any special rights or privileges that you choose to give your
stockholders also need to be spelled out in the articles of incorporation.
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